<PAGE>
As filed with the Securities and Exchange Commission on August 13, 1999
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 4922 23-3011076
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
311 Rouser Road
Moon Township, Pennsylvania 15108
(412) 262-2830
(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
(Address, including zip code, and telephone number, including area code, of
agent for service)
-----------------
Please send copies of communications to:
<TABLE>
<CAPTION>
<S> <C> <C>
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 & Oshinsky LLP
Philadelphia, Pennsylvania 19102 Washington, D.C. 20006 2101 L Street, N.W.
(215) 731-9450 (202) 662-2700 Washington, D.C. 20037
</TABLE>
---------------
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. / / __________________
<PAGE>
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. / /
<TABLE>
<CAPTION>
Calculation of Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered(1) unit(2) price(1)(2) registration fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Units 2,208,000 $18.00 $39,744,000 $11,049
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 288,000 common units issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933.
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.
<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 August 13, 1999
[LOGO]
1,920,000 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. and Resource
Energy, Inc. Atlas America, the corporate parent of our general partner, is an
energy finance company that has drilled over 1,650 wells in the Appalachian
region and operates approximately 1,430 wells. Resource Energy is an affiliate
of Atlas America.
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.
Prior to the 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 intend to have our common units listed on the
American Stock Exchange under the symbol "APL".
You should read "Risk Factors" beginning on page 21 for a discussion of
important factors that you should consider before buying common units.
These risks include the following:
o After expiration of our general partner's obligation to contribute
capital to fund deficiencies in the amount of cash available to pay
the minimum quarterly distribution on the common units, cash
distributions are not assured and will fluctuate with our
performance.
o Substantially all of our revenue will be derived from gathering fees
paid to us by Atlas America under a master natural gas gathering
agreement.
<PAGE>
o Because the natural gas wells initially connected to our gathering
systems will be depleted over time, our ability to maintain or
increase our revenues primarily depends upon the ability of Atlas
America 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 Atlas Pipeline and our investors, on
the other, particularly in connection with supervision of the
performance of obligations of Atlas America to us.
o The legal duties of our general partner and its affiliates to
unitholders are limited.
------------------
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.
------------------
<TABLE>
<CAPTION>
Per
Common Unit Total
----------- -----
<S> <C> <C>
Public offering price........................................... $ $
Underwriting discount......................................... $ $
Proceeds, before expenses, to Atlas Pipeline............... $ $
</TABLE>
The underwriters may purchase up to an additional 288,000 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 _______________ , 1999.
Friedman Billings Ramsey
Prospectus dated ____, 1999
<PAGE>
Inside Front Cover
[Map/Maps of pipeline systems]
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".
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GUIDE TO READING THIS PROSPECTUS ................................................................................iv
PROSPECTUS SUMMARY
Atlas Pipeline..............................................................................................1
Business Strategy...........................................................................................3
Atlas America and Resource Energy...........................................................................4
Partnership Structure and Management........................................................................4
The Offering................................................................................................7
Summary Financial and Operating Data of Resource America, Inc. Gathering Operations........................10
Summary Unaudited Pro Forma Operations of Atlas Pipeline...................................................11
Summary of Risk Factors....................................................................................12
The Transactions; Use of Proceeds..........................................................................15
Summary of Conflicts of Interest and Fiduciary Responsibilities............................................16
Distributions and Payments to the General Partner and Its Affiliates.......................................17
Summary of Tax Considerations..............................................................................19
RISK FACTORS.....................................................................................................21
Risks Inherent in Our Business.............................................................................21
Risks Inherent in an Investment in Us......................................................................26
Tax Risks to Common Unitholders............................................................................30
THE TRANSACTIONS; USE OF PROCEEDS................................................................................33
PRO FORMA CAPITALIZATION.........................................................................................34
DILUTION.........................................................................................................34
CASH DISTRIBUTION POLICY.........................................................................................35
Quarterly Distributions of Available Cash..................................................................35
Distributions of Available Cash from Operating Surplus.....................................................36
Subordination Period; Conversion of Subordinated Units.....................................................38
Incentive Distribution Rights..............................................................................39
Distributions from Capital Surplus.........................................................................40
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels................................41
Distributions of Cash Upon Liquidation.....................................................................42
CASH AVAILABLE FOR DISTRIBUTION..................................................................................45
SELECTED FINANCIAL AND OPERATING DATA OF RESOURCE AMERICA, INC. GATHERING OPERATIONS.............................48
SELECTED UNAUDITED PRO FORMA OPERATIONS OF ATLAS PIPELINE........................................................50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL AND PRO FORMA FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................................................51
BUSINESS.........................................................................................................58
General....................................................................................................58
The Appalachian Basin......................................................................................58
Business Strategy and Competitive Strengths................................................................59
Pipeline Characteristics...................................................................................59
Reserves...................................................................................................61
Agreements with Atlas America..............................................................................62
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Purchase Contract with an Affiliate of FirstEnergy Corp....................................................65
Competition................................................................................................66
Regulation.................................................................................................67
Environmental and Safety Regulation........................................................................68
Title to Properties........................................................................................68
Litigation.................................................................................................69
ATLAS AMERICA, INC. AND RESOURCE ENERGY, INC.....................................................................70
MANAGEMENT.......................................................................................................70
Atlas Pipeline Management..................................................................................70
Directors and Executive Officers of Our General Partner....................................................71
Reimbursement of Expenses of Our General Partner and its Affiliates........................................73
Executive Compensation.....................................................................................73
Compensation of Directors..................................................................................74
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND
MANAGEMENT...................................................................................................74
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES.............................................................75
Conflicts of Interest......................................................................................75
Fiduciary Duties...........................................................................................78
DESCRIPTION OF THE COMMON UNITS..................................................................................80
The Units..................................................................................................80
Transfer Agent and Registrar...............................................................................80
Transfer of Common Units...................................................................................81
DESCRIPTION OF THE SUBORDINATED UNITS............................................................................82
Conversion of Subordinated Units...........................................................................82
Limited Voting Rights......................................................................................83
Distributions Upon Liquidation.............................................................................84
THE PARTNERSHIP AGREEMENT........................................................................................84
Organization and Duration..................................................................................85
Purpose....................................................................................................85
Power of Attorney..........................................................................................85
Capital Contributions......................................................................................86
Limited Liability..........................................................................................86
Issuance of Additional Securities..........................................................................87
Limitations on Debt During Subordination Period............................................................88
Amendment of Partnership Agreement.........................................................................89
Merger, Sale or Other Disposition of Assets................................................................91
Termination and Dissolution................................................................................92
Liquidation and Distribution of Proceeds...................................................................92
Withdrawal or Removal of the General Partner...............................................................93
Transfer of General Partner Interest and Incentive Distribution Rights.....................................94
Change of Management Provisions............................................................................95
Meetings; Voting...........................................................................................95
Status as Limited Partner or Assignee......................................................................96
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Non-Citizen Assignees; Redemption..........................................................................97
Indemnification............................................................................................97
Books and Reports..........................................................................................98
Right to Inspect Our Books and Records.....................................................................98
Registration Rights........................................................................................99
UNITS ELIGIBLE FOR FUTURE SALE...................................................................................99
TAX CONSIDERATIONS..............................................................................................100
Legal Opinions and Advice.................................................................................101
Partnership Status........................................................................................102
Limited Partner Status....................................................................................104
Tax Consequences of Unit Ownership........................................................................104
Tax Treatment of Operations...............................................................................109
Disposition of Common Units...............................................................................111
Tax-Exempt Organizations and Other Investors..............................................................115
Administrative Matters....................................................................................116
State, Local and Other Tax Considerations.................................................................120
Investment in Atlas Pipeline by Employee Benefit Plans....................................................121
LEGAL MATTERS...................................................................................................122
EXPERTS.........................................................................................................122
HOW TO OBTAIN OTHER INFORMATION ABOUT US........................................................................123
FORWARD-LOOKING STATEMENTS......................................................................................123
UNDERWRITING....................................................................................................124
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 - Glossary of Terms..................................................................................C-1
APPENDIX D - Pro Forma Available Cash from Operating Surplus....................................................D-1
APPENDIX E - Atlas America, Inc.'s Historical Production Record.................................................E-1
</TABLE>
(iii)
<PAGE>
GUIDE TO READING THIS PROSPECTUS
The following should help you understand some of the conventions and
defined terms used in this prospectus:
o Throughout this prospectus, "we", "us" or "Atlas Pipeline" refers to
Atlas Pipeline Partners, L.P. and Atlas Pipeline Operating
Partnership, jointly; "operating partnership" refers to Atlas
Pipeline Operating Partnership individually; "general partner" refers
to Atlas Pipeline Partners G.P., Inc., the general partner of Atlas
Pipeline; and "Atlas America" refers to Atlas America, Inc., the
corporate parent of our general partner.
o Throughout this prospectus, "Resource Energy" refers to Resource
Energy, Inc., an affiliate of Atlas America. Resource Energy and
Atlas America are wholly-owned subsidiaries of Resource America, Inc.
o For ease of reference, a glossary of some of the terms used in this
prospectus is included as Appendix C to this prospectus. Capitalized
terms not otherwise defined have the meanings given in the glossary.
o Unless otherwise specified, the information in this prospectus
assumes that the underwriters' over-allotment option is not
exercised.
(iv)
<PAGE>
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 were recently formed to acquire natural gas pipeline gathering
systems owned by Atlas America and Resource Energy. These systems consist of
approximately 700 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 approximately
1,925 wells with an average monthly production of 1.1 billion cubic feet ("bcf")
of natural gas. During 1998, 1997 and 1996, and the three months ended March 31,
1999, the gathering systems transported, respectively, 12.8 bcf, 12.3 bcf, 13.3
bcf and 3.2 bcf of natural gas. The gathering systems are used primarily to
transport natural gas from wells to utility pipeline sales points. To a lesser
extent, the gathering systems transport natural gas directly to end users. The
gathering systems are currently interconnected with 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 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.
Approximately 96.0% of the natural gas transported by the gathering
systems during the three months ended March 31, 1999 was owned by Atlas America,
Resource Energy or entities affiliated with them, and was sold under contracts
arranged by them. Atlas America and Resource Energy have entered into an
agreement with Northeast Ohio Gas Marketing, Inc., an affiliate of FirstEnergy
Corporation, effective March 31, 1999 for the sale of their production of
natural gas.
At the completion of the offering, we will enter into agreements with
Atlas America that are intended to maximize the use and expansion of our
gathering systems and the amount of natural gas they transport. In particular,
Atlas America will agree to construct up to 2,500 feet of small diameter (two
inches or less) "sales" or "flow" lines from the wellhead of any well drilled
and operated by it to a point of interconnection to our gathering systems. We
will agree that where Atlas America has 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. Atlas America will agree that on or before December 31, 2002 it
will drill not less than 225 wells, including wells drilled in 1999 by
investment programs sponsored by Atlas America in 1999, within 2,500 feet of our
gathering systems. Atlas America will also agree that, with respect to wells to
be drilled more than 2,500 feet from our gathering systems, we will have the
right, at our cost, to extend our gathering systems to the area of the wells and
thereafter connect the wells to the gathering system. If we do not elect to
1
<PAGE>
extend our gathering systems, Atlas America may connect the wells to an
interstate or intrastate pipeline, a local distribution company or an end user
(an "Other Delivery Point"); 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. Atlas America may also connect the wells to a third party
gathering system, but will be required to pay us certain fees, described below.
If we do not exercise these rights Atlas America will assist us in seeking to
identify for possible acquisition existing gathering systems through which the
gas produced by such wells could be delivered.
Atlas America will also 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 Atlas America's 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. The stand-by
commitment is for a maximum of $1.5 million in any commitment year. At the
completion of this offering, we will not have any indebtedness for borrowed
money.
Atlas America will enter into a master natural gas gathering agreement
with us. Under this agreement, Atlas America will pay us a fee for gathering
natural gas, determined as follows:
o for natural gas from well interests owned by Atlas America or
Resource Energy that are connected to the gathering systems at the
time of the completion of this offering, the greater of $0.40 per mcf
or 15% of the gross sales price of the natural gas transported;
o for natural gas from well interests owned by third parties, including
investment programs sponsored by Atlas America (but excluding natural
gas from interests in wells connected to gathering systems we may
acquire in the future from independent third parties), the greater of
$0.35 per mcf or 15% of the gross sales price of the natural gas
transported;
o for natural gas from well interests owned by Atlas America or
Resource Energy and connected to the gathering systems after we
acquire the gathering systems, the greater of $0.35 per mcf or 15% of
the gross sales price of the natural gas transported; and
o for natural gas from well interests in Atlas America-operated wells
drilled after we acquire the gathering systems 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 15% of the gross sales price of the
natural gas transported, less the gathering fee charged by the other
gathering system.
2
<PAGE>
All gathering fees payable pursuant to contracts between Atlas America
and third party owners of well interests connected to our gathering systems will
be paid to Atlas America. Resource Energy will assign to Atlas America all of
its rights and obligations under its gas gathering agreements and will agree
that, for well interests owned or controlled by it, it will pay Atlas America
the gathering fees Atlas America is obligated to pay us under the master gas
gathering agreement. Atlas America will be obligated to pay gathering fees owed
to us from its own resources regardless of whether it receives payment under
those contracts.
Gathering fees for wells that are owned by independent third parties
and that are connected to our gathering systems after the completion of this
offering will be negotiated by us with the well owners. Gathering fees for wells
connected to any gathering systems that we may acquire in the future from
independent third parties will be as set forth in any then-existing gathering
contracts or as we are able to negotiate with the well owners. None of the
natural gas produced by third party wells connected to our gathering systems
after the closing of offering or produced by wells connected to acquired
gathering systems will be subject to the master agreement with Atlas America.
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 wellheads to 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 Atlas America 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 gathering agreements with other natural gas producers
in our service areas.
Atlas America has agreed to help us implement our business strategy by:
o committing to connect new wells drilled and operated by it to the
gathering systems;
o committing to drill at least 225 wells within 2,500 feet of our
systems by December 31, 2002;
o upgrading certain segments of the gathering systems as described
below;
3
<PAGE>
o consulting with us about the construction of new gathering systems;
o providing financing for the construction of new gathering systems to
serve wells drilled and operated by Atlas America for five years from
the closing of this offering through the purchase of new common
units, as required, up to a maximum of $1.5 million per year; and
o assisting us in identifying existing gathering systems for
acquisition.
Atlas America and Resource Energy
Atlas America is an energy finance company which, through investment
programs it sponsors and together with its affiliate Resource Energy, produces
natural gas and, to a lesser extent, oil from locations in Eastern Ohio, Western
New York and Western Pennsylvania. As of March 31, 1999, Atlas America and
Resource Energy together operated approximately 2,515 wells with gross natural
gas production of approximately 35.7 million cubic feet ("mmcf") during the
three months ended March 31, 1999. At March 31, 1999, Atlas America and Resource
Energy held leases on properties in the area in which our gathering systems are
currently operating with proved developed reserves of approximately 152.4 bcf of
natural gas and, in addition, had leases on properties with proved undeveloped
reserves of approximately 45.7 bcf of natural gas. During the five years ended
December 31, 1998, Atlas America drilled and completed over 533 wells for 12
investor programs sponsored by it and has drilled 74 wells for one investor
program that have been connected to the gathering systems during the three
months ended March 31, 1999. Resource America, the corporate parent of Atlas
America and Resource Energy, has determined to conduct its drilling operations
through Atlas America. Accordingly, Resource Energy does not currently conduct
material drilling operations, nor does it anticipate it will do so in the
future.
Partnership Structure and Management
Upon completion of the transactions contemplated in this prospectus:
o We will own a 98.9899% limited partner interest in the Atlas Pipeline
Operating Partnership (a subsidiary partnership that will actually
hold our gathering systems);
o Our general partner will own a 1% general partner interest in Atlas
Pipeline; and
o Our general partner will own a 1.0101% general partner interest in
the operating partnership.
The general partner, therefore, will own a 2% general partner interest
in Atlas Pipeline and the operating partnership on a combined basis.
4
<PAGE>
Our general partner is a wholly-owned subsidiary of Atlas America.
Following the offering, the executives who currently manage Atlas America's
gathering systems will manage and operate our business as the executives of our
general partner or its affiliates. Our general partner will be reimbursed for
all expenses incurred on behalf of Atlas Pipeline.
Our principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108 and our telephone number is (412) 262-2830.
The following chart depicts the organization and ownership of Atlas
Pipeline and the operating partnership after giving effect to the completion of
the transactions contemplated in this prospectus, and assuming that the
underwriters' over-allotment option is not exercised. The percentages reflected
in the organization chart represent the approximate ownership interest in each
of Atlas Pipeline and the operating partnership individually and not on a
combined basis. Except for the organization chart, the ownership percentages
referred to in this prospectus reflect the approximate effective ownership
interest of the unitholders in Atlas Pipeline and the operating partnership on a
combined basis. The 2% general partner interest referred to in this prospectus
reflects the approximate effective ownership interest of our general partner in
Atlas Pipeline and the operating partnership on a combined basis.
5
<PAGE>
- --------------------------------------------------------
Ownership of Atlas Pipeline and
the operating partnership
on a combined basis after the offering
Public common unit holders........................ 78%
Subordinated units................................ 20%
General partner interest.......................... 2%
- ---------------------------------------------------------
------------------------------
Atlas America, Inc.
Resource Energy, Inc.
492,308 subordinated units
------------------------------
100%
Ownership
------------------------------
Atlas Pipeline GP, Inc.
------------------------------
20.2043% Limited Partner Interest
Public Unitholders
1,920,000 common
units
78.7967% Limited Partner Interest
1.0% General
Partner Interest
1.0101% General
Partner Interest
---------------------------------
Atlas Pipeline Partners, L.P.
---------------------------------
98.9899%
Limited Partner
Interest
----------------------------------
Atlas Pipeline Operating
Partnership
-----------------------------------
6
<PAGE>
The Offering
Securities offered..........................1,920,000 common units.
2,208,000 common units if the
underwriters' over-allotment option
is exercised in full.
Units outstanding after the offering........1,920,000 common units and 492,308
subordinated units, representing 78%
and 20% limited partner interests in
Atlas Pipeline.
If the underwriters' over-allotment
option is exercised in full,
2,208,000 common units and 492,308
subordinated units, representing 80%
and 18% limited partner interests in
Atlas Pipeline, will be outstanding.
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 a distribution support
agreement to cover the amount by
which the aggregate minimum
quarterly distribution to holders
of common units, as described
below, exceeded cash available for
distribution.
7
<PAGE>
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 thereafter, 50% to all units and
50% to the general partner.
Cash distributions will generally be
made within 45 days after the end of
each quarter. The first distribution
to the unitholders will be made
within 45 days after the quarter
ending December 31, 1999. The
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.
Although we can provide no
assurances, based on the assumptions
listed beginning on page 45 of the
prospectus, we believe that we will
generate sufficient cash 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 would have
been sufficient to allow us to pay
the minimum quarterly distribution
on the common units during that
year.
Limited Capital Call Right;
Distribution Support..................... During each of the twelve quarters
following the close of the 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.
The general partner's obligation in
any quarter is limited to an amount
8
<PAGE>
equal to the minimum quarterly
distribution for the common units,
multiplied by the number of common
units issued in this offering. The
general partner's obligation will
not be increased by any future
issuances of common units. The terms
of this arrangement will be governed
by a distribution support agreement.
For quarters ending after December
31, 2002, the general partner will
have no obligations under the
distribution support agreement. The
general partner will also be
required to obtain a $9,676,800
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 $806,400. The required
amount of the letter of credit will
increase to $11,128,320, and the
quarterly reduction will increase to
$927,360, in the event the
underwriters exercise their
overallotment option in full. The
letter of credit will expire on
March 1, 2003.
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.
Issuance of additional units................During the subordination period we
can issue up to 192,000 additional
common units without obtaining
unitholder approval. We can issue an
unlimited number of common units for
acquisitions which increase 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.
American Stock Exchange listing.............We intend to have the common units
listed on the American Stock
Exchange under the symbol "APL."
9
<PAGE>
Summary Financial and Operating Data of Resource America, Inc.
Gathering Operations(1)
Set forth below is summary financial and operating information for
the Resource America, Inc. Gathering Operations for the three months ended
March 31, 1999 and 1998, the years ended December 31, 1998, 1997 and 1996
and the fiscal years ended September 30, 1995 and 1994. 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 and Pro Forma Financial
Condition and Results of Operations" which are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Years Ended
Three Months Ended March 31, Years Ended December 31, September 30,
----------------------------- -------------------------- -----------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
Income Statement Data: (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 722 $ 69 $1,045 $ 349 $ 359 $ 375 $ 349
Costs and expenses:
Transportation and compression 135 17 192 81 75 52 32
General and administrative 98 15 130 45 43 45 50
Property tax expense -
Interest expense 84 - 87 - - - -
Depreciation and amortization 145 42 287 172 162 136 75
------- ------ ----- ------ ------ ------ -------
Total costs and expenses 462 74 696 298 280 233 157
Income (loss) from operations 260 (5) 349 51 79 142 192
Provision (benefit) for income taxes 104 (2) 139 19 30 54 73
------- ------ ----- ------ ------ ------ -------
Net income (loss) $ 156 $ (3) $ 210 $ 32 $ 49 $ 88 $ 119
======= ====== ===== ====== ====== ====== =======
Balance Sheet Data:
Working capital(2) 165 45 218 43 48 51 51
Total assets 10,592 1,606 10,526 1,626 1,784 1,898 1,764
Total long-term liabilities 6,812 1,314 6,937 1,331 1,522 1,691 1,645
Total equity 3,675 291 3,519 295 263 207 119
Other Data:
EBITDA(3) 489 37 723 223 241 278 267
Cash flows from operating activities 364 37 430 209 207 272 264
Cash flows used in investing activities (229) (20) (384) (19) (47) (269) (10)
Cash flows provided by (used in) financing
activities (125) (17) (20) (190) (160) 46 (69)
Operating Data:
Number of wells served(4) 1,925 742 1,857 742 745
Wells average monthly production (mcf's)(5) 552 201 577 188 197
Volume of gas transported (bcf's)(6) 3.19 0.45 4.61 1.68 1.76
</TABLE>
<PAGE>
(1) Resource America acquired Atlas America, formerly The Atlas Group, Inc., on
September 29, 1998. Atlas America's gathering operations are included in
this table commencing September 29, 1998. Prior to the date of acquisition,
the historical information presented is solely that of Resource Energy.
(2) Working capital is defined as current assets less current liabilities.
(3) EBITDA is defined as income (loss) 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.
(4) The number of wells served are the total wells connected to the gathering
systems and for which the systems transport gas to a sales point.
(5) Average monthly production is 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 is the total annual gas transported through
the gas gathering systems measured in bcfs.
10
<PAGE>
Summary Unaudited Pro Forma Operations of Atlas Pipeline(1)
The following unaudited summary pro forma financial operations of
Atlas Pipeline for the years ended December 31, 1998 and 1997 and the three
months ended March 31, 1999 and 1998 is derived from our pro forma
financial statements included elsewhere in this prospectus. The pro forma
financial data is based upon currently available information concerning the
gathering systems that will be acquired, as well as various estimates and
assumptions described in the notes to those pro forma financial statements.
As a result, it is likely actual financial data 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>
Three Months Ended March 31, Years Ended December 31,
------------------------------- -----------------------------
1999(2) 1998(2) 1998(2) 1997(2)
------- ------- ------- -------
Income Statement Data: (in thousands, except per unit data)
<S> <C> <C> <C> <C>
Revenues $1,182 $1,329 $5,067 $4,878
Costs and expenses:
Transportation and compression 135 130 507 560
General and administrative 62 62 258 250
Property tax expense 4 14 15
Interest expense - - - -
Depreciation and amortization 458 458 3,495 3,495
------ ----- ----- -----
Total costs and expenses 655 654 4,274 4,320
Income from operations 527 675 793 558
Provision (benefit) for income taxes - - - -
------ ----- ----- -----
Net income $ 527 $ 675 $ 793 $ 558
------ ----- ----- -----
Pro forma net income per unit $ 0.21 $ 0.27 $ 0.32 $ 0.23
====== ====== ====== ======
</TABLE>
(1) The summary unaudited pro forma financial operating data for Atlas
Pipeline include the operations of both Atlas America and Resource Energy.
(2) Includes the historical combined results of Resource America, Inc.
Gathering Operations and Atlas Group, Inc. Gathering Operations, adjusted
for depreciation, depletion and amortization resulting from Resource
America's acquisition of Atlas America (formerly Atlas Group, Inc.) on
September 29, 1998. This pro forma information has been further adjusted to
reflect the transaction as if it had taken place on January 1, 1997. For
more detailed information regarding the basis of presentation for the
summary unaudited pro forma operations, see the notes to the pro forma and
historical combined financial statements.
11
<PAGE>
Summary of Risk Factors
Risks Inherent in Atlas Pipeline's Business
o We will enter into a master natural gas gathering agreement with
Atlas America pursuant to which Atlas America will pay us a fee for
transporting natural gas produced from wells owned or controlled by
it, by Resource Energy or affiliated entities and for wells owned by
third parties connected to our gathering systems at the time of
acquisition. All gathering fees payable pursuant to contracts with
the owners of well interests will be paid to Atlas America and we
will have no rights with respect to these amounts. Atlas America will
be obligated to pay gathering fees owed to us irrespective of any
payments on the underlying contracts. Our revenues, and our ability
to make distributions, are therefore dependent to a material extent
upon Atlas America's financial ability to comply with the terms of
the master natural gas gathering agreement.
o Our revenues depend upon the volume of natural gas we transport. The
volume of natural gas we transport will decrease over time as
currently connected wells are depleted, unless new wells are
connected. While Atlas America has agreed to connect, or has given us
the right to connect, new wells drilled and operated by it to our
gathering systems, and has further agreed that, before December 31,
2002 it will drill not less than 225 wells, including wells drilled
in 1999 by investment programs sponsored by Atlas America in 1999,
its ability to do so will depend upon the funding of investment
programs to be sponsored by it, the availability of suitable acreage
to develop and the success of its drilling operations, none of which
is assured.
o Competition within the natural gas industry and from other fuels may
affect demand for natural gas produced from wells connected to our
gathering systems.
o Our gathering systems are located and serve end users in a relatively
concentrated geographic area. Our revenues may fluctuate depending
upon economic conditions in the area and, accordingly, may be less
stable than revenues from a gathering system with a more diverse
geographic customer base.
o The obligation of Atlas America to provide financing to extend our
gathering systems continues for only five years from the close of the
offering and is limited to $1.5 million in any year. Atlas America
will most likely need to obtain third party financing to satisfy its
commitment Additional financing to expand our gathering systems may
not be available to us on acceptable terms. It is unlikely that we
12
<PAGE>
will be able to expand our gathering systems and thereby maintain or
increase our business operations without third party financing.
o Our partnership agreement limits the amount of debt we may incur.
This may limit implementation of our growth strategies.
o Estimates regarding reserves of natural gas for wells connected to
our gathering systems and for properties that Atlas America and
Resource Energy have under lease as future drilling prospects may be
inaccurate. You should not place undue reliance upon these estimates.
o Litigation or governmental regulation relating to environmental
protection and operational safety may result in substantial costs and
liabilities.
o If changes in the law or regulations occur that subject us to
regulation by the Federal Energy Regulatory Commission under the
Natural Gas Act, our cost of doing business would increase
substantially and our profitability could be adversely affected.
o If we are unable to make acquisitions on economically and
operationally acceptable terms, our future financial performance will
be limited to the gathering systems acquired at the close of this
offering and any extensions of these gathering systems.
o Gathering system operations are subject to operational hazards and
unforeseen interruptions.
o Our operations could be adversely affected by data processing
failures after December 31, 1999. Failures could occur in our systems
as well as the systems of our utility pipelines, purchasers,
producers and end users of the natural gas we transport.
Risks Inherent in an Investment in Atlas Pipeline
o Our general partner's obligation to contribute capital to fund
deficiencies in the amount of cash available to pay the minimum
quarterly distribution on the common units is limited to the twelve
quarters following this offering.
o After expiration of our general partner's obligation to contribute
capital to fund deficiencies in the amount of cash available to pay
the minimum quarterly distribution on the common units, cash
distributions are not assured and will fluctuate with our
performance.
13
<PAGE>
o Our general partner's obligation in any quarter to contribute capital
to fund deficiencies in the amount of cash available to pay the
minimum quarterly distribution on the common units is limited to an
amount equal to the number of common units issued in this offering
multiplied by the minimum quarterly distribution for the common
units. Issuance of additional common units will reduce the minimum
quarterly distribution coverage of our general partner's capital
contribution obligation, and the security for that obligation
provided by the related letter of credit, on a per common unit basis.
o Issuance of additional common units, including common units issuable
upon conversion of subordinated units, will increase the risk that we
will be unable to pay the full minimum quarterly distribution on all
common units.
o Conflicts of interest may arise between our general partner and its
affiliates, on the one hand, and Atlas Pipeline and the investors, on
the other, particularly in connection with supervision of the
performance of obligations of Atlas America to us.
o You will have limited voting rights and will not control our general
partner.
o Our assumptions concerning future operations may not be realized.
o Purchasers of common units will experience immediate and substantial
dilution.
o We may issue additional common units without your approval, which
would dilute existing unitholders' interests.
o Cost reimbursements due to our general partner may be substantial and
could reduce our cash available for distributions.
o A trading market may not develop for the common units or you may not
be able to resell your units at the initial offering price.
o You may not have limited liability in some circumstances.
o If we were to lose Atlas America's management expertise, we would not
have sufficient stand-alone resources to operate.
14
<PAGE>
Tax Risks to Common Unitholders
o The IRS could treat us as a corporation for federal income tax
purposes which would substantially reduce the amount of cash
available for distribution to unitholders.
o We have not requested a ruling from the IRS with respect to our tax
treatment.
o You may be required to pay income taxes on your allocable share of
our income, even if you do not receive any cash distributions from
us.
o Tax gain or loss on disposition of common units could be different
than expected.
o Investors, other than individuals who are U.S. residents, may have
adverse consequences from owning units.
o We will register as a "tax shelter". This may increase the risk of an
IRS audit of Atlas Pipeline or a unitholder.
o We treat a purchaser of common units as having the same tax benefits
as the seller; the IRS may challenge this treatment which could
adversely affect the value of the common units.
o You will likely be subject to state and local taxes as a result 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 $28.5 million (assuming an initial
public offering price of $16.00 per common unit and after deducting underwriting
discounts and commissions but before deducting expenses incurred in connection
with the offering).
The substantive results of the transactions that will occur at the
closing of the offering are as follows:
o Atlas America, Resource Energy and their affiliates will transfer the
gathering systems, including the related compressor stations, rights
of way and interconnect and metersite agreements, to the operating
partnership. Atlas America, Resource Energy and their affiliates will
receive $27.0 million in cash and 492,308 subordinated units as the
purchase price of the gathering systems.
o Atlas America will enter into the master natural gas gathering
agreement with us and will enter into an omnibus agreement with us
regarding connection of wells to the gathering systems, consultation
services for the construction of new gathering systems or gathering
15
<PAGE>
system extensions, financing for construction of gathering systems or
gathering system extensions, and consultation services for the
identification of gathering systems to acquire.
o We will use approximately $750,000 from the offering proceeds to pay
expenses incurred in connection with the offering.
o We will reserve approximately $750,000 from the offering proceeds for
working capital, including use in acquiring other gathering systems
in the future.
o We will use the net proceeds from any exercise of the underwriters'
over-allotment option as additional working capital.
Summary of Conflicts of Interest and Fiduciary Responsibilities
Our general partner has a fiduciary duty to manage Atlas Pipeline in a
manner beneficial to us and our unitholders. However, because our general
partner is a corporate subsidiary of Atlas America, its officers and directors
have fiduciary duties to manage its business in a manner beneficial to Atlas
America. As a result, conflicts of interest may arise in the future between
Atlas Pipeline and our unitholders, on the one hand, and Atlas America and its
affiliates, on the other hand.
The following situations, among others, could give rise to conflicts of
interest:
o our general partner determines the amount and timing of asset
purchases and sales, capital expenditures, issuances of additional
common units, borrowings and reserves, which can impact the amount of
distributions to unitholders;
o our general partner may take actions on our behalf that have the
effect of enabling our general partner or its affiliates to receive
distributions on their own units;
o some of the officers of our general partner who will provide services
to us will also devote significant time to the businesses of our
general partner's affiliates and competition for their services may
develop;
o the officers of our general partner will make decisions on behalf of
Atlas America, as operator of natural gas wells connected to our
gathering systems, as to the volume of gas produced by these wells;
these decisions will affect the volume of natural gas transported by
us and, thus, our revenues; and
o our general partner will make decisions that will affect the
obligations of Atlas America to us in constructing gathering systems,
providing financing for that construction and identifying gathering
systems for possible acquisition.
16
<PAGE>
Our general partner will have a conflicts committee, consisting of
three independent members of its board of directors, that will be available to
review matters involving conflicts of interest.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner to the unitholders. Our partnership
agreement also restricts the remedies available to unitholders for actions that
might otherwise constitute breaches of its fiduciary duty. By purchasing a
common unit, you are treated as having consented to the above and to various
actions contemplated in the partnership agreement and conflicts of interest that
might otherwise be considered a breach of fiduciary or other duties under
applicable state law.
Distributions and Payments to the General Partner and Its Affiliates
The following table summarizes the distributions and payments to be
made by us to our general partner and its affiliates in connection with our
formation, operation and liquidation. These distributions and payments were
determined by and among affiliated entities and, consequently, are not the
result of arm's length negotiations.
<TABLE>
<CAPTION>
Formation Stage
<S> <C>
The consideration paid to Atlas
America and its affiliates for the
transfer of the gathering systems
to us.......................................o $27.0 million from the offering
proceeds, and
o 492,308 subordinated units.
Reimbursement to affiliates
of our general partner for
organizational and offering
expenses advanced by them
on behalf of Atlas Pipeline.................Our general partner currently estimates that the amount of
the reimbursement will be approximately $750,000. These
expenses include filing, printing, legal, accounting and
other fees and costs payable to unaffiliated third parties.
Operational Stage
Cash distributions to our general
partner.....................................Cash distributions will generally be made 98% to the
unitholders, including to our general partner as holder of
the subordinated units, and 2% to our general partner. If
distributions exceed specified target levels, our general
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
partner will receive from 15% to 50% of the excess
distributions (the general partner's "incentive
distribution rights"). If our general partner contributes
capital to fund deficiencies in the minimum quarterly
distribution on common units, it will receive 100% of cash
distributions in excess of the amount necessary to pay the
minimum quarterly distribution to the common units, plus
arrearages, until it has received a return of these capital
contributions.
On a pro forma basis for the year ended December 31, 1998,
our general partner would have received distributions of
approximately $80,840 on its combined 2% general partner
interest, and its affiliates would have received
distributions of approximately $800,000 on their
subordinated units.
Payments to our general partner
and its affiliates..........................Our general partner will not receive any management fee or
other compensation for its management of Atlas Pipeline
except for its interest in distributions. Our general
partner will be reimbursed for all direct and indirect
expenses incurred on our behalf except for its interest in
distributions. On a pro forma basis for the year ended
December 31, 1998, we estimate that the expense
reimbursement to the general partner and its affiliates
would have been approximately $1.0 million.
Withdrawal or removal of our general
partner.....................................If our general partner withdraws or is removed, its general
partner interest and incentive distribution rights will
either be sold to the new general partner for cash or
converted into common units, in each case for an amount
equal to the fair market value of those interests.
Liquidation.................................Upon the liquidation of Atlas Pipeline, the partners,
including our general partner, will be entitled to receive
liquidating distributions according to their particular
capital account balances.
</TABLE>
18
<PAGE>
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 the
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 the 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 Will be Less than ____ 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 _____% of the cash distributed
for that period. 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.
19
<PAGE>
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.
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 the 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 Atlas Pipeline, including
federal income tax consequences, will depend in part on your own tax
circumstance. 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.
20
<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 occur,
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
Cash distributions are not assured and may fluctuate with our performance
Although we will distribute all of our cash, less any reserves our
general partner believes are needed for operations or for potential
acquisitions, we can give no assurance regarding the amounts of cash that we
will generate. At the start of our operations, we will derive all of our cash
flow from the gathering systems we have acquired from Atlas America and Resource
Energy. The actual amounts of cash we generate will depend upon numerous factors
relating to our business which may be beyond our control, including, generally:
o the demand for natural gas;
o profitability of operations;
o required principal and interest payments on any debt;
o the cost of acquisitions;
o our issuance of debt and equity securities;
o fluctuations in working capital;
o capital expenditures;
o continued development of wells for connection to our gathering
systems and adjustments to natural gas reserves;
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.
Cash distributions are dependent primarily on our cash flow. Cash
distributions are not dependent 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. Our
partnership agreement gives our general partner discretion in establishing
reserves for the proper conduct of our business that will affect the amount of
available cash.
21
<PAGE>
We are dependent upon our master natural gas gathering agreement with Atlas
America
Atlas America will enter into a master natural gas gathering agreement
with us that requires Atlas America to pay certain fees to us for gathering
natural gas from wells owned or controlled by Atlas America and Resource Energy
and connected to our gathering systems. We anticipate that these wells will
constitute substantially all of the wells connected to our gathering systems.
For wells or well interests not directly owned by Atlas America or Resource
Energy, Atlas America will be responsible for making gathering fee arrangements
with the well owners, and these arrangements will be for its own account. Atlas
America will be obligated to pay gathering fees owed to us from its own
resources regardless of whether it receives payments from well owners. We are,
accordingly, materially dependent on the financial ability of Atlas America to
discharge its obligations to us.
We will be indirectly dependent upon a single purchaser
Atlas America and Resource Energy and obligated, with certain
exceptions, to sell natural gas produced by them or wells owned by investors
programs sponsored by Atlas America to an affiliate of FirstEnergy Corporation.
The contract commenced March 31, 1999 and expires March 31, 2009, subject to
certain automatic renewals. However, the affiliate has the right to terminate
the contract upon the occurrence of a force majeure which, for purposes of the
contract, includes the permanent closing of the plants of two of the affiliate's
principal industrial users during the term of the affiliate's agreements with
them. If the affiliate exercises its force majeure rights or fails to perform
under its contract and the well owners cannot find alternative purchasers for
their natural gas, our revenues and cash flows could be materially adversely
affected, and cash distributions to you could be reduced.
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. While Atlas
America and Resource Energy have informed us that they have mineral rights to
approximately 282,000 gross acres adjacent to our gathering systems and that
Atlas America anticipates the acquisition of additional acreage, we can offer no
assurance as to the number of sites which will ultimately be determined suitable
for development. Moreover, while Atlas America has advised us that it intends to
conduct active drilling programs for the foreseeable future, and will enter into
certain agreements 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 investment programs sponsored by Atlas America. We
cannot assure you that Atlas America will be able to organize investment
programs or as to the level of funding for these programs and thus the number of
wells that will actually be drilled. Moreover, there can be no assurance as to
when investment programs might be organized, or whether the wells drilled for
them will produce natural gas in economic quantities. While Atlas America has in
the past developed wells for its own account, and reserves the right to do so in
the future, we cannot assure you that, if investor programs do not develop
22
<PAGE>
wells, Atlas America will be able to do so. Even if Atlas America or investment
programs sponsored by it do develop and complete wells, we cannot assure you
that production from these wells will be sufficient to offset production
declines from existing wells.
We are dependent upon our connections to utility pipelines
Our gathering systems principally serve as intermediate transportation
facilities between sales lines from wells connected to our systems and the
utility pipelines to which we deliver natural gas. If one or more of these
utility pipelines have service interruptions, capacity limitations or otherwise
do not accept the natural gas we transport, and we cannot arrange for delivery
to other utility pipelines, 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 and, thus, our ability
to make distributions.
The upgrade program for the Mercer Pipeline by Atlas America may not increase
the amount of natural gas we transport
Atlas America has recently commenced a program to upgrade the Mercer
Pipeline segment of the gathering systems. The Mercer Pipeline transported 86%
of the natural gas transported by our gathering systems during the three months
ended March 31, 1999. The upgrade program consists of building a new gathering
line for existing wells, shifting a meter station and increasing compression
capability. These upgrades are designed to reduce the pressures in the gathering
system so that wells can more readily deliver natural gas to the system and to
increase the system's ability to deliver the gas it gathers to utility
pipelines. We cannot assure you that these upgrades will materially increase the
amount of gas the Mercer Pipeline will transport.
Governmental regulation of our pipelines could increase our operating costs
Currently our pipeline operations are exempt from regulation under the
Natural Gas Act, although there 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, or the
modification of existing laws, regulations 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 make
filings for applicable exemptions that would relieve our compliance with certain
of these requirements. However, no assurance can be given that these exemptions
23
<PAGE>
will be granted. If the exemptions are not granted, the cost of operating our
systems would increase, which could adversely impact our operations. In
addition, changes in the 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.
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 laws and regulations
relating to environmental protection and operational safety. While we believe
that our operations comply in all material respects with applicable
environmental and safety regulations, we cannot assure you that liabilities for
environmental or safety hazards or violations will not be incurred. Possible
future developments, including stricter environmental and safety laws,
regulations and enforcement policies and claims for personal or property damages
resulting from our operations, could result in substantial costs and liabilities
to us that could reduce your cash distributions.
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 and Resource
Energy 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.
24
<PAGE>
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. No assurance can be given that additional
financing will be available to us on acceptable terms.
Atlas America may not be able to discharge its obligation to provide funds for
extensions of our gathering systems
Atlas America has agreed to provide financing for expansion of our
gathering systems by purchasing additional subordinated units. This financing is
at our election. The agreement continues for five years from the closing of the
offering and is for a maximum of $1.5 million in any year. If we elect to
require Atlas America to provide financing, Atlas America most likely will be
required to seek its own financing. If Atlas America cannot secure financing
that, together with its other available resources, is sufficient for our needs,
expansion of our gathering systems could be adversely affected. This could
adversely affect our growth and our ability to replace the reserves of natural
gas served by our gathering systems.
Estimates of reserves for wells connected to any properties potentially served
by our pipelines may prove inaccurate, and you should not place undue reliance
on these estimates
The estimates of natural gas reserves for wells connected to any
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
and Resource Energy, as audited by an independent consultant. There are numerous
uncertainties inherent in estimating quantities of reserves, including many
factors over which Atlas America has no control. Estimates of natural gas
reserves necessarily depend upon a number of variables and assumptions, any one
of which may vary considerably from actual results. These factors and
assumptions relate to:
o the percentage of natural gas in the ground ultimately recoverable;
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
reserves based on risk of recovery, 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 with respect to reserves will likely vary from
estimates, and these variations may be material. As a result, you should not
place undue reliance on the reserve data included in this prospectus.
25
<PAGE>
Atlas America's obligations to us are not guaranteed by its parent
Atlas America has entered 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 is a subsidiary of Resource America, Inc.,
Resource America has not guaranteed or otherwise assumed responsibility for any
of Atlas America's obligations to us. An investor in this offering must rely
solely upon the ability of Atlas America, including its financial capability, in
connection with these agreements.
A decline in natural gas prices could adversely affect our revenues
Our master gas gathering agreement with Atlas America provides for
gathering fees equal to 15% of the gross sales price of the natural gas we
transport, subject to certain minimum prices. We anticipate that contracts for
wells connected to our gathering systems in the future that will not be subject
to Atlas' 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 been from time to
time a surplus of natural gas which has caused sharp fluctuations and declines
in prices obtainable which has, on occasion, caused purchasers to curtail their
purchases.
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 a loss of equipment or life, as well as 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.
Risks Inherent in an Investment in Us
Our general partner's obligations 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 have less
cash than necessary to make a minimum quarterly distribution to the common
units, as well as the letter of credit we will obtain to support that
obligation, will be limited to the twelve quarters following the close of the
offering. Thereafter, unitholders will be dependent solely upon our operating
performance for distributions, which may fluctuate depending upon our
performance. Moreover, our general partner's 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. While the number of common units that we may issue
without unitholder consent is limited to 192,000 common units, common units
issued to acquire additional gathering systems that, on a pro forma basis, do
not reduce our cash flow on a per unit basis, and common units issued to Atlas
America in connection with its construction financing commitment, we cannot
offer you any assurance that these limitations will be effective in preventing
dilution of the general partner's obligation on a per common unit basis.
You will have limited voting rights and will not control our general partner
The general partner will manage and operate Atlas Pipeline. 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, and our general partner
may not be removed except by the vote of the holders of at least 66 2/3% of the
outstanding units and upon the election of a successor general partner by the
vote of the holders of a majority of the outstanding units. The required 66 2/3%
would include units owned by affiliates of our general partner. These affiliates
26
<PAGE>
will own 20% of the aggregate outstanding units, or 18% of the aggregate
outstanding units if the underwriters exercise their overallotment option in
full. These ownership percentages have the practical effect of making removal of
our general partner unlikely.
In addition, the partnership agreement contains some provisions that
may have the effect of discouraging a person or group from attempting to remove
our general partner or otherwise change our management. 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:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one
basis;
(2) our general partner's guarantee of the minimum quarterly
distribution, and the security for that guarantee, will be
terminated;
(3) Atlas America's agreements to drill and connect wells to our
gathering systems will be terminated;
(4) Atlas America's obligations to provide financing and other
assistance for the extension of our gathering systems and to
provide assistance in the identification and acquisition of
gathering systems from third parties will be terminated;
(5) any existing arrearages in the payment of the minimum quarterly
distributions on the common units will be extinguished;
27
<PAGE>
(6) the amount of any capital contribution made by the general partner
to fund deficiencies in the amount of cash available for minimum
quarterly distributions on the common units which have not been
repaid, must be repaid; and
(7) our general partner will have the right to convert its general
partner interests and its incentive distribution rights into common
units or to receive cash in exchange for those interests.
These provisions may diminish the price at which the common units will
trade under some circumstances.
The partnership agreement also contains provisions limiting the ability
of unitholders to call meetings of unitholders and to acquire information about
our operations, as well as other provisions limiting the unitholders' ability to
influence the manner or direction of management. All matters, other than removal
of the general partner, requiring the approval of the unitholders during the
subordination period must first be proposed by our general partner. Further, if
any person or group other than our general partner or its affiliates acquires
beneficial ownership of 20% or more or any class of units then outstanding, that
person or group will lose voting rights with respect to all of its units. As a
result, you will have limited influence on matters affecting our operations, and
third parties may find it difficult to attempt to gain control of us, or
influence our activities. See "The Partnership Agreement-Withdrawal or Removal
of the General Partner" and "--Change of Management Provisions".
Our assumptions concerning future operations may not be realized
In establishing the terms of the offering, including the number and
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".
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. See "Cash
Available for Distribution".
Purchasers of common units will experience immediate and substantial dilution
The assumed initial public offering price of $16.00 per unit exceeds
pro forma net tangible book value of $14.50 per unit. Upon completion of the
offering, you will incur immediate and substantial dilution of $1.50 per common
unit. See "Dilution".
28
<PAGE>
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 per-unit basis; or
o in connection with exercise by us of our rights under Atlas America's
construction financing commitment.
In addition, during the subordination period, our general partner has
the authority, without the approval of the unitholders, to cause Atlas Pipeline
to issue up to an additional 192,000 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. Based on the
circumstances of each case, 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 then-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
the 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. Our partnership agreement does
not give the unitholders the right to approve the issuance by us of equity
securities ranking junior to the common units at any time.
Cost reimbursements to our general partner may be substantial and could reduce
our cash available for distribution
Prior to making any distribution on the common units, we will reimburse
our general partner and its affiliates, including officers and directors of the
general partner, for all expenses incurred by them on our behalf during the
related period. The amount of these 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 the general partner. The reimbursement of expenses and the
payment of fees could adversely affect our ability to make distributions.
29
<PAGE>
A trading market may not develop for the units or you may not be able to resell
your units at the initial offering price
Prior to the offering, there has been no public market for the common
units. We intend to apply to have the common units listed 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 representative of the
underwriters. Investors may not be able to resell their common units at or above
the initial public offering price. See "Underwriting".
You may not have limited liability in some circumstances
The limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some states. If it were to be determined that
(1) we have been conducting business in any state without compliance
with the applicable limited partnership statute, or
(2) the right or the exercise of the right by the unitholders as a
group to remove or replace our 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,
then you could be held liable in some circumstances for Atlas Pipeline's
obligations to the same extent as a general partner. In addition, under some
circumstances a unitholder may be liable to Atlas Pipeline for the amount of a
distribution for a period of three years from the date of the distribution. See
"The Partnership Agreement-Limited Liability" for a discussion of the
implications of the limitations on liability to a unitholder.
If we were to lose Atlas America's management expertise, we would not have
sufficient stand-alone resources to operate
We do not have sufficient stand-alone management resources to operate
without the services of persons who are also employees of Atlas America or its
affiliates, and are therefore largely dependent upon Atlas America to pursue our
business strategy as described under "Business of Atlas Pipeline-Business
Strategy and Competitive Strengths of Atlas Pipeline".
Tax Risks to Common Unitholders
For a discussion of all 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
30
<PAGE>
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.
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 have not requested an IRS ruling with respect to our tax treatment
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 some or
all of counsel's conclusions or the positions we take. A court may not concur
with some or all of 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 some of 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
31
<PAGE>
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 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
Atlas Pipeline 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 some
types of entities, including some partnerships, 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. 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.
32
<PAGE>
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. 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
At the closing of the offering of the common units, the following
transactions will take place:
First, our initial limited partner will withdraw, the common units will
be issued and the purchasers of the common units will be admitted as our limited
partners. Our general partner will retain its 1.0% general partner interest in
us and its 1.0101% general partner interest in the operating partnership.
Second, we will pay $27.0 million and issue 492,308 subordinated units
to Atlas America, Resource Energy and their affiliates in consideration for the
transfer of the gathering systems, including the related compressor stations,
rights of way and interconnect and metersite agreements, to the operating
partnership.
Third, Atlas America will enter into the master natural gas gathering
agreement with us, and will enter into an omnibus agreement with us regarding
connection of wells to the gathering systems, consultation services for the
construction of new gathering systems or gathering system extensions, financing
for construction of gathering systems or gathering system extensions, and
consultation services for the identification of gathering systems to acquire.
Fourth, Atlas Pipeline will use approximately $2.9 million from the
offering proceeds to pay expenses incurred in connection with the offering,
including underwriting discounts and commissions.
Fifth, the balance of the offering proceeds, approximately $750,000
will be retained by us as working capital, including use in acquiring other
gathering systems in the future. The proceeds from the exercise by the
underwriters of their overallotment option will be retained as additional
working capital.
33
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth (1) our capitalization as of August 10,
1999 on an actual basis and (2) our pro forma capitalization as adjusted 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 that the
underwriters' over-allotment option is not exercised. 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 August 10, 1999
---------------------
Pro Forma
Actual As Adjusted
------ -----------
(in thousands)
Partners' Capital
General partner $1 $ 714
Common units --- 27,844
Subordinated units --- 7,139
--- -------
Total capitalization $1 $35,697
=== =======
DILUTION
On a pro forma basis as of August 10, 1999 after giving effect to the
transactions contemplated by this prospectus, the net tangible book value of
Atlas Pipeline's assets would have been approximately $35.7 million or $14.50
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:
Assumed initial public offering price per common unit $ 16.00
Less: Pro forma net tangible book value per common unit
after the offering (1)
(14.50)
-------
Immediate dilution in net tangible book value per common unit $ 1.50
=======
- ----------------
(1) Determined by dividing the total number of units (1,920,000 common units,
492,308 subordinated units and the 2% general partner interest having
dilutive effect equivalent to 49,231 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.
34
<PAGE>
The following table sets forth the number of units that will be issued
by Atlas Pipeline and the total consideration to Atlas Pipeline contributed by
the general partner, and its affiliates in respect of their units and by the
purchasers of common units in this offering upon the consummation of the
transactions contemplated by this prospectus:
<TABLE>
<CAPTION>
Total Consideration
Units Acquired (in thousands)
------------------------------- ------------------------------
Number Percent
--------------- ------------
<S> <C> <C> <C>
General partner and its affiliates (1)
541,539 22% $ 7,877
New investors 1,920,000 88% 30,720
--------------- ------------ -------------
Total 2,461,539 100% $38,597
=============== ============ =============
</TABLE>
- ----------------------
(1) Upon the consummation of the transactions contemplated by this prospectus,
the general partner and its affiliates will own an aggregate of 492,308
subordinated units and a 2% general partner interest in Atlas Pipeline,
having a dilutive effect equivalent to 49,231 units.
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, as described
below in "-Distribution of Available Cash from Operating Surplus-Available
Cash". We expect to make distributions of all Available Cash within
approximately 45 days after the end of each quarter, beginning with the quarter
ending December 31, 1999, 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 the offering through December 31, 1999 will be
adjusted downward based on the actual length of this period.
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, 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.
35
<PAGE>
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 quarter distribution is paid for that quarter. Common
units will not accrue arrearages on distributions for any quarter after the
subordination period and subordinated units will not accrue any arrearages on
distributions for any quarter.
The holders of subordinated units will have the right to receive the
minimum quarterly distribution only after the common units have received the
minimum quarterly distribution plus any arrearages in payment of the minimum
quarterly distribution and 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 distribution to holders of common units. The subordinated
units are not entitled to arrearages. 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 Available Cash.
Distributions of Available Cash from Operating Surplus
Distributions During Subordination Period. Distributions of Available
Cash from Operating Surplus for any quarter during the subordination period will
be made in the following manner:
o First, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to the minimum quarterly distribution for that
quarter.
o Second, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units;
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
distribution on the common units;
o Fourth, 98% to the subordinated units, pro rata, and 2% to the
general partner, until there has been distributed for each
outstanding subordinated unit an amount equal to the minimum
quarterly distribution for that quarter; and
o Thereafter, in the manner described in "-Incentive Distribution
Rights" below.
The above references to the 2% of Available Cash from Operating Surplus
distributed to the general partner, are references to the general partner's
36
<PAGE>
percentage interest in distributions from Atlas Pipeline and the operating
partnership on a combined basis, exclusive of its or any of its affiliates'
interest as holders of the units.
Distributions of Available Cash from Operating Surplus After
Subordination Period. Distributions of Available Cash from Operating Surplus for
any quarter after the subordination period will be made in the following manner:
o First, 98% to all units, pro rata, and 2% to the general partner,
until there has been distributed for each unit an amount equal to the
minimum quarterly distribution for that quarter; and
o Thereafter, in the manner described in "-Incentive Distribution
Rights" below.
Available Cash. Available cash means, for any of our fiscal quarters,
all cash on hand at the end of the quarter less the amount of cash reserves that
is necessary or appropriate in the reasonable discretion of the general partner
to:
(1) provide for the proper conduct of our business, including potential
acquisitions;
(2) comply with applicable law, any of our debt instruments or any of
our other agreements; and
(3) provide funds for distributions to unitholders and the general
partner for any one or more of the next four quarters.
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:
(1) 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
(2) 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.
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. These dispositions must be in the ordinary course of business. All
Available Cash distributed from any source will be treated as distributed from
37
<PAGE>
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. Any excess Available Cash, irrespective of its source, will be
deemed to be Capital Surplus, which would represent a return of capital, and
distributed accordingly. If Capital Surplus is distributed 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. All
distributions after that date will be treated as from Operating Surplus. We do
not anticipate that there will be significant distributions of Capital Surplus.
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:
(1) 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 quarters
immediately preceding that date;
(2) the Adjusted Operating Surplus 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 Atlas Pipeline and the operating partnership during
those periods; and
(3) there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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 Available Cash. If the
general partner is removed as general partner of Atlas Pipeline 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, and in addition to
the termination of the obligations of Atlas America to us:
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one
basis;
(2) any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
(3) the 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 that interest.
38
<PAGE>
Adjusted Operating Surplus for any period generally means Operating
Surplus generated during that period, less:
(1) any net increase in Working Capital Borrowings during that period;
and
(2) any net reduction in cash reserves for operating expenditures
during that period not relating to an operating expenditure made
during that period; and plus:
(a) any net decrease in Working Capital Borrowings during that
period; and
(b) 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:
(1) the Operating Surplus determined at the end of that period; and
(2) the Operating Surplus determined at the beginning of that period.
Working Capital Borrowings means borrowings that are generally borrowings
used solely for working capital purposes.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an
increasing percentage of quarterly distributions of Available Cash from
Operating Surplus after the minimum quarterly distribution and specified target
distribution levels have been achieved. The incentive distribution rights are
held by the general partner. The target distribution levels are based on the
amounts of Available Cash from Operating Surplus distributed in excess of the
payments made for the minimum quarterly distribution and arrearages on the
common units, if any, and the related 2% distribution to the general partner.
Unitholders and the general partner will receive incentive
distributions for any quarter in which each of the following occurs:
(1) Available Cash from Operating Surplus has been distributed to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution;
(2) Available Cash from Operating Surplus has been distributed on the
common units in an amount necessary to eliminate any cumulative
common unit arrearages; and
(3) Available Cash from Operating Surplus has been distributed to the
general partner in an amount necessary to repay any capital
39
<PAGE>
contributed by it to us to fund deficiencies in the amount of cash
available for the minimum quarterly distribution on the common
units.
After the distributions described in (1), (2) and (3) are met,
additional Available Cash from Operating Surplus for that quarter will be
distributed among the unitholders and the general partner in the following
manner:
o First, 85% to all units, pro rata, and 15% to the general partner,
until each unitholder has received, in addition to any distributions
to common unitholders to eliminate any cumulative arrearages in
payment of the minimum quarterly distribution on the common units, a
total of $0.52 per unit for that quarter (the "First Target
Distribution");
o Second, 75% to all units, pro rata, and 25% to the general partner,
until each unitholder has received, in addition to any distributions
to common unitholders to eliminate any cumulative arrearages in
payment of the minimum quarterly distribution on the common units, a
total of $0.60 per unit for that quarter (the "Second Target
Distribution"); and
o Thereafter, 50% to all units, pro rata, and 50% to the general
partner.
The distributions to the general partner described above, other than in its
capacity as a holder of units or representing a return of capital contributed to
fund deficiencies in the amount of cash available for minimum quarterly
distributions, that are in excess of its aggregate 2% general partner interest
represent the incentive distribution rights.
Distributions from Capital Surplus
Distributions of Available Cash from Capital Surplus will be made 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 the 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 the offering has
received an aggregate amount equal to any unpaid arrearages in
payment of the minimum quarterly distribution on the common units;
and
o Thereafter, all distributions of Available Cash from Capital Surplus
will be distributed as if they were from Operating Surplus.
When a distribution is made from Capital Surplus, it is treated as if
it were a repayment of the unit price from this initial public offering. To
40
<PAGE>
reflect repayment, the minimum quarterly distribution and the target
distribution levels will be adjusted downward by multiplying each amount by a
fraction. This fraction is 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 is the initial public offering price
per common unit less any distributions from Capital Surplus.
This adjustment to the minimum quarterly distribution may make it more
likely that subordinated units will be converted into common units, whether upon
the termination of the subordination period or the early conversion of some
subordinated units, and may accelerate the dates at which these conversions
occur.
A "payback" of the unit price from this initial public offering occurs
when the unrecovered initial unit price of the common units is zero. At that
time the minimum quarterly distribution and the target distribution levels will
have been reduced to zero. All distributions of Available Cash from all sources
after that time will be treated as if they were from Operating Surplus. Because
the minimum quarterly distribution and the target distribution levels will have
been reduced to zero, the general partner will then be entitled to receive 50%
of all distributions of Available Cash in its capacities as general partner and
as 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 of 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, the following will each be proportionately adjusted upward
or downward, as appropriate, if any combination or subdivision of units should
occur:
(1) the minimum quarterly distribution;
(2) the target distribution levels;
(3) the unrecovered initial unit price;
(4) the number of additional common units issuable during the
subordination period without a unitholder vote;
41
<PAGE>
(5) the number of common units issuable upon conversion of the
subordinated units; and
(6) other amounts calculated on a per unit basis.
For example, if a two-for-one split of the common units should occur,
the minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price of the common units would each be reduced to 50%
of its initial level.
No adjustment will be made by reason of the issuance of additional
common units for cash or property.
The minimum quarterly distribution and the target distribution levels
may also be adjusted 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, the minimum
quarterly distribution and the target distribution levels for each quarter after
that time would be reduced to amounts equal to the product of:
(1) the minimum quarterly distribution and each of the target
distribution levels;
multiplied by
(2) one minus the sum of:
(x) the highest marginal federal income tax rate which could apply
to the partnership that is taxed as a corporation; plus
(y) 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 extend
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 were to become taxable as a corporation for federal income tax
purposes and we became subject to a maximum marginal federal, and effective
state and local, income tax rate of 38%, then the minimum quarterly distribution
and the target distribution levels would each be reduced to 62% of the amount
immediately before the adjustment.
Distributions of Cash Upon Liquidation
Following the beginning of our dissolution and liquidation, assets will
be sold or otherwise disposed of and the partners' capital account balances will
be adjusted to reflect any resulting gain or loss. The proceeds of liquidation
42
<PAGE>
will first be applied to the payment of our 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.
Partners are entitled to liquidating distributions in accordance with
capital account balances. The allocations of gains and losses upon liquidation
are intended, to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding subordinated units
upon the liquidation of Atlas Pipeline, 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 distribution on the common units.
Thus, net losses recognized upon liquidation of Atlas Pipeline will be allocated
to the holders of the subordinated units to the extent of their capital account
balances before any loss is allocated to the holders of the common units. Also
net gains recognized upon liquidation will be allocated first to restore
negative balances in the capital account of the 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 distribution on the common units. However, no
assurance can be given that there will be sufficient gain upon liquidation of
Atlas Pipeline 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 the 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 the general
partner, until the capital account for each common unit is equal to
the sum of:
(1) the unrecovered initial unit price on that common unit;
(2) the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs; and
(3) any unpaid arrearages in payment of the minimum quarterly
distribution on that common unit;
o Third, 100% to the 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;
43
<PAGE>
o Fourth, 98% to the subordinated units, pro rata, and 2% to the
general partner, until the capital account for each subordinated unit
is equal to the sum of:
(1) the unrecovered capital on that subordinated unit; and
(2) 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 the general partner,
until there has been allocated under this paragraph an amount per
unit equal to:
(1) the sum of the excess of the First Target Distribution per unit
over the minimum quarterly distribution per unit for each quarter
of our existence; less
(2) 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 the general partner,
until there has been allocated under this paragraph an amount per
unit equal to:
(1) the sum of the excess of the Second Target Distribution per unit
over the First Target Distribution per unit for each quarter of
our existence; less
(2) 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 the general partner for each quarter of our
existence; and
o thereafter, 50% to all units, pro rata, and 50% to the general
partner.
If the liquidation occurs after the end of the subordination period,
the distinction between common units and subordinated units will disappear, so
that clause (3) of the second priority above and all of the third priority above
will no longer be applicable.
Upon our liquidation, any loss will generally be allocated to the
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;
44
<PAGE>
o second, 98% to the holders of common units in proportion to the
positive balances in their capital accounts and 2% to the general
partner, until the capital accounts of the common unitholders have
been reduced to zero; and
o thereafter, 100% to the general partner.
If the 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, interim adjustments to capital accounts will be made at
the time we issue additional interests in Atlas Pipeline or make distributions
of property. These adjustments will be based on the fair market value of the
interests or the property distributed and any gain or loss resulting from the
adjustments will be allocated to the unitholders and the general partner in the
same manner as gain or loss is allocated upon liquidation. In the event that
positive interim adjustments are made to the capital accounts, any later
negative adjustments to the capital accounts resulting from the issuance of
additional Atlas Pipeline interests, our distributions of property, or upon our
liquidation, will be allocated 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 if
no earlier positive adjustments to the capital accounts had been made.
CASH AVAILABLE FOR DISTRIBUTION
We believe that we will generate sufficient Available Cash from
Operating Surplus for each quarter through December 31, 2002, following
completion of the offering, to cover the full minimum quarterly distribution on
all of the outstanding units. The inclusion of this belief does not constitute
an undertaking that we will provide updates based on future developments.
Assumptions. Our belief is based on a number of assumptions, including
the assumptions that:
o Atlas America will form investor programs to drill for natural gas,
and drill and complete natural gas wells, at its 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;
o the price of natural gas gathered by us will not decrease materially
below $2.70 per mcf;
o business, economic, regulatory, political and competitive conditions
will not change substantially;
45
<PAGE>
o the volume of natural gas gathered by us will increase 12% in 1999,
12% in 2000, 8% in 2001, 7% in 2002 and 6% per year thereafter
through the addition of new Atlas America natural gas wells to our
gathering systems;
o there will be no operating problems with the utility pipelines to
which the gathering systems deliver their natural gas that would
result in wells connected to our gathering systems being shut in; and
o the gathering systems will not require any significant repairs or
maintenance, and that no environmental problems are encountered that
would require significant capital expenditures.
Although we believe our assumptions are reasonable, most of our
assumptions 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, no assurance can
be given 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 needed 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
transactions is approximately:
One Quarter Four Quarters
----------- -------------
(in thousands)
Common units $806 $3,226
Subordinated units 207 827
General partner interest 21 83
------ ------
Total $1,034 $4,136
====== ======
If the transactions contemplated in this prospectus had been completed
on December 31, 1998, pro forma Available Cash from Operating Surplus generated
during 1998 would have been approximately $3.4 million, an amount sufficient to
make minimum required cash distributions on the common units and a partial
distribution on the subordinated units.
The amounts of pro forma Available Cash from Operating Surplus shown
above were derived 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, 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 we might have generated had Atlas Pipeline been formed in
46
<PAGE>
an earlier period. For definitions of Available Cash and Operating Surplus, see
"Cash Distribution Policy-Distributions of Available Cash from Operating
Surplus."
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 quarters immediately succeeding 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 us 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. The
terms of the arrangement will be governed by a distribution support agreement.
For quarters ended after December 31, 2002, the general partner will have no
obligation under the distribution support agreement. The general partner will
obtain an irrevocable letter of credit to secure its performance under the
distribution support agreement. The letter of credit will be in the amount of
$9,676,800 ($11,128,320 if the underwriters exercise their overallotment option
in full). The amount available under this letter of credit will be reduced by
$806,400 per quarter ($927,360 if the underwriters exercise their overallotment
option in full). The letter of credit will expire March 1, 2003.
47
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF RESOURCE AMERICA, INC.
GATHERING OPERATIONS(1)
Set forth below is selected financial and operating information for the
Resource America, Inc. Gathering Operations for the three months ended March 31,
1999 and 1998, the years ended December 31, 1998, 1997 and 1996 and the fiscal
years ended September 30, 1995 and 1994. The selected 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 and Pro Forma Financial Condition and Results of Operations" which
are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended
Three Months Ended March 31, Years Ended December 31, September 30,
---------------------------- -------------------------------- ----------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: (in thousands)
Revenues $ 722 $ 69 $ 1,045 $ 349 $ 359 $ 375 $ 349
Costs and expenses:
Transportation and compression 135 17 192 81 75 52 32
General and administrative 98 15 130 45 43 45 50
Property tax expense -
Interest expense 84 - 87 - - - -
Depreciation and amortization 145 42 287 172 162 136 75
------ ------- ------- ------ ------ ------ ------
Total costs and expenses 462 74 696 298 280 233 157
Income (loss) from operations 260 (5) 349 51 79 142 192
Provision (benefit) for income taxes 104 (2) 139 19 30 54 73
------ ------- ------- ------ ------ ------ ------
Net income (loss) $ 156 $ (3) $ 210 $ 32 $ 49 $ 88 $ 119
====== ======= ======= ====== ====== ====== ======
Balance Sheet Data:
- -------------------
Working capital(2) 165 45 218 43 48 51 51
Total assets 10,592 1,606 10,526 1,626 1,784 1,898 1,764
Total long-term liabilities 6,812 1,314 6,937 1,331 1,522 1,691 1,645
Total equity 3,675 291 3,519 295 263 207 119
Other Data:
- -----------
EBITDA(3) 489 37 723 223 241 278 267
Cash flows from operating activities 364 37 430 209 207 272 264
Cash flows used in investing activities (229) (20) (384) (19) (47) (269) (10)
Cash flows provided by (used in) financing activities (125) (17) (20) (190) (160) 46 (69)
Operating Data:
- ---------------
Number of wells served(4) 1,925 742 1,857 742 745
Wells average monthly production (mcf's)(5) 552 201 577 188 197
Volume of gas transported (bcf's)(6) 3.19 0.45 4.61 1.68 1.76
</TABLE>
48
<PAGE>
(1) Resource America acquired Atlas America, formerly The Atlas Group, Inc., on
September 29, 1998. Atlas America's gathering operations are included in
this table commencing September 29, 1998. Prior to the date of acquisition,
the historical information presented is solely that of Resource Energy.
(2) Working capital is defined as current assets less current liabilities.
(3) EBITDA is defined as income (loss) 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.
(4) The number of wells served are the total wells connected to the gathering
systems and for which the systems transport gas to a sales point.
(5) Average monthly production is 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 is the total annual gas transported through
the gas gathering systems measured in bcfs.
49
<PAGE>
SELECTED UNAUDITED PRO FORMA OPERATIONS OF ATLAS PIPELINE (1)
The following unaudited selected pro forma financial operations of Atlas
Pipeline for the years ended December 31, 1998 and 1997 and the three months
ended March 31, 1999 and 1998 is derived from our pro forma financial statements
included elsewhere in this prospectus. The pro forma financial data is based
upon currently available information concerning the gathering systems that will
be acquired, as well as various estimates and assumptions described in the notes
to those pro forma financial statements. As a result, it is likely actual
financial data 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>
Three Months Ended March 31, Years Ended December 31,
------------------------------ --------------------------
1999(2) 1998(2) 1998(2) 1997(2)
------- ------- ------- -------
Income Statement Data: (in thousands, except per unit data)
<S> <C> <C> <C> <C>
Revenues $1,182 $1,329 $5,067 $4,878
Costs and expenses:
Transportation and compression 135 130 507 560
General and administrative 62 62 258 250
Property tax expense 4 14 15
Interest expense - - - -
Depreciation and amortization 458 458 3,495 3,495
------ ------ ------ ------
Total costs and expenses 655 654 4,274 4,320
Income from operations 527 675 793 558
Provision (benefit) for income taxes - - - -
------ ------ ------ ------
Net income $ 527 $ 675 $ 793 $ 558
====== ====== ====== ======
Pro forma net income per unit $ 0.21 $ 0.27 $ 0.32 $ 0.23
====== ====== ====== ======
</TABLE>
(1) The selected unaudited pro forma financial operating data for Atlas
Pipeline include the operations of both Atlas America and Resource Energy.
(2) Includes the historical combined results of Resource America, Inc.
Gathering Operations and Atlas Group, Inc. Gathering Operations, adjusted
for depreciation, depletion and amortization resulting from Resource
America's acquisition of Atlas America on September 29, 1998. This pro
forma information has been further adjusted to reflect the transaction as
if it had taken place on January 1, 1997. For more detailed information
regarding the basis of presentation for the selected unaudited pro forma
operations, see the notes to the pro forma and historical combined
financial statements.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL
AND PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Historical
The following discussion of the financial condition and results of
operations for the Resource America, Inc. Gathering Operations should be read in
conjunction with the historical combined financial statements and notes thereto
included elsewhere in this prospectus. For more detailed information regarding
the basis of presentation for the following financial information, see the notes
to the historical combined financial statements.
General
The Resource America, Inc. Gathering Operations are the gathering systems
owned by Resource America through its subsidiary, Resource Energy, and,
beginning with its acquisition on September 29, 1998, the gathering systems
owned through Atlas America. The gathering systems gather natural gas from wells
in Eastern Ohio, Western New York, and Western Pennsylvania and transport the
natural gas to utility pipeline sales points. 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, Inc. Gathering Operations included elsewhere in this
prospectus. Since historical results of operations of the Resource America, Inc.
Gathering Operations include the gathering system operations of Atlas America
only from the date of purchase, results of operations for the three months ended
March 31, 1999 and the year ended December 31, 1998 are not comparable to the
similar prior year periods.
Three Months Ended March 31, 1999 Compared to the Three Months Ended
March 31, 1998
Revenues. For the three months ended March 31, 1999, the gathering
operations reported net income of $156,000 on total revenue of $722,000 compared
to a net loss for the three months ended March 31, 1998 of $3,000 on total
revenue of $69,000. The gathering operations reported gross margin (revenues
less direct expenses of transportation, operation and maintenance) of $587,000
for the three months ended March 31, 1999, an increase of $535,000 from the
$52,000 reported for the same period in 1998. The gross margin percentage was
81% for the three months ended March 31, 1999 as compared to 75% for the three
months ended March 31, 1998. These increases are primarily the result of the
acquisition of Atlas America and its gathering operations in September 1998.
51
<PAGE>
The following table sets forth the average volumes transported per day by
the gathering operations for the periods presented:
Three Months Ended
March 31,
1999 1998
---- ----
Average Daily Volume (mcfs)
New York Systems 1,640 1,644
Ohio Systems 5,843 3,108
Pennsylvania Systems 26,962 230
------ -----
34,445 4,982
====== =====
The increase arose primarily from the acquisition of Atlas America and its
gathering operations in September 1998.
Expenses. Transportation and compression expense was $135,000 in the three
months ended March 31, 1999, an increase of $118,000 from $17,000 in the three
months ended March 31, 1998. General and administrative expense increased to
$98,000 in the three months ended March 31, 1999 from $15,000 in the three
months ended March 31, 1998, an increase of $83,000. Interest expense was
$84,000 in the three months ended March 31, 1999, representing interest paid by
Atlas America on amounts due to Resource America. Depreciation and amortization
expense increased to $145,000 in the three months ended March 31, 1999 from
$42,000 in the three months ended March 31, 1998, an increase of $103,000.
Provision for income taxes was $104,000 (40% of the pre-tax book income) in the
three months ended March 31, 1998, an increase of $106,000 from ($2,000) (40% of
the pre-tax book loss) in the three months ended March 31, 1998. 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 $327,000 in the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998. Net cash used in investing
activities increased $209,000 in the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998. Net cash used in financing
activities increased $108,000 in the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998. Each of these changes was the
result of the acquisition of Atlas America and its gathering operations and
associated increases in levels of net income, capital expenditures and repayment
of advances from Resource America.
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 $1,045,000 compared to net
income for the year ended December 31, 1997 of $32,000 on total revenue of
$349,000. The gathering operations reported gross margin of $853,000 in 1998,
reflecting an increase of $585,000 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. These increases arose primarily from
the acquisition of Atlas America and its gathering operations in September 1998.
52
<PAGE>
The following table sets forth the average volumes transported per day by
the combined gathering operations for the periods presented:
Year Ended
December 31,
1998 1997
---- ----
Average Daily Volume (mcfs)
New York Systems 1,726 906
Ohio Systems 6,246 3,443
Pennsylvania Systems 27,047 242
------ -----
35,019 4,591
====== =====
The increases arose primarily from the acquisition of Atlas America in
September 1998.
Expenses. Transportation and compression expense was $192,000 in the year
ended December 31, 1998, an increase of $111,000 from $81,000 in the year ended
December 31, 1997. General and administrative expense increased to $130,000 in
the year ended December 31, 1998 from $45,000 in the year ended December 31,
1997, an increase of $85,000. Interest expense was $87,000 in the year ended
December 31, 1998, representing interest paid by Atlas America on amounts due
Resource America. Depreciation and amortization expense increased to $287,000 in
the year ended December 31, 1998 from $172,000 in the year ended December 31,
1997, an increase of $115,000. Provision for income taxes was $139,000 (40% of
pre-tax book income) in the year ended December 31, 1998, an increase of
$120,000 from $19,000 (40% 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 $221,000 in the year ended December 31, 1998 as compared to
the year ended December 31, 1997. Net cash used in investing activities
increased $365,000 in the year ended December 31, 1998 as compared to the year
ended December 31, 1997. Net cash used in financing activities decreased
$170,000 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, capital expenditures and repayment of advances from
Resource America.
Year Ended December 31, 1997 and 1996
Revenues. For the year ended December 31, 1997, the combined 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 was the result of a 5% decrease in
volumes transported.
53
<PAGE>
The following table sets forth average volumes transported per day by the
combined gathering systems for the periods presented.
Year 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. 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%). 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%). 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
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 advances to Resource America.
Pro Forma
The following discussion of the financial condition and results of
operations for Atlas Pipeline should be read in conjunction with the historical
and pro forma consolidated financial statements and notes thereto included
elsewhere in this prospectus. For more detailed information regarding the basis
of presentation for the following financial information, see the notes to the
pro forma financial statements.
Three Months Ended March 31, 1999 and 1998
Revenues. For the three months ended March 31, 1999, we had pro forma net
income of $527,000 on total revenue of $1,182,000 compared to net income of
$675,000 on total revenue of $1,329,000 for the three months ended March 31,
1998. We had a pro forma gross margin of $1,047,000 for the three months ended
March 31, 1999, a decrease of $152,000 (13%) from the $1,199,000 for the same
period in 1998. The decrease in pro forma revenue in the quarter ended March 31,
1999 was the result of lower prices for natural gas transported through the
gathering system.
54
<PAGE>
The following table sets forth the average volumes transported per day for
the periods presented:
Three Months Ended
March 31,
1999 1998
---- ----
Average Daily Volume (mcfs)
New York Systems 1,640 1,644
Ohio Systems 5,843 6,302
Pennsylvania Systems 26,962 26,510
------ ------
34,445 34,456
====== ======
Expenses. Transportation and compression expense was $135,000 for the three
months ended March 31, 1999 and $130,000 for the three months ended March 31,
1998. General and administrative expense was $62,000 in both the three months
ended March 31, 1999 and March 31, 1998. Depreciation and amortization expense
was $458,000 in both the three months ended March 31, 1999 and ended March 31,
1998.
Year Ended December 31, 1998 and 1997
Revenues. For the year ended December 31, 1998, we had pro forma net income
of $793,000 on total revenue of $5,067,000 compared to pro forma net income in
1997 of $558,000 on pro forma total revenue of $4,878,000. We had a pro forma
gross margin of $4,560,000 in 1998, reflecting an increase of $242,000 (5%) from
the $4,318,000 for the same period in 1997.
The following table sets forth the average volumes transported per day for
the periods presented:
Year Ended
December 31,
1998 1997
---- ----
Average Daily Volume (mcfs)
New York System 1,726 906
Ohio Systems 6,246 6,661
Pennsylvania Systems 27,047 26,075
------ ------
35,019 33,642
====== ======
The increase in volumes in the New York System are a result of the
acquisition of a separate gathering system in late 1997.
Expenses. Transportation and compression expense was $507,000 in the year
ended December 31, 1998, a decrease of $53,000 from $560,000 in the year ended
December 31, 1997. General and administrative expense increased to $258,000 in
the year ended December 31, 1998 from $250,000 in the year ended December 31,
1997, an increase of $8,000. Depreciation and amortization expense was
$3,495,000 in each of the years ended December 31, 1998 and December 31, 1997.
55
<PAGE>
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
The "Year 2000 issue" is the result of computer programs being written
using two digits, rather than four digits, to identify the year in a date field.
Any computer programs using such a system, and which have date sensitive
software, will not be able to distinguish between the year 2000 and the year
1900. This could result in miscalculations or an inability to process
transactions, send invoices or engage in similar normal business activities,
which could cause a disruption of business operations. The gathering operations
are dependent upon the computer resources of Resource Energy and Atlas America.
As is the case with most other businesses, Resource Energy and Atlas America are
in the process of evaluating and addressing Year 2000 compliance of both their
information technology and non-information technology systems.
Based upon a recent assessment, Resource Energy's systems have completed
approximately 85% of the necessary remediation processes. As a result of this
assessment, the systems of Atlas America are being merged into Resource Energy's
systems. Resource Energy expects that remediation (including testing) of its
systems and the merger of Atlas America's systems will be completed by October
31, 1999. Resource Energy believes that embedded systems (such as natural gas
monitoring systems and telephones) are Year 2000 compliant or, if not, are
either not date dependent or would not materially affect operations of the
gathering systems.
As of March 31, 1999, the remediation costs of the energy systems has not
been material. We anticipate that the remaining remediation costs, including
costs relating to the merger of Atlas America's systems, will not exceed
$100,000. All of these costs will be borne by Atlas America and Resource Energy.
Resource America, on our behalf, has initiated communications with all of
the business partners we anticipate will be significant to us through a Vendor
Readiness Survey to determine their Year 2000 compliance. Responses are
evaluated as they are received to determine if additional action is required to
ensure compliance of the business partner. As of March 31, 1999, these business
partners have advised Resource America that they are Year 2000 compliant or have
initiated programs that will render them Year 2000 compliant in a timely
fashion.
56
<PAGE>
As a result of the internal assessment and the readiness survey, we
currently do not believe that Year 2000 matters will have a material impact on
our business, financial condition or results of operations. To the extent that
any of our business partners are materially affected by Year 2000 problems, we
intend to seek alternative firms providing the same services that are Year 2000
compliant. In view of the responses from our anticipated significant business
partners, we will identify alternative firms on an as-needed basis. There can be
no assurance, however, that we would be able to make appropriate arrangements
should the need arise and, accordingly, it is uncertain whether or to what
extent we may be affected if problems with our business partners arise.
We are aware of the potential for claims for damages for products and
services that are not Year 2000 compliant. Since we are neither a hardware
manufacturer nor a software developer, we believe that we do not have
significant exposure to liability for such claims.
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 and
Resource Energy have monitored the compliance of our gathering systems with
environmental and safety laws and believe they are in compliance with such laws
and applicable regulations thereunder. To date, compliance with environmental
laws and regulations 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.
57
<PAGE>
BUSINESS
General
We were recently formed to acquire the natural gas pipeline gathering
systems owned by Atlas America and Resource Energy. These systems consist of
approximately 700 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 1,925 wells
with an average monthly production of 1.1 bcf of natural gas. During 1998, 1997
and 1996, and the three months ended March 31, 1999, the gathering systems
transported, respectively 12.8 bcf, 12.3 bcf, 13.3 bcf and 3.2 bcf of natural
gas. The gathering systems are used primarily to transport natural gas from
wells to utility pipeline sales points. To a lesser extent, the gathering
systems transport natural gas directly to end users. The gathering systems are
currently interconnected with 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 and Columbia Gas Transmission
Corp.
The Appalachian Basin
The Appalachian Basin is geographically one of the largest oil and gas
producing regions in the United States. Although the potential for oil and gas
reserves exist at deep horizons, the vast majority of all wells in Appalachia
produce from shallow blanket formations at depths between 1,000 and 6,000 feet.
Atlas America and other companies drilling in these shallow formations 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
Northeastern United States, which generally allows Appalachian producers to sell
their natural gas at a premium versus other producing regions in North America.
As a result of high drilling success rates, low drilling and completion
costs, readily available premium gas markets, and minimal technological
requirements, 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. During 1997, approximately 613 bcf of
natural gas were produced from the area.
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
58
<PAGE>
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 wellheads to 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 Wells to Our Gathering Systems. Atlas America,
a corporate parent of our general partner, is a developer of natural gas wells
through investment programs sponsored by it. For a description of Atlas
America's energy operations see "Atlas America, Inc. and Resource Energy, Inc."
Atlas America expects that it will continue to sponsor investment programs to
develop both its existing properties and properties it 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.
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 investment programs, as well as by large entities such as 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.
The Mercer Pipeline gathering system we will acquire from Atlas America has been
undergoing an upgrade program to increase the amount of natural gas flow. We
intend to review all of our gathering systems to identify and make improvements
to increase the flows of natural gas.
Obtaining Gas Gathering Agreements from Other Producers. In addition to
adding wells drilled and operated by Atlas America 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 contracts 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 believe that our singular focus upon 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 gas transported, is as follows:
59
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Three Months Ended
March 31, 1999 1998 1997 1996
-------------- ------------- -------------- ---------------
Wells Vol Wells Vol Wells Vol Wells Vol
----- --- ----- --- ----- --- ----- ---
New York Systems
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chautauqua County Pipeline 93 60,600 93 313,404 93 330,610 93 352,117
REI - NY Pipeline 75 86,969 75 316,522 75 74,726 75 - (1)
Ohio Systems
Champion, Howland - Bazetta Pipeline 172 246,271 155 1,103,898 157 1,218,585 159 1,255,598
Columbiana Pipeline 243 136,504 243 560,502 243 586,730 243 621,773
Hubbard Pipeline 29 63,414 26 370,525 26 307,162 26 438,885
Harrison/Tuscarawas Pipeline 193 90,059 193 426,720 196 501,015 196 523,268
Shongum Pipeline 84 38,286 87 157,748 93 169,022 96 183,978
Republic Pipelne 19 26,375 19 118,087 19 114,525 19 130,200
Pennsylvania Systems
Lake Wilhelm Pipeline 18 67,772 16 265,049 11 150,160 5 13,397
Mercer Pipeline 957 2,348,460 897 9,266,707 792 9,392,133 722 10,311,177
Springcreek Pipeline 42 14,252 42 83,742 42 88,436 42 81,114
</TABLE>
- ----------------
(1) Not owned by Resource Energy in 1996.
Of the 1,925 wells currently connected to the gathering systems, 448
are owned by Atlas America, Resource Energy or their subsidiaries, 1,337 are
owned by investment partnerships managed by Atlas America or its subsidiaries
and 140 are owned or managed by third parties.
The construction costs, depreciated book value, interconnection points
and number of compression stations of the gathering systems are as follows:
<TABLE>
<CAPTION>
Original
Length Cost to
of Atlas
System America and No. of Compression
(miles) Resource Depreciated Delivery/ Compression Station
(1) Energy Book Value(2) Interconnection Stations Horsepower
------- ----------- ------------- --------------- ----------- -----------
New York Systems
<S> <C> <C> <C> <C> <C> <C>
Chautauqua County Pipeline 56 2,445,698 914,159 3 1 120
REI-NY Pipeline 47 0 0 2 2 290
Ohio Systems
Champion, Howland -
Bazetta Pipeline 38 4,285,654 0 2 0 -
Columbiana Pipeline 68 1,008,792 316,399 2 1 330
Hubbard Pipeline 15 0 0 1 0 -
Harrison/Tuscarawas
Pipeline 106 3,669,135 1,298,897 2 2 240
Shongum Pipeline 30 1,089,184 36,124 3 2 116
Pennsylvania Systems
Lake Wilhelm Pipeline 7 240,000(3) 120,000(3) 1 0 -
Mercer County 321 15,466,513 5,120,436 6 4 2,845
Springcreek Pipeline 27 16,941 5,468 1 1 50
</TABLE>
- --------------
(1) The systems are generally constructed with 2, 4, 6, 8 and 12 inch
cathodically protected and wrapped steel pipe. The systems are
generally buried 36 inches below the ground.
(2) As of March 31, 1999.
(3) Estimate
60
<PAGE>
We believe that the number and diversity of the interconnections
between our gathering systems and 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 possibilities that our gathering of natural gas, and thus our
revenues, will be reduced as a result of shut-ins resulting from oversupplies of
natural gas in particular 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.
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, in some cases, $0.40 per mcf) per mcf or 15% of the realized
sales price for natural gas. 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 by our
ability to connect new wells to our gathering systems and acquire additional
gathering assets.
Atlas America has entered into an agreement with us relating to the
transportation of natural gas from current and future wells owned or controlled
by it and by Resource Energy. See "-Agreements with Atlas America - Omnibus
Agreement: Well Connections." We anticipate that these wells will be the
principal producers of gas transported by our gathering systems. During the
three months ended March 31, 1999, and during the years ended December 31, 1998,
1997 and 1996, natural gas from wells owned or controlled by Atlas America and
Resource Energy constituted 96.0%, 95.2%, 95.0%, and 94.7%, respectively, of the
natural gas transported by the gathering systems we will acquire. As of June 30,
1999, Atlas America and Resource Energy controlled leases on properties in the
operational area of our gathering systems with proved developed natural gas
reserves of 152.4 bcf. In addition, Atlas America controls leases on 282,000
acres of land that have proved undeveloped natural gas reserves of approximately
45.7 bcf. Approximately 98% of Atlas America's and Resource Energy's total
reserves are natural gas. Atlas America believes that it will continuously add
to its inventory of proved undeveloped locations from its existing acreage and
acreage it leases in the future.
During the three years ended December, 1998, Atlas America and Resource
Energy drilled and completed 360 gross wells at an aggregate cost of $64.8
million (for an average per well cost of approximately $180,000). This drilling
added total reserves of approximately 76.3 bcf at an approximate average cost of
$0.85 per mcf. Resource America, the corporate parent of Atlas America and
Resource Energy, has determined to conduct its drilling operations through Atlas
America. Accordingly, Resource Energy does not currently conduct material
drilling operations, nor does it anticipate that it will do so in the future.
61
<PAGE>
Agreements with Atlas America
At the completion of this offering, we will enter into an omnibus
agreement and a master natural gas gathering agreement with Atlas America. 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, provide
consultation services in the construction of new gathering systems or the
extension of existing systems, and to provide certain levels of construction
financing, as follows:
Well Connections. Atlas America has sponsored in the past, and expects
that it will continue to sponsor in the future, oil and gas drilling programs in
areas served by the gathering systems. Atlas America will agree to construct up
to 2,500 feet of small diameter (two inches or less) sales or flow lines from
the wellhead of any well drilled and operated by it to a point of
interconnection to our gathering systems. We will agree that where Atlas America
has 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.
Atlas America will also agree that, with respect to wells to be drilled
that will be more than 2,500 feet from our gathering systems, we will have the
right, at our cost, to extend our gathering systems. If we do not elect to
extend our gathering systems, Atlas America may connect its wells to an Other
Delivery Point; 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. Atlas America may also connect the wells to a third party
gathering system, but will be required to pay us certain fees described in "-
Master Gas Gathering Agreement." Our rights must be exercised by us within 30
days of notice to us from Atlas America that it intends to drill on a particular
site that is not within 2,500 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 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 to Other Delivery Points, 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.
If we do not exercise our rights, the agreement will provide that Atlas
America will:
o assist us in seeking to identify for possible acquisition existing
gathering systems through which the gas produced by such wells could be
delivered;
o provide consulting services to us in evaluating and making a bid for these
systems; and
62
<PAGE>
o provide consulting services to us in evaluating the possibility of
constructing new gathering facilities if no existing gathering facilities
can be identified for acquisition and, if we decide to proceed, provide
construction management services.
Atlas America will also agree that any gathering system identified by
it 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 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 that we do not intend to acquire the
system, then Atlas America may do so.
The agreement will also provide that on or before December 31, 2002,
Atlas America, 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 investment programs sponsored by Atlas
America in 1999. The wells may be drilled for the account of Atlas America, its
subsidiaries, or entities owned or controlled by Atlas America, including
investment programs sponsored by it. 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 entities as for example, with a subsidiary of a directly owned
subsidiary.
Atlas America expects that substantially all of the 225 wells it has
agreed to drill will be drilled for investment programs sponsored by Atlas
America. For a description of Atlas America's prior experience with investment
programs, see "Atlas America, Inc. and Resource Energy, Inc."
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 will be entitled to reimbursement for its costs,
including an allocable portion of employee salaries, in connection with its
construction management services.
Mercer Pipeline Improvements. Atlas America has commenced a program to
upgrade the flow of natural gas through the Mercer Pipeline that we will
acquire. The upgrade, which is at the expense of Atlas America, is scheduled for
completion prior to the closing of this offering. The principal upgrade consists
of adding approximately 10,000 feet of additional pipe to the Mercer Pipeline to
eliminate a circuitous routing of natural gas from certain of the wells served
by the system. Atlas America anticipates that this upgrade will lower line
pressures in the area, permitting more natural gas flow from wells in the area.
Atlas America also will upgrade a related compressor station by increasing its
compressor horsepower to aid in increasing natural gas volumes transported.
Finally, Atlas America will relocate an interconnection from 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 interconnection.
63
<PAGE>
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 Atlas America's 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
Atlas America's 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 Atlas America's 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 Atlas America's stand-by commitment, we may also consider other terms of the
financing. For example, we may use Atlas America's stand-by commitment if we can
only obtain short-term construction financing.
Disposition of interest in our general partner. A wholly-owned
subsidiary of Atlas America acts as the general partner of the investment
programs sponsored by Atlas America. Our general partner is also a wholly-owned
subsidiary of Atlas America. Atlas America will agree that such subsidiary will
act as general partner for new investment programs sponsored by Atlas America.
Atlas America will also agree not to divest its ownership of one general partner
without divesting its ownership of the other general partner to the same
acquiror. For these purposes, divestiture means a sale of all or substantially
all of the assets of a general partner, the disposition of more than 50% of the
capital stock of a general partner, or a merger or consolidation that results in
Atlas America owning, directly or indirectly, less than 50% of the general
partner's capital stock. Atlas America may transfer its interest in a general
partner to a wholly or majority-owned direct or indirect subsidiary of Atlas
America provided that Atlas America's 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 will enter into a
master natural gas gathering agreement with us. Under this agreement, Atlas
America will pay us a fee for gathering natural gas, determined as follows:
o for natural gas from well interests owned by Atlas America or Resource
Energy that are connected to the gathering systems at the time of completion of
this offering, the greater of $0.40 per mcf or 15% of the gross sales price of
the natural gas transported;
64
<PAGE>
o for natural gas from well interests owned by third parties, including
investment programs sponsored by Atlas America (but excluding natural gas
from interests in wells connected to gathering systems we may acquire in
the future from independent third parties), the greater of $0.35 per mcf or
15% of the gross sales price of the natural gas transported;
o for natural gas from well interests owned by Atlas America or Resource
Energy and connected to the gathering systems after we acquire the
gathering systems, the greater of $0.35 per mcf or 15% of the gross sales
price of the natural gas transported; and
o for natural gas from well interests in Atlas America - operated wells
drilled after we acquire the gathering systems 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 15% of the gross sales price of the natural gas
transported, less the gathering fee charged by the other gathering system.
All gathering fees payable pursuant to contracts between Atlas America
and third party owners of well interests connected to our gathering systems will
be paid to Atlas America. Resource Energy will assign to Atlas America all of
its rights and duties under its gas gathering agreements and will agree that,
for well interests owned or controlled by it, it will pay Atlas America the
gathering fees Atlas America is obligated to pay us under the master agreement.
Atlas America will be obligated to pay gathering fees owed to us from its own
resources regardless of whether it receives payment under these contracts or
agreements.
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 in the future from
independent third parties will be as set forth in any then-existing gathering
contracts or as we are able to negotiate with well owners. None of the natural
gas produced by third party wells connected to our gathering systems after the
closing of the offering or wells connected to acquired gathering systems will
come under the master agreement with Atlas America.
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 Corporation. 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, investor programs 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
65
<PAGE>
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.
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. Atlas America has 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 has advised us that it believes
that these two purchasers will purchase between 20% and 40% of Northeast Ohio's
natural gas. 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.
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 and Northeast Ohio cannot agree to a new price for the
natural gas, Atlas America may arrange to sell its natural gas to third parties.
Atlas America, however, must first give Northeast Ohio notice and an opportunity
to match the price. Thereafter, Northeast Ohio and Atlas America will set the
prices annually each November 30 and, if no agreement is reached, Atlas America
will be free to sell its 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 tied to the spot market price based on the location of
the delivery point. 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, 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 and investor programs sponsored by it; 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
66
<PAGE>
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 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 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 that
this regulation 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 ("PUCO"), the New York Public
Service Commission ("NYPSC"), and the Pennsylvania Public Utilities Commission
("PaPUC") 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 by the PUCO. Resource Energy has been granted an
exemption from PUCO regulation for certain facilities in Ohio. We intend to file
for exemption for the remainder of the Ohio facilities we will acquire. The
NYPSC 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. Regarding our Pennsylvania operations,
we believe that our operations are exempt from the PaPUC's regulatory authority.
In the event the NYPSC and PaPUC impose greater regulation for our operations,
and the PUCO declines to grant our exemption applications, 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.
67
<PAGE>
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. The state 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 has 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.
Title to Properties
Both Atlas America and Resource Energy will transfer real and personal
property to us at the same time as the transactions are consummated.
Substantially all of our pipelines are constructed on rights-of-way granted by
the apparent record owners of such property and, in some instances, such
rights-of-way are revocable at the election of the grantor. 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 apparent record owners have joined in the right-of-way grants, but in
substantially all such cases, signatures of the owners of majority interests
have been obtained. 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 and, in some instances, such permits are
revocable at the election of the grantor. 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 some cases, property for
pipeline purposes was purchased in fee. 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. Both Atlas America and Resource
Energy 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 and Resource Energy will enter
into other agreements, or take such other action as may be necessary,
68
<PAGE>
in order to ensure that we have the assets and concomitant rights necessary to
enable us to operate our business in all material respects as described in this
prospectus.
Atlas America and Resource Energy initially may continue to hold record
title to portions of certain assets as nominee 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. Additionally,
in some cases, Atlas America or Resource Energy may, on the basis of expense and
difficulty associated with the conveyance of title, retain title, as nominees
for our benefit until a future date. The general partner believes that there
will be no material adverse effect on our business as a result of any of the
foregoing circumstances. 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 or Resource Energy of title as
nominee for our benefit.
The instruments of transfer from Atlas America and Resource Energy to
us may not be recorded initially and, therefore, the real property records in
various jurisdictions may reflect record title in Atlas America or Resource
Energy. Atlas America and Resource Energy expect to complete the transfer of
record title 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.
Our books and records, along with those of Atlas America and Resource
Energy, will at all times reflect our ownership of or beneficial interest in the
properties conveyed to us, or held nominally for us, by Atlas America and
Resource Energy. However, until record title is held by us, it is possible that
real property owned by us, or by Atlas America or Resource Energy for our
benefit, could, in some jurisdictions, be subject to the claims of creditors of
either Atlas America or Resource Energy. Both Atlas America and Resource Energy
are of the opinion, however, that this presents little, if any, risk for us.
The 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 the Atlas America or Resource Energy, the
general partner believes that none of such burdens 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 is any of our property, subject to any pending legal
proceeding.
69
<PAGE>
ATLAS AMERICA, INC. AND RESOURCE ENERGY, INC.
Atlas America is an energy finance company which, through investment
programs it sponsors and its affiliate Resource Energy, produces natural gas
and, to a lesser extent, oil from locations in Eastern Ohio, Western New York
and Western Pennsylvania. Atlas America has acted as a sponsor and managing
general partner of seven private and 24 public drilling investment programs.
Atlas America and Resource Energy currently have approximately 406,000 gross
acres of mineral rights, of which approximately 282,000 are in the operating
area of our gathering systems. Atlas America also acts as general contractor
with respect to the drilling, completion and operation of the investment program
wells. At March 31, 1999, Atlas America and Resource Energy had either directly,
or through partnerships, joint ventures or other investment programs managed by
them, interests in 2,697 wells, including royalty or overriding interests in 182
wells, of which they operate approximately 2,515 wells with gross natural gas
production of approximately 37 mmcf per day. At March 31, 1999, Atlas America
held leases on properties with proved undeveloped natural gas reserves of
approximately 45.7 bcf. During the five years ended December 31, 1998, Atlas
America and Resource Energy drilled and completed over 560 wells for 12 investor
programs sponsored by it and has drilled and completed 53 wells for one investor
program during the three months ended March 31, 1999. Atlas America is also the
operator 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 65 miles of gathering systems that we have determined not to
acquire.
For more detailed information concerning Atlas America's investment
programs, including its experience in raising funds and data concerning wells
drilled, operating results and production record, you should review the tables
set forth in Appendix E to this prospectus.
Atlas America has 89 employees, including three geologists (one of whom
is an exploration geologist), five landmen, five engineers and three pipeline
construction supervisors. The balance of its personnel are operations,
administration and engineering staff and field supervisors for drilling
operations.
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 of Atlas Pipeline, 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.
70
<PAGE>
Three members of the board of directors of our general partner who are
neither officers or employees nor directors, 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. The conflicts committee will have the
authority to review specific matters as to which the board of directors 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 board of directors of any duties they may
owe us or the unitholders. See "Conflicts of Interest and Fiduciary
Responsibilities--Fiduciary and Other Duties." In addition, the members of the
conflicts committee will also constitute an audit committee which will review
the external financial reporting 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 personnel involved in managing
the gathering systems are expected to manage and operate our business as
officers and employees of our general partner and its affiliates.
Some officers of our general partner may spend a substantial amount of
time managing the business and affairs of Atlas America and its 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.
Directors and Executive Officers of Our General Partner
The following table sets forth information with respect to the
executive officers and members of the board of directors of our general partner.
Executive officers and directors are elected for one year terms.
Name Age Position with General Partner
---- --- -----------------------------
Edward E. Cohen 60 Chairman of the Board
Jonathan Z. Cohen 28 Vice-Chairman
Tony C. Banks 44 President and Director
Michael L. Staines 50 Chief Operating Officer, Secretary and Director
William R. Seiler 44 Vice President and Controller
Jeffrey C. Simmons 39 Vice President
Frank P. Carolas 38 Vice President
George C. Beyer, Jr. 60 Director
William R. Bagnell 36 Director
71
<PAGE>
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 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 was 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.
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 Chief
Operating Officer, 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.
72
<PAGE>
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.
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, Valley Forge Companies, Inc., Valley Forge Financial
Group, Inc, Valley Forge Pension Management, Inc, Valley Forge Investment
Consultants, Inc and Valley Forge Technologies Group, Inc.
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.
Shortly after completion of the transactions contemplated in this
prospectus, our general partner will add one independent director who has not
been for five years and is not currently an owner, officer, or employee of our
general partner nor an officer, director or employee of any affiliate of our
general partner. The additional independent director will join Messrs. Beyer and
Bagnell as the sole members of the conflicts committee, audit committee and
compensation committee.
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, performing services for us will be reimbursed for all expenses
incurred in our behalf. These expenses include the costs of employee, officer
and director compensation and benefits properly allocable to us and all other
expenses necessary or appropriate to the conduct of our business.
Executive Compensation
Officers and employees of our general partner may participate in employee
benefit plans and arrangements that may be established by the general partner or
its affiliates in the future. Shortly after the completion of the transactions
contemplated in this prospectus, our general partner expects that the
compensation committee will consider and implement incentive
73
<PAGE>
compensation arrangements for its key officers. The general partner expects that
these arrangements would provide additional compensation to these key officers
under circumstances where the general partner is receiving distributions under
its Incentive Distribution Rights. See "Cash Distribution Policy--Incentive
Distribution Rights." This incentive compensation will be payable solely from
amounts received by the general partner from its interest in us and will not be
an expense of Atlas Pipeline.
Compensation of Directors
No additional remuneration will be paid to officers or employees of our
general partner who also serve as directors. Our general partner anticipates
that each independent director will receive an annual retainer and fees for each
board of directors or committee meeting attended. In addition, each independent
director will be reimbursed for his out-of-pocket expenses in connection with
attending meetings of the board of directors or committees. We will indemnify
our general partner's directors for actions associated with being directors 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. Atlas America is the sole stockholder of our
general partner. The address of both Atlas America and our general partner is
311 Rouser Road, Moon Township, Pennsylvania 15108. The address of Resource
Energy is 1521 Locust Street, Philadelphia, Pennsylvania 19102.
<TABLE>
<CAPTION>
Percentage of Percentage of
Common Units Subordinated Subordinated
Common Units to to be Units to be Units to be
be Beneficially Beneficially Beneficially Beneficially
Name of Beneficial Owner Owned Owned Owned Owned
------------------------ --------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Atlas America/Resource Energy - - 492,308 100%
Edward E. Cohen - - 492,308(1) 100%
Jonathan Z. Cohen - - 492,308(1) 100%
Michael L. Staines - - 492,308(1) 100%
Tony C. Banks - - 492,308(1) 100%
Executive officers and directors as a group
(four persons) - - 492,308(1) 100%
</TABLE>
(1) Represent subordinated units owned by Atlas America and Resource Energy.
Messrs. Cohen, Cohen and Staines are executive officers and directors of
Resource Energy. Mr. Banks is an executive officer and director of Atlas
America, an affiliate of Resource Energy.
74
<PAGE>
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a result of the
relationships between our general partner and Atlas America, and its other
affiliates, on the one hand, and Atlas Pipeline and its limited partners, on the
other hand. The directors and officers of our general partner have fiduciary
duties to manage the general partner in a manner beneficial to Atlas America. 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 Atlas
Pipeline 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, and Atlas Pipeline or any other partner, on the other, our
general partner has the responsibility to resolve that conflict. A conflicts
committee of the general partner's board of directors 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
Atlas Pipeline or the unitholders if the resolution of the conflict is
considered to be fair and reasonable to Atlas Pipeline. 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 Atlas Pipeline than those generally being
provided to or available from unrelated third parties; or
o fair to Atlas Pipeline, taking into account the totality of the
relationships between the parties involved, including other transactions
that may be particularly favorable or advantageous to Atlas Pipeline.
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
75
<PAGE>
o generally accepted accounting practices or principles and other factors as
it considers relevant, if applicable.
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, borrowings by Atlas Pipeline 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 Atlas Pipeline 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 Atlas Pipeline 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. Most of the officers of our general
partner who will provide services to Atlas Pipeline will not be required to work
76
<PAGE>
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 Atlas Pipeline and affiliates of the general partner regarding the
availability of these officers to manage Atlas Pipeline.
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 Atlas Pipeline, 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 Atlas Pipeline and not against the general partner or its
assets. The partnership agreement provides that any action taken by the general
partner to limit its liability or that of Atlas Pipeline 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.
Common unitholders will have no right to enforce obligations of our general
partner and its affiliates under agreements with Atlas Pipeline. Any agreements
between Atlas Pipeline, on the one hand, and the general partner and its
affiliates, on the other, will not grant to the unitholders, separate and apart
from Atlas Pipeline, the right to enforce the obligations of the general partner
and those affiliates in favor of Atlas Pipeline.
Determinations by our general partner may affect its obligations and the
obligations of Atlas America. We have agreements with Atlas America 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 Atlas America's obligations 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
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 Atlas Pipeline, on the one hand, and the general partner
and its affiliates, 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
77
<PAGE>
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 Atlas Pipeline 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, subject to the approval of the conflicts
committee consisting of the directors of the general partner unaffiliated with
Atlas America.
We may not retain separate counsel. The attorneys, independent public
accountants and others who have performed services for us regarding the offering
have been retained by our general partner, its affiliates and us and may
continue to be retained by our general partner, its affiliates 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
its affiliates. We may retain separate counsel in the event of a conflict of
interest arising between general partner and its affiliates, on the one hand,
and Atlas Pipeline 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 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 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 of some jurisdictions 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 shall have no duty or obligation to give any consideration to any
78
<PAGE>
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 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 Atlas Pipeline.
Also, our general partner and its affiliates have no obligation to present
business opportunities to us except for Atlas America's obligations 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 directors 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 of Atlas Pipeline, 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,
directors, 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."
79
<PAGE>
DESCRIPTION OF THE COMMON UNITS
Upon completion of the offering, the common units will be registered under
the Exchange Act, and we will be subject to the reporting and other requirements
of the Exchange Act. We will be required to file periodic reports containing
financial and other information with the SEC.
The Units
The common units and the subordinated units represent limited partner
interests in Atlas Pipeline. The holders of units are entitled to participate in
partnership distributions and exercise the rights or privileges available to
limited partners under the Atlas Pipeline partnership agreement. For a
description of the relative rights and preferences of holders of common units
and subordinated units in and 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
the Atlas Pipeline partnership agreement, see "The Partnership Agreement."
Transfer Agent and Registrar
Duties. ______________________________ will serve as registrar and transfer
agent for the common units. All fees charged by the transfer agent for transfers
of common units will be borne by us, 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 respect of its
activities in that capacity, 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 shall become effective upon our appointment of a successor transfer agent
and registrar and its acceptance of the appointment. If no successor has
80
<PAGE>
been appointed within 30 days after resignation or removal of the previous
transfer agent, the general partner is authorized to act as the transfer agent
and registrar until a successor is appointed.
Transfer of Common Units
A transfer of common units will not be recorded by the transfer agent or
recognized by us unless the transferee executes and delivers a transfer
application. The form of transfer application is set forth as Appendix B to this
prospectus and is also set forth on the reverse side of the certificates
representing the common units. By executing and delivering a transfer
application, the transferee of common units:
(1) becomes the record holder of the common units and is an assignee until
admitted into Atlas Pipeline as a substitute limited partner,
(2) automatically requests admission as a substituted limited partner in
Atlas Pipeline,
(3) agrees to be bound by the terms and conditions of, and executes, our
partnership agreement,
(4) represents that the transferee has the capacity, power and authority
to enter into the partnership agreement,
(5) grants powers of attorneys to officers of the general partner and any
liquidator of Atlas Pipeline as specified in the partnership
agreement, and
(6) makes the consents and waivers contained in the partnership agreement.
An assignee will become a substituted limited partner of Atlas Pipeline in
respect of 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.
Transfer applications may be completed, executed and delivered by a
transferees' broker, agent or nominee. 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 in Atlas Pipeline in respect of the transferred
81
<PAGE>
common units. A purchaser or transferee of common units who does not execute and
deliver a transfer application obtains 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 will have a duty to provide the transferee
with all information that may be necessary to transfer the common units. The
transferor will not have a duty to insure the execution of the transfer
application by the transferee and will have no liability or responsibility if
the transferee neglects to 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 the books of Atlas Pipeline,
Atlas Pipeline and the transfer agent, notwithstanding any notice to the
contrary, 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.
DESCRIPTION OF THE SUBORDINATED UNITS
The subordinated units are a separate class of interest in Atlas Pipeline,
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, and then will
be distributed to the holders of subordinated units. See "Cash Distribution
Policy."
Conversion of Subordinated Units
The subordination period will generally extend from the closing of the
offering until the first day of any quarter beginning after December 31, 2004 in
respect of
(1) distributions of Available Cash from Operating Surplus on the common
units, the subordinated units and the related distributions on the
general partner interests with respect to each of the three
82
<PAGE>
consecutive four-quarter periods immediately preceding that date
equaled or exceeded the sum of the minimum quarterly distribution on
all of the outstanding common units, the subordinated units and the
related distributions on the general partner interests during those
periods,
(2) the Adjusted Operating Surplus generated during each of the three
consecutive four-quarter periods immediately preceding that date
equaled or exceeded the sum of the minimum quarterly distribution on
all of the common units and the subordinated units that were
outstanding on a fully diluted basis and the related distributions on
the general partner interests during those periods, and
(3) there are no outstanding arrearages in the payment of the minimum
quarterly distribution on the common units.
Upon expiration of the subordination period, all remaining subordinated
units will convert into common units on a one-for-one basis and will thereafter
participate, pro rata, with the other common units in distributions of Available
Cash. 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,
(1) the subordination period will end and all outstanding subordinated
units will immediately convert into common units on a one-for-one
basis,
(2) any existing arrearages in the payment of the minimum quarterly
distribution on the common units will be extinguished,
(3) 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
(4) 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.
Limited Voting Rights
Holders of subordinated units will generally vote as a class separate from
the holders of common units and, as in the case of holders of common units, will
have very limited voting rights. During the subordination period, common units
and subordinated units each vote separately as a class on the following matters:
(1) a sale or exchange of all or substantially all of our assets;
(2) the election of a successor general partner;
83
<PAGE>
(3) a dissolution or reconstitution of Atlas Pipeline;
(4) a merger of Atlas Pipeline;
(5) issuance of limited partner interests in some circumstances; and
(6) some amendments to the partnership agreement, including any amendment
that would cause Atlas Pipeline to be treated as an association
taxable as a corporation.
The subordinated units are not entitled to vote on approval of the
withdrawal of our general partner or the transfer by the general partner of its
general partner interest or incentive distribution rights under some
circumstances. Removal of the general partner requires a two-thirds vote of all
outstanding units. Under the partnership agreement, our general partner
generally will be permitted to effect amendments to the partnership agreement
that do not materially adversely affect unitholders without the approval of any
unitholders.
Distributions Upon Liquidation
If we liquidate during the subordination period, in some circumstances
holders of outstanding common units will be entitled to receive more per unit in
liquidating distributions than holders of outstanding subordinated units. The
per unit difference will be dependent upon the amount of gain or loss we
recognize in liquidating our assets. Following conversion of the subordinated
units into common units, all units will be treated the same upon our
liquidation.
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of the Atlas Pipeline
partnership agreement. The form of the partnership agreement 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 constitutes a part. Atlas Pipeline will provide prospective
investors with a copy of the form of the operating partnership agreement upon
request at no charge. Unless the context otherwise requires, references herein
to the "partnership agreement" constitute references to the Atlas Pipeline
partnership agreement and the partnership agreement, collectively.
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."
84
<PAGE>
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 the partnership agreement.
Purpose
Our purpose under the 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 Atlas Pipeline operating partnership agreement
provides that the operating partnership may, directly or indirectly, engage in:
(1) operations as conducted immediately before the offering, including the
ownership and operation of the gathering systems acquired from Atlas
America;
(2) 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
(3) any activity that enhances the operations of an activity that is
described in (1) or (2) above.
Although the general partner has the ability to cause Atlas Pipeline and
the operating partnership to engage in activities other than the gathering of
natural gas, the general partner has no current plans to do so. The general
partner is authorized in general to perform all acts deemed necessary to carry
out our purposes and to conduct our business.
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 the
general partner and, if appointed, a liquidator, a power of attorney to, among
other things, execute and file documents required for the qualification,
continuance or dissolution of Atlas Pipeline. The power of attorney also grants
the authority for the amendment of, and to make consents and waivers under, the
partnership agreement.
85
<PAGE>
Capital Contributions
For a description of the initial capital contributions to be made to us,
see "The Transactions." Unitholders are not obligated to make additional capital
contributions, except as described below under "-Limited Liability."
Limited Liability
Assuming that a limited partner does not participate in the control of our
business within the meaning of the Delaware Act and that he otherwise acts in
conformity with the provisions of the partnership agreement, his liability under
the Delaware Act will be limited, subject to possible exceptions, 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 the general partner. This
liability would extend to persons who transact business with us who reasonably
believe that the limited partner is a general partner.
Under the Delaware Act, a limited partnership may not make a distribution
to a partner if after the distribution, all liabilities of the limited
partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of the assets of the
limited partnership. 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
shall be 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 of a limited partnership 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 could not be ascertained from the partnership agreement.
The operating partnership will initially conduct business in three states.
Maintenance of limited liability for Atlas Pipeline, as the limited partner in
the operating partnership, may require compliance with legal requirements in the
jurisdictions in which the operating partnership conducts business, including
86
<PAGE>
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 without compliance with 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 under the circumstances. We will operate in a manner the general partner
considers reasonable and necessary or appropriate to preserve the limited
liability of the limited partners.
Issuance of Additional Securities
The 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 the general
partner in its sole discretion without the approval of any limited partners.
During the subordination period, the issuance of additional common units or
units on a parity with common units, without the approval of the holders of a
unit majority, is limited to 192,000 units with the exceptions described below
in this paragraph. These 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:
(1) upon exercise of the underwriters' overallotment option;
(2) upon conversion of subordinated units;
(3) issuance under employee benefit plans;
(4) upon conversion of the general partner interests and incentive
distribution rights as a result of a withdrawal of the general
partner;
(5) in the event of a combination or subdivision of common units; or
(6) issuance for an acquisition or capital improvement that would have
resulted, on a pro forma basis, in no decrease in cash flow on a per
unit basis pro forma for the preceding four-quarter period.
In addition, we may issue additional common units during the subordination
period if we elect to require Atlas America to provide construction financing
under its commitment. This commitment is described at "Business - Agreements
with Atlas America-Omnibus Agreement: Construction Financing."
87
<PAGE>
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 the over-allotment option, the general partner will be required to
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 their percentage
interest, including their interest represented by common units and subordinated
units, that existed immediately prior to 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 greater than four to one; or
o result in our aggregate indebtedness exceed two times EBITDA for the
immediately preceding fiscal year (determined on a pro forma basis
giving effect to acquisitions completed in such 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 such year) divided by the annual interest payments
required under all debt to which we are subject, including interest required
under the proposed indebtedness.
For purposes of calculating our debt limitations, EBITDA will be defined as
our income or loss before interest expense, income taxes and depreciation,
depletion and amortization.
88
<PAGE>
Amendment of Partnership Agreement
Amendments to the partnership 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. In order to adopt a proposed amendment, other than the
amendments discussed below, the general partner is required to 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 except as described below.
Prohibited Amendments. No amendment may be made that would:
(1) enlarge the obligations of any limited partner without its
consent, unless approved by at lease a majority of the type or class of
limited partner interests so affected;
(2) 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 Atlas Pipeline to the general
partner or any of its affiliates without its consent, which may be
given or withheld in its sole discretion;
(3) change the term of Atlas Pipeline;
(4) provide that Atlas Pipeline is not dissolved upon the
expiration of its term or upon an election to dissolve Atlas Pipeline
by the general partner that is approved by holders of a unit majority;
or
(5) give any person the right to dissolve Atlas Pipeline other
than the general partner's right to dissolve Atlas Pipeline with the
approval of holders of a unit majority.
The provision of the partnership agreement preventing the amendments
having the effects described in clauses (1)-(5) 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. The general partner may generally make
amendments to the partnership agreement without the approval of any limited
partner or assignee to reflect:
(1) a change in the name of Atlas Pipeline, the location of
the principal place of business of Atlas Pipeline, the registered agent
or the registered office of Atlas Pipeline;
(2) the admission, substitution, withdrawal or removal of
partners in accordance with the partnership agreement;
(3) a change that, in the sole discretion of the general
partner, is necessary or advisable to qualify or continue the
qualification of Atlas Pipeline 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 neither Atlas Pipeline nor the
operating partnership will be treated as an association taxable as
89
<PAGE>
a corporation or otherwise taxed as an entity for federal income tax
purposes;
(4) an amendment that is necessary, in the opinion of counsel
to Atlas Pipeline to prevent Atlas Pipeline or the general partner or
its directors, officers, agents or trustees, from in any manner being
subjected to the provisions of the Investment Company Act of 1940, the
Investment Advisors Act of 1940, or "plan asset" regulations adopted
under the Employee Retirement Income Security Act of 1974, whether or
not substantially similar to plan asset regulations currently applied
or proposed;
(5) 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 the general partner is
necessary or advisable for the authorization of additional limited or
general partner interests;
(6) any amendment expressly permitted in the partnership
agreement to be made by the general partner acting alone;
(7) an amendment effected, necessitated or contemplated by a
merger agreement that has been approved under the terms of the
partnership agreement;
(8) any amendment that, in the discretion of the general
partner, is necessary or advisable for the formation by Atlas Pipeline
of, or its investment in, any corporation, partnership or other entity,
other than the operating partnership, as otherwise permitted by the
partnership agreement;
(9) a change in the fiscal year or taxable year of Atlas
Pipeline and related changes; and
(10) any other amendments substantially similar to any of the
matters described in (1)-(9) above.
In addition, the general partner may make amendments to the partnership
agreement without the approval of any limited partner or assignee if those
amendments, in the discretion of the general partner:
(1) do not adversely affect the limited partners in any
material respect;
(2) are necessary or advisable to satisfy any requirements,
conditions or guidelines contained in any opinion, directive, order,
ruling or regulation of any federal or state agency or judicial
authority or contained in any federal or state statute;
(3) are necessary or advisable to facilitate the trading of
limited partner interests or to comply with any rule, regulation,
guideline or requirement of any securities exchange or interdealer
quotation system on which the limited partner interests are or will
90
<PAGE>
be listed for trading, compliance with any of which the general
partner deems to be in the best interests of Atlas Pipeline and the
limited partners;
(4) are necessary or advisable for any action taken by the
general partner relating to splits or combinations of units under the
provisions of the partnership agreement; or
(5) are required to effect the intent expressed in this
prospectus or the intent of the provisions of the partnership agreement
or are otherwise contemplated by the partnership agreement.
Opinion of Counsel and Unitholder Approval. The general partner will
not be required to obtain an opinion of counsel that an amendment will not
result in a loss of limited liability to the limited partners or result in Atlas
Pipeline being treated as an entity for federal income tax purposes if one of
the amendments described above under "-No Unitholder Approval" should occur. No
other amendments to the partnership agreement will become effective without the
approval of holders of at least 90% of the units unless Atlas Pipeline obtains
an opinion of counsel to the effect that the amendment will not affect the
limited liability under applicable law of any limited partner in Atlas Pipeline
or cause Atlas Pipeline 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).
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. Any amendment that reduces the voting percentage
required to take any action is required to be approved by the affirmative vote
of limited partners constituting not less than the voting requirement sought to
be reduced.
Merger, Sale or Other Disposition of Assets
The general partner is generally prohibited, without the prior approval
of holders of a unit majority, from causing Atlas Pipeline to, among other
things, sell, exchange or otherwise dispose of all of substantially all of its
assets in a single transaction or a series of related transactions, including by
way of merger, consolidation or other combination, or approving on behalf of
Atlas Pipeline the sale, exchange or other disposition of all or substantially
all of the assets of the operating partnership; provided that the general
partner may mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of Atlas Pipeline's assets without that approval. The general
partner may also sell all or substantially all of Atlas Pipeline's assets under
a foreclosure or other realization upon the encumbrances above without that
approval. Furthermore, provided that conditions specified in the partnership
agreement are satisfied, the general partner may merge Atlas Pipeline or any of
its subsidiaries into, or convey some or all of their assets to, a newly formed
entity if the sole purpose of that merger or conveyance is to effect a mere
change in the legal form of Atlas Pipeline 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 Atlas Pipeline's assets
or any other transaction or event.
91
<PAGE>
Termination and Dissolution
We will continue until December 31, 2098, unless terminated sooner
under the partnership agreement. We will dissolve upon:
(1) the election of the general partner to dissolve us, if
approved by the holders of a unit majority;
(2) the sale, exchange or other disposition of all or
substantially all of the assets and properties of Atlas Pipeline and
the operating partnership;
(3) the entry of a decree of judicial dissolution of
Atlas Pipeline; or
(4) the withdrawal or removal of the general partner or any
other event that results in its ceasing to be the general partner other
than by reason 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.
Upon a dissolution under clause (4), the holders of a unit majority may
also elect, within specific time limitations, to reconstitute Atlas Pipeline and
continue its business on the same terms and conditions described in the
partnership agreement 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 unit majority subject to receipt by Atlas Pipeline
of an opinion of counsel to the effect that:
(1) the action would not result in the loss of limited
liability of any limited partner; and
(2) neither Atlas Pipeline, 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 that right
to continue.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued as a
new limited partnership, the liquidator authorized to wind up our affairs will,
acting with all of the powers of the 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 provided 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.
92
<PAGE>
Withdrawal or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as the general partner of Atlas Pipeline 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 the general partner and its affiliates, and furnishing an
opinion of counsel regarding limited liability and tax matters. Upon expiration
of the subordination period, our general partner may withdraw as the general
partner without first obtaining approval from any unitholder by giving 90 days'
written notice, and that withdrawal will not constitute a violation of the
partnership agreement. Notwithstanding the information above, our general
partner may withdraw without unitholder approval upon 90 days' notice to the
limited partners 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, the partnership agreement permits the general
partner in some instances to sell or otherwise transfer all of its general
partner interests in Atlas Pipeline without the approval of the unitholders. See
"-Transfer of General Partner Interest and Incentive Distribution Rights."
Upon the withdrawal of our general partner under any circumstances,
other than as a result of a transfer by the general partner of all or a part of
its general partner interests in Atlas Pipeline, the holders of a unit majority
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, Atlas Pipeline will be dissolved, wound up and
liquidated, unless within 180 days after that withdrawal the holders of a unit
majority agree in writing to continue the business of Atlas Pipeline 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 the general partner and its affiliates, and Atlas
Pipeline receives an opinion of counsel regarding limited liability and tax
matters. The ownership of the subordinated units by Atlas America, Resource
Energy and other affiliates of our general partner has the practical effect of
making the general partner's removal quite difficult. Any removal of this kind
is also subject to the approval of a successor general partner by the vote of
the holders of a unit majority. The partnership agreement also provides that 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:
(1) the subordination period will end and all outstanding
subordinated units will immediately convert into common units on a
one-for-one basis,
(2) any existing arrearages in payment of the minimum
quarterly distribution on the common units will be extinguished,
(3) the amount of any capital contribution made by the 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
93
<PAGE>
(4) the general partner will have the right to convert its
general partner interests and all the incentive distribution rights
into common units or to receive cash in exchange for those interests.
Withdrawal or removal of the general partner as a general partner of
Atlas Pipeline also constitutes withdrawal or removal, as the case may be, of
the general partner as a general partner of the operating partnership.
In the event of removal of the general partner under circumstances
where cause exists or withdrawal of the general partner where that withdrawal
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 by the limited partners, the departing general
partner will have the option to require the successor general partner to
purchase the general partner interests of the departing general partner and its
incentive distribution rights for their fair market value. In each case, this
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 investment banking firm or other independent expert selected by the
departing general partner and the successor general partner will determine the
fair market value. Or if the departing general partner and the successor general
partner cannot agree upon an expert, then an expert chosen by agreement of the
experts selected by each of them will determine the fair market value. In
addition, Atlas Pipeline will be required to reimburse the departing general
partner for all amounts due the departing general partner, including, without
limitation, all employee-related liabilities, including severance liabilities,
incurred for the termination of any employees employed by the departing general
partner for the benefit Atlas Pipeline.
If the above-described option is not exercised by either the departing
general partner or the successor general partner, the departing general
partner's general partner interests and its incentive distribution rights will
automatically convert into common units equal to the fair market value of those
interests, as determined by an investment banking firm or other independent
expert selected in the manner described in the preceding paragraph.
Transfer of General Partner Interest and Incentive Distribution Rights
Except for a transfer by a general partner of all, but not less than
all, of its general partner interest in Atlas Pipeline and the operating
partnership to:
(a) an affiliate of the general partner; or
(b) 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,
94
<PAGE>
the general partner may not transfer all or any part of its general partner
interest in Atlas Pipeline 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 common units held by the
general partner and its affiliates. As a condition to this transfer, the
transferee must assume the rights and duties of the general partner to whose
interest that transferee has succeeded, agree to be bound by the provisions of
the partnership agreement, 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. The general partner may
at any time, however, transfer its common units and subordinated units to one or
more persons, other than Atlas Pipeline, without unitholder approval. At any
time, the stockholder(s) of the general partner may sell or transfer all or part
of their interest in the general partner to an affiliate without the approval of
the unitholders. The general partner or its affiliates 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; provided that, in each case, the transferee agrees 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 unit majority.
Atlas America has also entered into an agreement with us pursuant to
which it will not divest its interest in our general partner without also
divesting to the same acquiror its interest in its subsidiary that acts as the
general partner of investment programs sponsored by it. See "Business -
Agreements with Atlas America - 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 GP as our general partner or otherwise change management. If any person
or group other than the general partner and its affiliates acquires beneficial
ownership of 20% or more of any class of units, that person or group loses
voting rights on all of its units. The partnership agreement also provides for
certain potentially adverse consequences if the general partner is removed 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. See "-Withdrawal or
Removal of the General Partner."
Meetings; Voting
Except as described below regarding a person or group owning 20% or
more of all units, unitholders or assignees who are recorded holders of units on
the 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 limited partner, shall be voted by the 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 the general partner on behalf of non-citizen assignees, the
95
<PAGE>
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.
The general partner does not anticipate that any meeting of unitholders
will be called in the foreseeable future. Any action that is required or
permitted 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
authorize or take that action at a meeting. 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 shall 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 shall be the greater percentage.
Each record holder of a unit has a vote according to his percentage
interest in Atlas Pipeline, although additional limited partner interests having
special voting rights could be issued. See "-Issuance of Additional Securities."
However, if at any time any person or group, other than the general partner and
its affiliates or a direct transferee of the general partner or its affiliates,
acquires, in the aggregate, beneficial ownership of 20% or more of any class of
units then outstanding, the person or group will lose voting rights on all of
its units and the units may not be voted on any matter and will not be
considered to be outstanding when sending notices of a meeting of unitholders,
calculating required votes, determining the presence of a quorum or for other
similar purposes. 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 unless the arrangement between the beneficial owner and his
nominee provides otherwise. Except as otherwise provided in the partnership
agreement, subordinated units will vote together with common units as a single
class.
Any notice, demand, request, report or proxy material required or
permitted to be given or made to record holders of common units under the
partnership agreement will be delivered to the record holder by Atlas Pipeline
or by the transfer agent.
Status as Limited Partner or Assignee
Except as described above under "-Limited Liability," the common units
will be fully paid, and 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 for the right to
share in allocations and distributions from Atlas Pipeline, including
liquidating distributions. The general partner will vote and exercise other
powers attributable to common units owned by an assignee who has not become a
substitute limited partner at the written direction of the assignee. See
"-Meetings; Voting." Transferees who do not execute and deliver a transfer
application will be treated neither as assignees nor as record holders of common
units, and will not receive cash distributions, federal income tax allocations
96
<PAGE>
or reports furnished to record holders of common units. 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 the general partner, create
a substantial risk of cancellation of forfeiture of any property that we have an
interest in because of the nationality, citizenship or to the 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, the 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 information about this
nationality, citizenship or other related status within 30 days after a request
for the information or the general partner determines after receipt of the
information that the limited partner or assignee is not an eligible citizen, the
limited partner or 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, to the fullest extent permitted by law, from
and against all losses, claims, damages or similar events:
(1) the general partner;
(2) any departing general partner;
(3) any person who is or was an affiliate of a general partner or
any departing general partner;
(4) any person who is or was a member, partner, officer, director,
employee, agent or trustee of a general partner or any
departing general partner or any affiliate of a general
partner or any departing general partner; or
(5) 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.
Any indemnification under these provisions will be only out of our
assets. The general partner shall not be personally liable for, or have any
obligation to contribute or loan funds or assets to us to enable us to
effectuate indemnification. We are authorized 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.
97
<PAGE>
Books and Reports
The general partner is required to 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 of a unit information reasonably
required for tax reporting purposes within 90 days after the close of each
calendar year. This information is expected to be furnished 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. Every
unitholder will receive 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:
(1) a current list of the name and last known address of each
partner;
(2) a copy of our tax returns;
(3) 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;
(4) copies of the partnership agreement, the certificate of
limited partnership of the partnership, related amendments and
powers of attorney under which they have been executed;
(5) information regarding the status of our business and financial
condition; and
(6) other information regarding our affairs that is just and
reasonable.
98
<PAGE>
The general partner may, and intends to, keep confidential from the
limited partners trade secrets or other information the disclosure of which the
general partner believes in good faith is not in Atlas Pipeline's 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 the
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 hereby, the general partner
will hold 492,308 subordinated units. All of these subordinated units will
convert into common units at the end of the subordination period and some 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 the 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 Atlas Pipeline may
not be resold publicly except in compliance with the registration requirements
of the Securities Act or under an exemption therefrom 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
(1) 1% of the total number of the securities outstanding;
or
(2) 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
Atlas Pipeline. A person who is not deemed to have been an affiliate of Atlas
Pipeline 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, would be
entitled to 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.
Prior to the end of the subordination period, Atlas Pipeline is subject
to limitations upon the number of common units, or units on a parity with the
common units it may issue, without the approval of the holders of a unit
majority. See "The Partnership Agreement - Issuance of Additional Securities."
After the subordination period, Atlas Pipeline may issue an unlimited number of
limited partner interests of any type without a vote of the unitholders. The
99
<PAGE>
partnership agreement doesn't restrict Atlas Pipeline's ability to issue equity
securities ranking junior to the common units at any time. Any issuance of
additional common units or some other equity securities would result in a
corresponding decrease in the proportionate ownership interest in Atlas Pipeline
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."
Under the partnership agreement, the general partner and its affiliates
will have the right to cause Atlas Pipeline to 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 the general partner and its affiliates or their assignees holding any
units to require registration of these units and to include these units in a
registration by Atlas Pipeline of other units, including units offered by Atlas
Pipeline or by any unitholder. These registration rights will continue in effect
for two years following any withdrawal or removal of the general partner as a
general partner of Atlas Pipeline. In connection with any registration of this
kind, Atlas Pipeline 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. Atlas Pipeline will bear
all costs and expenses of the registration. Except as described below, the
general partner and its affiliates may sell their units in private transactions
at any time, subject to compliance with applicable laws.
Atlas Pipeline, the operating partnership, the general partner, Atlas
America and some of its affiliates and the officers and directors of the general
partner 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 pari passu 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 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. 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
Atlas Pipeline and our 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
100
<PAGE>
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
Counsel is of the opinion that, based on the accuracy of
representations made by us and subject to the qualifications set forth in the
detailed discussion that follows, for federal income tax purposes:
(1) We and each operating partnership will each be treated as a
partnership; and
(2) owners of common units, with some exceptions as described in
" --Limited Partner Status" below, will be treated as our
partners.
In addition, all statements as to matters of law and legal conclusions contained
in this section, unless otherwise noted, are the opinion of counsel.
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 the IRS will be borne
directly or indirectly by the unitholders and the general partner. Furthermore,
counsel cannot assure you that the treatment of Atlas Pipeline, or an investment
in Atlas Pipeline, will not be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may or may not be
retroactively applied.
For the reasons described below, counsel has not rendered an opinion
with respect to the following specific federal income tax issues:
(1) 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"),
101
<PAGE>
(2) 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"),
(3) 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
(4) 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 the status of Atlas Pipeline 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, each of Atlas Pipeline and the operating partnership will be classified
as a partnership for federal income tax purposes.
In rendering its opinion, counsel 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:
(a) Neither Atlas Pipeline nor any operating partnership will
elect to be treated as an association or corporation;
(b) Atlas Pipeline and each operating partnership will be operated
in accordance with
(1) all applicable partnership statutes,
(2) its applicable partnership agreement and
(3) its description in this prospectus;
(c) For each taxable year, more than 90% of our gross income will be
derived from:
(1) the exploration, development, production, processing,
refining, transportation or marketing of any mineral
or natural resource, including oil, gas or products
thereof, or
102
<PAGE>
(2) 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 gas and products thereof.
We estimate that less than __% 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, counsel 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.
103
<PAGE>
Limited Partner Status
Unitholders who have become our limited partners will be treated as our
partners for federal income tax purposes. Counsel is also of the opinion that
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited partners,
and
(b) 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, counsel'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.
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,
104
<PAGE>
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 recapture 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 __% 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.
105
<PAGE>
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 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
106
<PAGE>
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:
(1) interest on indebtedness properly allocable to property held
for investment;
(2) our interest expense attributed to portfolio income; and
(3) the portion of interest expense incurred to purchase or carry
an interest in a passive activity to the extent attributable
to portfolio income.
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
107
<PAGE>
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.
Counsel 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 given effect
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
108
<PAGE>
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."
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 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
109
<PAGE>
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. Because we cannot match transferors and
transferees of units, uniformity of the units to a purchaser of units must be
maintained. In the absence of uniformity, compliance with a number of federal
income tax requirements, both statutory and regulatory, could be substantially
diminished. 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."
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, consistent with the proposed regulations under Section 743,
but despite its inconsistency 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. 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 depreciation and amortization deductions not taken in the year that
these deductions are otherwise allowable.
110
<PAGE>
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. Counsel 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
111
<PAGE>
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 clear whether the ruling applies to us,
because, similar to corporate stock, units are evidenced by separate
certificates. Accordingly, counsel 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:
(1) a short sale;
(2) an offsetting notional principal contract; or
(3) 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
112
<PAGE>
the NYSE 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
NYSE 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, counsel 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 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. Although the proposed regulations
under Section 743 will likely eliminate many of the problems if finalized in
their current form, the depreciation and amortization methods and useful lives
associated with the Section 743(b) adjustment may differ from the methods and
useful lives generally used to depreciate the common basis in these properties.
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."
113
<PAGE>
Although counsel is unable to opine as to the validity of this
approach, 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.
114
<PAGE>
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 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.
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.
115
<PAGE>
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 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.
116
<PAGE>
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 be sought 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:
(1) taxable income or loss from passive loss limitation activities;
(2) taxable income or loss from other activities (including portfolio
income or loss);
(3) net capital gains to the extent allocable to passive loss
limitation activities and other activities;
(4) tax exempt interest;
117
<PAGE>
(5) a net alternative minimum tax adjustment separately computed
for passive loss limitation activities and other activities;
(6) general credits;
(7) low-income housing credit;
(8) rehabilitation credit;
(9) foreign income taxes;
(10) credit for producing fuel from a nonconventional source; and
(11) 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:
(a) the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b) whether the beneficial owner is
(1) a person that is not a United States person;
(2) a foreign government, an international organization
or any wholly owned agency or instrumentality of
either of the foregoing; or
(3) a tax-exempt entity.
118
<PAGE>
(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d) 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 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:
119
<PAGE>
(1) for which there is, or was, "substantial authority"; or
(2) 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
120
<PAGE>
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. Counsel has not rendered an opinion on the state or
local tax consequences of an investment in us.
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:
(a) whether the investment is prudent under Section 404(a)(1)(B) of
ERISA:
(b) whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of ERISA; and
(c) 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,
121
<PAGE>
(a) 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;
(b) 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
(c) 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
requirements in (a) 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.
LEGAL MATTERS
The validity of the common units will be passed upon for Atlas Pipeline
by Ledgewood Law Firm, P.C., Philadelphia, Pennsylvania. Certain tax matters
will be passed upon 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 Energy, 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.
122
<PAGE>
O Atlas America, Inc. - Consolidated Balance Sheet as of September
30, 1998.
O Atlas Pipeline GP, Inc. - Balance Sheet as of June 30, 1999.
O Atlas Pipeline Partners, L.P. - Balance Sheet as of June 30,
1999.
The consolidated financial statements of The Atlas Group, Inc. as of
June 30, 1998 and July 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 giving said reports.
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. This prospectus does not
contain all of the information 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 exhibits and schedules. You may desire to review the full text of
any contracts, agreements or other documents filed as exhibits to the
registration statement for a more complete description of the matter involved.
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
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 http://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 http://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 fiscal year of
Atlas Pipeline.
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
123
<PAGE>
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
Atlas Pipeline 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. is the representative of the underwriters.
Underwriters Number of Common Units
------------ ----------------------
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
288,000 common units from Atlas Pipeline 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 Atlas Pipeline.
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. 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, the general partner, Atlas
America and some of its affiliates and the officers and directors of the general
partner have agreed with the underwriters not to dispose of any of their common
units or subordinated units or securities convertible into or exchangeable for,
124
<PAGE>
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.
Prior to the 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 intend to have our common units listed 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
125
<PAGE>
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, the general partner, Atlas
America and some of its affiliates have agreed to indemnify the several
underwriters against various liabilities, including liabilities under the
Securities Act.
Some of the underwriters engage in transactions with, and, from time to
time, have performed services for, Resource America, the parent company of Atlas
America and Resource Energy and the indirect corporate parent of our general
partner, in the ordinary course of business and have received customary fees for
performing these services.
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction...................................................................................................... F-2
Pro Forma Balance Sheet as of March 31, 1999...................................................................... F-3
Pro Forma Statement of Operations for the three months ended March 31, 1999....................................... F-4
Pro Forma Statement of Operations for the three months ended March 31, 1998....................................... F-5
Pro Forma Statement of Operations for the year ended December 31, 1998............................................ F-6
Pro Forma Statement of Operations for the year ended December 31, 1997............................................ F-7
Note to Pro Forma Financial Statements............................................................................ F-8
RESOURCE AMERICA, INC. GATHERING OPERATIONS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Introduction...................................................................................................... F-10
Pro Forma Combined Statement of Operations for the year ended December 31, 1998................................... F-11
Notes to Pro Forma Combined Statement of Operations............................................................... F-12
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants................................................................................. F-13
Combined Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 and 1997........................... F-14
Combined Statements of Operations for the three months ended March 31, 1999 and 1998 (unaudited),
and the years ended December 31, 1998, 1997, and 1996........................................................... F-15
Combined Statements of Cash Flows for the three months ended March 31, 1999 and 1998 (unaudited),
and the years ended December 31, 1998, 1997, and 1996........................................................... F-16
Notes to Combined Financial Statements............................................................................ F-17
THE ATLAS GROUP, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants................................................................................. F-22
Combined Balance Sheets as of September 29, 1998 and December 31, 1997............................................ F-23
Combined Statements of Operations for the nine months ended September 29, 1998 and the years ended
December 31, 1997 and 1996...................................................................................... F-24
Combined Statements of Cash Flows for the nine months ended September 29, 1998 and the years ended
December 31, 1997 and 1996...................................................................................... F-25
Notes to Combined Financial Statements............................................................................ F-26
ATLAS AMERICA, INC. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 1999 (unaudited)....................................................... F-31
Consolidated Statements of Operations for the six months ended March 31, 1999 (unaudited)......................... F-32
Consolidated Statements of Cash Flows for the six months ended March 31, 1999 (unaudited)......................... F-33
Notes to Consolidated Financial Statements........................................................................ F-34
ATLAS AMERICA, INC. CONSOLIDATED BALANCE SHEET
Report of Independent Accountants................................................................................. F-36
Consolidated Balance Sheet as of September 30, 1998............................................................... F-37
Notes to Consolidated Balance Sheet............................................................................... F-38
THE ATLAS GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants................................................................................. F-45
Consolidated Statements of Financial Position as of June 30, 1998 and July 31, 1997............................... F-46
Consolidated Statements of Income for the eleven months ended June 30, 1998 and the years ended
July 31, 1997................................................................................................... F-47
Consolidated Statements of Cash Flows for the eleven months ended June 30, 1998 and the
years ended July 31, 1997....................................................................................... F-48
Notes to Consolidated Financial Statements........................................................................ F-49
ATLAS PIPELINE GP, INC. BALANCE SHEET
Report of Independent Accountants................................................................................. F-57
Balance Sheet as of June 30, 1999................................................................................. F-58
Notes to Balance Sheet............................................................................................ F-59
ATLAS PIPELINE PARTNERS, L.P. BALANCE SHEET
Report of Independent Accountants................................................................................. F-60
Balance Sheet as of June 30, 1999................................................................................. F-61
Note to Balance Sheet............................................................................................. F-62
</TABLE>
F-1
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Following are the unaudited pro forma financial statements of Atlas
Pipeline as of March 31, 1999 and for the years ended December 31, 1998 and 1997
and the three months ended March 31, 1999 and 1998. The unaudited pro forma
balance sheet assumes that the offering and the transactions occurred as of
March 31, 1999, and the statements of operations assume the offering and
transactions as described in this prospectus occurred January 1, 1997. 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 believes that the accounting treatment used to reflect
these transactions provides a reasonable basis on which to present this
unaudited pro forma financial data. 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
and The Atlas Group, Inc. 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-2
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA BALANCE SHEET (unaudited)
MARCH 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
Resource
America, Inc. Pro Forma and
Gathering Offering Pro Forma
Operations Adjustments As Adjusted
ASSETS -------------- -------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 36 $ 714 A $ 750
Accounts receivable - affiliates............................ 234 (234) A -
Property and equipment
Gas gathering and transmission facilities.............. 9,136 (1,360) A 35,075
27,299 A
Less - accumulated depreciation and amortization....... (1,360) 1,360 A -
-------------- ----------- -----------
7,776 27,299 35,075
Other assets................................................ 2,546 67 B 2,613
------------- ----------- -----------
$ 10,592 $ 27,846 $ 38,438
============= =========== ===========
LIABILITIES
Accounts payable and accrued liabilities.................... $ 105 $ (71) A $ -
(34) A -
Advances from parent........................................ 6,402 (6,402) A -
Other long-term liabilities................................. 410 (410) A -
EQUITY
Combined equity............................................. $ 3,675 $ (3,675) A $ -
Common units................................................ - 29,981 A 29,981
Subordinated units.......................................... - 7,688 A 7,688
General partner interest.................................... - 769 A 769
------------- ----------- -----------
$ 10,592 $ 27,846 $ 38,438
============= =========== ===========
</TABLE>
See notes to pro forma financial statements
F-3
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
Resource
America, Inc. Pro Forma and
Gathering Offering Pro Forma
Operations Adjustments As Adjusted
Revenues ---------- ----------- -----------
<S> <C> <C> <C>
Transportation and compression revenue................... $ 722 $ 450 C $ 1,172
Interest income.......................................... 10 D 10
---------- ---------- -----------
722 460 1,182
Costs and expenses
Transportation and compression........................... 135 - 135
General and administrative............................... 98 (36) C 62
Interest expense......................................... 84 (84) E -
Depreciation and amortization............................ 145 (145) B 458
- 458 F -
---------- ---------- -----------
Total costs and expenses............................... 462 193 655
---------- ---------- -----------
Income from operations................................. 260 267 527
Provision for income taxes.................................... 104 (104) G -
---------- ----------- -----------
Net income.................................................... $ 156 $ 371 $ 527
========== ========== ===========
Net income per unit........................................... $ 0.21
===========
</TABLE>
See notes to pro forma financial statements
F-4
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
-----------------------------
Resource The Atlas
America, Inc. Group, Inc. Pro Forma and
Gathering Gathering Offering Pro Forma
Operations Operations Adjustments As Adjusted
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Transportation and compression revenue................... $ 69 $ 671 $ 579 C $ 1,319
Interest income.......................................... 10 D 10
----------- ----------- ----------- -----------
69 671 589 1,329
Costs and expenses
Transportation and compression........................... 17 113 - 130
General and administrative............................... 12 86 (36) C 62
Property tax............................................. 3 1 - 4
Interest expense......................................... - 92 (92) E -
Depreciation and amortization............................ 42 316 (358) B 458
458 F
----------- ----------- ------------ -----------
Total costs and expenses............................... 74 608 (28) 654
----------- ----------- ------------ -----------
Income (loss) from operations.......................... (5) 63 617 675
Provision (benefit) for income taxes.......................... (2) 25 (23) G -
------------ ----------- ------------ -----------
Net income (loss)............................................. $ (3) $ 38 $ 640 $ 675
============ =========== =========== ===========
Net income per unit........................................... $ 0.27
===========
</TABLE>
See notes to pro forma financial statements
F-5
<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
------------------------------
Atlas Resource
Group, Inc. America, Inc.
Gathering Gathering
Operations Operations
---------- ----------
Nine Months Year
Ended Ended Pro Forma
September 29, December 31, and Offering Pro Forma
1998 1998 Adjustments As Adjusted
--------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Transportation and compression revenue............... $ 2,026 $ 1,045 $ 1,958 C $ 5,029
Interest income...................................... 38 D 38
--------- --------- ---------- -----------
2,026 1,045 1,996 5,067
Costs and expenses:
Transportation and compression....................... 315 192 - 507
General and administrative........................... 355 117 (214) C 258
Property tax expense................................. 1 13 - 14
Interest expense..................................... 277 87 (364) E -
Depreciation and amortization........................ 1,098 287 (1,385) B 3,495
3,495 F
--------- --------- ---------- -----------
Total costs and expenses......................... 2,046 696 1,532 4,274
--------- --------- ---------- -----------
Income (loss) from operations.................... (20) 349 464 793
Provision (benefit) for income taxes...................... (8) 139 (131) G -
---------- --------- ----------- -----------
Net income (loss) ........................................ $ (12) $ 210 $ 596 $ 793
========== ========= ========== ===========
Net income per unit....................................... $ 0.32
===========
</TABLE>
See notes to pro forma financial statements
F-6
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
--------------------------
Atlas Resource
Group, Inc America, Inc. Pro Forma
Gathering Gathering and Offering Pro Forma
Operations Operations Adjustments As Adjusted
Revenues: ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Transportation and compression revenue............... $ 2,578 $ 349 $ 1,913 C $ 4,840
Interest income...................................... 38 D 38
--------- --------- ---------- -----------
2,578 349 1,951 4,878
Costs and expenses:
Transportation and compression....................... 479 81 - 560
General and administrative........................... 287 32 (69) C 250
Property tax expense................................. 2 13 - 15
Interest expense..................................... 370 - (370) E -
Depreciation and amortization........................ 1,188 172 (1,360) B 3,495
3,495 F
--------- --------- ---------- -----------
Total costs and expenses......................... 2,326 298 1,696 4,320
--------- --------- ---------- -----------
Income from operations........................... 252 51 255 558
Provision for income taxes................................ 101 19 (120) G -
--------- --------- ----------- -----------
Net income................................................ $ 151 $ 32 $ 375 $ 558
========= ========= ========== ===========
Net income per unit....................................... $ 0.23
===========
</TABLE>
See notes to pro forma financial statements
F-7
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTE TO PRO FORMA FINANCIAL STATEMENTS (unaudited)
The accompanying pro forma financial statements include the gathering
operations, pipeline assets, liabilities, equity and operations of Resource
America. Gathering Operations operates 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. On September 29, 1998, RAI acquired all of the
common stock of Atlas America, formerly The Atlas Group, Inc., in exchange for
2,063,496 shares of RAI'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 September 30, 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.
The pro forma and offering adjustments have been prepared as if the
transactions had taken place on March 31, 1999, in the case of the pro forma
balance sheet, or as of January 1, 1997 in the case of the pro forma income
statements for the year ended December 31, 1998 and 1997 and the three months
ended March 31, 1999 and 1998.
A. Reflects the transactions by which Atlas Pipeline obtains ownership
of the assets of Resource America, Inc. Gathering Operations at net
book value in exchange for cash of $27.0 million and $7.9 million in
Subordinated Units. Atlas Pipeline will not assume $6.4 million of
advances from Resource America or any other debt of the Resource
America, Inc. Gathering Operations. Additionally, upon completion of
the Offering, Atlas Pipeline will have $750,000 of working capital.
Accumulated depreciation in the amount of $1.4 million has been
credited against the property and equipment balance to reflect Atlas
Pipeline's basis in the assets. The book value assigned to the
Common Units, Subordinated Units and 2% general partner interest is
based on the pro rata number of units of each class issued.
B. Reflects the elimination of historical depreciation and amortization
expense.
C. Reflects the pro forma revenues and related costs and expenses from
the master 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, Inc. Gathering Operations
historical natural gas production volumes.
D. Reflects interest income earned on invested funds at a rate of 5%.
E. Reflects the elimination of historical interest expense paid to
Resource America as such loans were not assumed.
F-8
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (unaudited) - CONTINUED
F. Reflects pro forma depreciation and amortization expense based on
the purchase price of $34.9 million. The pro forma composite useful
depreciable life of the partnership's fixed assets is 15 years.
G. Reflects the elimination of the historical income tax provision as
income taxes will be borne by the partners and not Atlas Pipeline.
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, $2.4 million, (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.
F-9
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The accompanying combined statement of operations includes the
gathering operations of Atlas America and Resource Energy. 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 debt. The acquisition
was recorded under the purchase method of accounting and accordingly the results
of the gas gathering and transportation operations of Atlas America are included
in the pro forma combined statement of operations 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 pro forma adjustments are based upon currently available
information and certain estimates and assumptions, and therefore, the actual
adjustments may differ from the unaudited pro forma adjustments. However,
management believes that the assumptions provide a reasonable basis for
presenting the significant effects of the transactions as contemplated and that
the unaudited pro forma adjustments give appropriate effect to those assumptions
and are properly applied in the unaudited pro forma combined statement of
operations. The pro forma combined statement of operations are not necessarily
indicative of the results of future operations of the Resource America, Inc.
Gathering Operations and should be read in conjunction with the historical
financial statements appearing elsewhere in this prospectus.
F-10
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
PRO FORMA COMBINED STATEMENT OF OPERATIONS (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical
-------------------------------
Atlas Resource
Group, Inc. America, Inc.
Gathering Gathering
Operations Operations
----------- -------------
Nine Months Year
Ended Ended
September 29, December 31, Pro Forma Pro Forma
1998 1998 Adjustments As Adjusted
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Transportation and compression revenue................. $ 2,026 $ 1,045 $ - $ 3,071
Costs and expenses
Transportation and compression......................... 315 192 - 507
General and administrative............................. 356 130 - 486
Interest expense....................................... 277 87 - 364
Depreciation and amortization.......................... 1,098 287 (1,098)A 884
597 B
------------ ---------- ----------- -----------
Total costs and expenses.................................... 2,046 696 (501) 2,241
Income (loss) from operations............................... (20) 349 501 830
Provision (benefit) for income taxes........................ (8) 139 200 331
------------ ---------- ----------- -----------
Net income (loss)........................................... $ (12) $ 210 $ 301 $ 499
============ ========== =========== ===========
</TABLE>
See notes to pro forma combined statement of operations
F-11
<PAGE>
NOTE TO PRO FORMA COMBINED STATEMENT OF OPERATIONS (unaudited)
The pro forma adjustments have been prepared as if the acquisition had
taken place on January 1, 1998
A. Reflects the elimination of historical depreciation and amortization
expense.
B. Reflects pro forma depreciation and amortization expense based on the
allocated purchase price, including the amortization of goodwill.
F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying balance sheets of Resource America, Inc.'s
Gathering Operations 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 Resource America, Inc.'s
Gathering Operations as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for 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-13
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------
1999 1998 1997
------------- ------------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 36,000 $ 26,000 $ -
Accounts receivable - affiliates.......................... 234,000 262,000 43,000
------------- ------------- --------------
Total current assets............................. 270,000 288,000 43,000
Property and equipment (at cost)
Gas gathering and transmission facilities............ 9,136,000 8,907,000 2,555,000
Less - accumulated depreciation...................... (1,360,000) (1,237,000) (972,000)
-------------- -------------- ---------------
Net property and equipment....................... 7,776,000 7,670,000 1,583,000
Goodwill (net)............................................ 2,546,000 2,568,000 -
------------- ------------- --------------
$ 10,592,000 $ 10,526,000 $ 1,626,000
============= ============= ==============
LIABILITIES AND COMBINED EQUITY
Accounts payable and accrued liabilities.................. $ 105,000 $ 70,000 $ -
------------- ------------- --------------
Total current liabilities......................... 105,000 70,000 -
Advances from parent...................................... 6,402,000 6,527,000 1,331,000
Other long-term liabilities............................... 410,000 410,000 -
Combined equity ........................................ 3,675,000 3,519,000 295,000
------------- ------------- --------------
$ 10,592,000 $ 10,526,000 $ 1,626,000
============= ============= ==============
</TABLE>
See accompanying notes to combined financial statements
F-14
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
---------- --------- ----------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Transportation and compression revenue -
affiliates.................................... $ 722,000 $ 69,000 $ 1,045,000 $349,000 $ 359,000
Costs and expenses
Transportation and compression.................. 135,000 17,000 192,000 81,000 75,000
General and administration...................... 98,000 15,000 130,000 45,000 43,000
Interest expense................................ 84,000 - 87,000 - -
Depreciation and amortization................... 145,000 42,000 287,000 172,000 162,000
---------- --------- ----------- -------- ----------
Total costs and expenses...................... 462,000 74,000 696,000 298,000 280,000
---------- --------- ----------- -------- ----------
Income (loss) from operations...................... 260,000 (5,000) 349,000 51,000 79,000
Provision (benefit) for income taxes............... 104,000 (2,000) 139,000 19,000 30,000
---------- ---------- ----------- -------- ----------
Net income (loss).................................. $ 156,000 $ (3,000) $ 210,000 $ 32,000 $ 49,000
========== ========== =========== ======== ==========
</TABLE>
See accompanying notes to combined financial statements
F-15
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
---------- --------- ----------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................. $ 156,000 $ (3,000) $ 210,000 $ 32,000 $ 49,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.................. 145,000 42,000 287,000 172,000 162,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable..... 28,000 (2,000) (26,000) 5,000 (4,000)
Increase (decrease) in accounts payable and
accrued liabilities.......................... 35,000 - (41,000) - -
----------- --------- ---------- -------- ----------
Net cash provided by operating activities...... 364,000 37,000 430,000 209,000 207,000
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired in business acquisition......... - - 18,000 - -
Capital expenditures.............................. (229,000) (20,000) (402,000) (19,000) (47,000)
------------ ---------- ---------- --------- -----------
Cash used in investing activities.............. (229,000) (20,000) (384,000) (19,000) (47,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of advances from parent................. (125,000) (17,000) (20,000) (190,000) (160,000)
------------ ---------- ---------- --------- -----------
Cash used in financing activities.............. (125,000) (17,000) (20,000) (190,000) (160,000)
Increase in cash and cash equivalents............. $ 10,000 $ - $ 26,000 $ - $ -
Cash and cash equivalents, beginning of period.... 26,000 - - -
----------- --------- --------- -------- ----------
Cash and cash equivalents, end of period....... $ 36,000 $ - $ 26,000 $ - $ -
=========== ========= ========= ======== ==========
</TABLE>
See accompanying notes to combined financial statements
F-16
<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"). These entities operate gas gathering pipelines located in Pennsylvania,
Ohio and New York. AIC is a wholly owned subsidiary of Atlas America, Inc.
("ATLAS"). REI and ATLAS are wholly owned subsidiaries of Resource America, Inc.
("RAI"). AIC and REI 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 contribute 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 common 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 consumated on January
1, 1996:
Years Ended
----------------------------------------
1998 1997 1996
-------- --------- --------
(in thousands)
Revenue..................... $ 3,071 $ 2,927 $ 3,154
Net income.................. $ 576 $ 650 $ 1,068
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 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.
F-17
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
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
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 and REI 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 and REI. The
Gathering Operations are dependent upon the resources and services provided by
AIC, REI 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-18
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - 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 three months ended March 31, 1999 and 1998 and the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
---------- --------- ----------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest............................ $ 84,000 $ - $ 88,000 $ - $ -
========== ========= =========== ======== ==========
Income taxes........................ $ 62,000 $ (2,000) $ 208,000 $ 17,000 $ 27,000
========== ========== =========== ======== ==========
</TABLE>
Details of Acquisition at September 29, 1998
Fair value of assets acquired............................ $ 8,733,000
Liabilities assumed...................................... 5,737,000)
Capital contributed...................................... (3,014,000)
------------
Net cash acquired........................................ $ (18,000)
============
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 three months ended March 31, 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 Statements of Financial Accounting Standards No. 130 and No. 131
(SFAS 130 and SFAS 131).
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-19
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," prescribes the manner in which an entity determines the operating
segments it must report and also requires the disclosure of additional segment
information. The Gathering Operations consist of only one business segment and,
therefore, no segment disclosure is required.
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 (benefit) for income taxes for each period consists of
the following:
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
---------- --------- ----------- -------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal................................. $ 88,000 $ (2,000) $ 119,000 $ 17,000 $ 27,000
State and local......................... 16,000 - 20,000 2,000 3,000
---------- --------- ----------- -------- ----------
$ 104,000 $ (2,000) $ 139,000 $ 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 Atlas Subsidiaries
deferred tax asset, related to depreciation of property and equipment, would
have approximated $1,349,000.
NOTE 4 - COMBINED EQUITY
The following is a reconciliation of the combined equity balance of
Gathering Operations:
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
------------------------ ----------------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period....................... $ 3,519,000 $ 295,000 $ 295,000 $ 263,000 $ 214,000
Net income (loss).................................. 156,000 (3,000) 210,000 32,000 49,000
Capital contribution in connection with the
acquisition of Atlas............................ - 3,014,000 - -
----------- ---------- ----------- --------- ----------
Balance, end of period............................. $ 3,675,000 $ 292,000 $ 3,519,000 $ 295,000 $ 263,000
=========== ========== =========== ========= ==========
</TABLE>
F-20
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - SUBSEQUENT EVENT
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 no later than August 13, 1999, offering 1.9 million limited
partnership units. As a result, RAI will no longer have gathering operations.
F-21
<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 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of The Atlas Group,
Inc.'s Gathering Operations as of September 29, 1998 and December 31, 1997, and
the results of its operations and its 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-22
<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-23
<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-24
<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
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-25
<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.
F-26
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
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.
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.
F-27
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
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:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
--------------------- ---------------------------
September 29, December 31,
--------------------- ---------------------------
1998 1997 1996
--------------------- ----------- -----------
<S> <C> <C> <C>
Cash paid for:
Interest............................ $ 276,000 $ 435,000 $ 149,000
============ =========== ===========
Income taxes........................ $ - $ 67,000 $ 307,000
============ =========== ===========
</TABLE>
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 Statements of Financial Accounting Standards No. 130 and No.
131 (SFAS 130 and SFAS 131).
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.
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," prescribes the manner in which an entity determines the operating
segments it must report and also requires the disclosure of additional segment
information. The Gathering Operations operates in only one business segment and,
therefore, no segment disclosure is required.
F-28
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
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:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 29, December 31,
------------------- -----------------------
1998 1997 1996
------------------- ---------- -----------
<S> <C> <C> <C>
Federal................................. $ (7,000) $ 86,000 $ 300,000
State and local......................... (1,000) 15,000 53,000
----------- --------- -----------
$ (8,000) $ 101,000 $ 353,000
=========== ========= ===========
</TABLE>
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, the Gathering
Operations deferred tax asset, related to depreciation of property and
equipment, would have approximated $492,000.
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-29
<PAGE>
ATLAS AMERICA, INC. CONSOLIDATED
FINANCIAL STATEMENTS
AS OF AND FOR MARCH 31, 1999
F-30
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEET
(unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
March 31,
---------
1999
----
ASSETS
<S> <C>
Cash and cash equivalents......................................... $ 10,824
Accounts and other receivables.................................... 6,900
Prepaid expenses and other current assets......................... 325
-----------
Total current assets........................................ 18,049
Property, Plant and Equipment - at cost
Oil and gas properties and equipment (successful efforts)......... 22,026
Gas gathering and transmission facilities......................... 5,688
Other............................................................. 3,914
-----------
31,628
Less - accumulated depreciation, depletion and amortization....... (1,072)
------------
Net property, plant and equipment........................... 30,556
Advances to parent................................................... 1,283
Goodwill (net)....................................................... 26,056
Contract rights and other intangibles................................ 13,383
-----------
$ 89,327
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade............................................. $ 7,052
Accrued liabilities.................................................. 3,831
Investor funds raised for partnerships............................... 2,812
Accrued income taxes................................................. 450
Current portion of long-term debt.................................... 1,586
-----------
Total current liabilities................................... 15,731
Long-term debt....................................................... 25,308
Other long-term liabilities.......................................... 760
Deferred income taxes................................................ 4,894
Commitments and contingencies........................................ -
Stockholder's equity
Common stock, $.01 par value, 100 shares
authorized and outstanding.................................. 1
Additional paid-in capital...................................... 38,725
Retained earnings............................................... 3,908
-----------
Total stockholder's equity.................................. 42,634
-----------
$ 89,327
===========
</TABLE>
See accompanying notes to consolidated financial statements
F-31
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands)
Six Months
Ended March 31,
---------------
1999
----
Revenues
Well construction................................ $ 18,641
Oil and gas production........................... 2,818
Well services.................................... 3,146
Interest and other income........................ 1,578
-----------
26,183
Costs and Expenses
Well construction................................ 14,739
Oil and gas production........................... 1,109
Well services.................................... 416
Exploration...................................... 179
General and administrative....................... 1,067
Depreciation, depletion and amortization......... 1,880
Interest......................................... 820
Other............................................ 25
-----------
20,235
-----------
Income from operations................................ 5,948
Provision for income taxes............................ 2,040
-----------
Net income............................................ $ 3,908
===========
See accompanying notes to consolidated financial statements
F-32
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Six Months
Ended March 31,
---------------
1999
----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income..................................................... $ 3,908
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization.................. 1,880
Gain on sale of assets.................................... (1,458)
Deferred taxes............................................ 1,394
Provision for losses...................................... 25
Change in operating assets and liabilities:
Increase in accounts receivable and prepaid expense....... (1,072)
Increase in accounts payable and accrued liabilities...... 872
----------
Cash provided by operating activities.................. 5,549
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of net assets held for disposition.......... 4,611
Capital expenditures........................................... (6,274)
Proceeds from sale of assets................................... 7
Increase in other assets....................................... 4
----------
Cash used in investing activities..................... (1,652)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from parent...................................... (1,511)
Payment on revolving credit loan............................... (39,925)
Borrowings on revolving credit loan............................ 40,275
Payment on long term debt...................................... (1,143)
-----------
Cash used in financing activities..................... (2,304)
Increase in cash and cash equivalents.......................... 1,593
Cash and cash equivalents at the beginning of period........... 9,231
----------
Cash and cash equivalents at the end of period................. $ 10,824
==========
See accompanying notes to consolidated financial statements
F-33
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL
STATEMENTS
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.
The accounting policies followed by the Company, are set forth in Note
2 to the Company's consolidated balance sheet at September 30, 1998 included
elsewhere in this prospectus, except as set forth in Note 3, below.
NOTE 2 - 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., the former parent company of AIC, Inc. in exchange for 2,063,496
shares of RAI common stock worth approximately $29.5 million and the assumption
of debt. 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......... $ 74,635
Liabilities assumed................... (45,968)
Amounts due seller.................... (9,191)
Common stock issued................... (29,534)
----------
Net cash acquired..................... $ (10,058)
----------
NOTE 3 - SUMMARY OF ACCOUNTING POLICIES
Revenue Recognition
Working interest, royalties and override revenues are recognized as
production and delivery take place. Well service income is recognized as revenue
as services are performed. Well construction revenue is recognized upon
substantial completion of the well.
F-34
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(unaudited)
Cash Flow Statements
For purposes of the statement of cash flows, the Company considers 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 six months ended March 31, 1999 and 1998 (in
thousands):
Six Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
Cash paid for:
Interest $ 884 $ 348
=========== ===========
Income taxes $ 62 $ 316
=========== ===========
Disposal of business
Net liabilities assumed by buyer $ 4,436 $ -
=========== ===========
F-35
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas America, Inc.
We have audited the accompanying consolidated balance sheet of Atlas America,
Inc. (a Pennsylvania corporation) and Subsidiaries as of September 30, 1998.
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 consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of Atlas
America, Inc. and Subsidiaries as of September 30, 1998, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
August 3, 1999
F-36
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEET
(in thousands except share data)
September 30,
1998
-------------
ASSETS
Cash and cash equivalents........................................ $ 9,231
Accounts and other receivables................................... 3,202
Prepaid expenses and other current assets........................ 231
Net assets held for disposition.................................. 4,627
-----------
Total current assets.................................... 17,291
Property, Plant and Equipment - at cost
Oil and gas properties and equipment
(successful efforts).................................... 16,381
Gas gathering and transmission facilities................... 5,121
Other....................................................... 3,856
-----------
25,358
Less - accumulated depreciation, depletion
and amortization........................................ -
-----------
Net property, plant and equipment....................... 25,358
Goodwill ........................................................ 27,562
Contract rights and other intangibles............................ 13,869
-----------
$ 84,080
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable - trade......................................... $ 7,775
Accrued liabilities.............................................. 2,163
Investor funds raised............................................ 4,001
Current portion of long-term debt................................ 1,586
-----------
Total current liabilities............................... 15,525
Long-term debt 26,101
Advances from parent............................................. 228
Deferred income taxes............................................ 3,500
Commitments and contingencies.................................... -
Stockholder's Equity
Common stock, $.01 par value, 100 shares
authorized and outstanding.............................. 1
Additional paid-in capital.................................. 38,725
Retained earnings........................................... -
-----------
Total stockholder's equity.............................. 38,726
-----------
$ 84,080
===========
See accompanying notes to consolidated balance sheet
F-37
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
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. 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 $ 74,635
Liabilities assumed (45,968)
Amounts due seller (9,191)
Common stock issued (29,534)
-------------
Net cash acquired $ (10,058)
-------------
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying balance sheet follows.
Principles of Consolidation
The consolidated balance sheet includes the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany transactions have been
eliminated.
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.
Oil and Gas Properties
The company follows the successful effort 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.
F-38
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
Production costs, overhead, and all exploration costs other than costs
of exploratory drilling are charged to expense as incurred.
Unproved properties will be 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 will compare 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, 1998.
On an annual basis, the Company will estimate the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas and oil
producing properties. Additionally, the Company will evaluate the estimated
salvage value of equipment recoverable upon abandonment. At September 30, 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.
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 at their estimated fair value at the date of acquisition of the Atlas
Group, Inc. while subsequent additions will be recorded at cost. Depreciation
will be 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 will be amortized on a
straight-line basis over the lives of the respective partnerships (up to 13
years) while the syndication rights will be amortized on a straight-line basis
over 30 years.
Goodwill is the excess of cost over the fair value of net assets
acquired and will be amortized by the straight-line method over 30 years. The
Company will evaluate 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.
F-39
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
Impairment of Long-Lived Assets
The Company will review 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. Income taxes are calculated as if the Company 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 Company's assets and
liabilities and the amounts reported in the financial statements. Separate
company state tax returns will be 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 is not material.
New Accounting Standards
Effective October 1, 1998, the Company became subject to the provisions
of Statements of Financial Accounting Standards No. 130 and No. 131 (SFAS 130
and SFAS 131).
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.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," prescribes the manner in which an entity determines the operating
segments it must report and also requires the disclosure of additional segment
information. Management is currently evaluating its operations in connection
with the disclosure requirements of SFAS 131.
NOTE 3 - RELATED PARTIES
The Company will conduct certain energy activities through, and a
substantial portion of its revenues will be attributable to, limited
partnerships ("Partnerships"). The Company will serve as general partner of the
Partnerships and will assume customary rights and obligations for the
Partnerships. As the general partner, the Company will be 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
will be 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.
F-40
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 4 - INCOME TAXES
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 (in thousands) presented below are calculated as if the Company filed
a separate tax return.
Deferred tax assets
Accrued liabilities............................... $ 248
Provision for losses.............................. 290
Net operating loss carry forwards................. 231
Alternative minimum tax credit.................... 644
Percentage depletion carry forwards............... 631
Less valuation allowance.......................... (1,051)
-----------
993
-----------
Deferred tax liabilities
Fixed asset basis difference...................... (4,450)
Other items, net.................................. (43)
-----------
(4,493)
-----------
Net deferred tax liability $ (3,500)
===========
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following: (in thousands)
Credit facility
Revolving credit facility, secured by certain oil and
gas properties; interest ranging from 7.06% to
9.00% due September 2002.............................. $ 19,975
Term loan facility secured by certain oil and
gas properties; interest ranging from 7.09%
to 7.19% due September 2001........................... 7,000
-----------
26,975
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,
1998) due August 2002.................................. 712
-----------
Less current portion..................................... 1,586
-----------
$ 26,101
===========
F-41
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
The Company maintains a $40.0 million credit facility (with $27.0
million of permitted draws) at PNC Bank ("PNC"). The credit facility is divided
into two principal parts: a revolving credit facility and a term loan facility.
The revolving credit facility has $20.0 million of permitted draws, with a term
ending in 2002 and the draws bearing 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 50 basis points, or ( ii )
LIBOR plus between 137.5 to 212.5 basis points. The term loan facility has $7.0
million of permitted draws, with a term ending in 2001, and with draws bearing
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 12.5 to 62.5 basis points or ( ii ) LIBOR plus between 150 to 225 basis
points. The credit facility contains certain financial covenants of ATLAS 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) sales, leases or transfers of property by ATLAS are limited to $1.0
million without PNC's consent; and (c) ATLAS cannot incur debt in excess of $2.0
million to lenders other than PNC without PNC's consent. As of September 30,
1998, ATLAS had $20.0 million outstanding under the revolving credit facility
and $7.0 million outstanding under the term loan facility, which are recorded on
ATLAS's books. Borrowings under the credit facility are collateralized by
substantially all the oil and gas properties of ATLAS. At September 30, 1998,
long-term debt maturing over the next five fiscal years is as follows: (in
thousands): 1999 - $1,586; 2000 - $1,586; 2001 - $4,386; and 2002 - $20,130.
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.
NOTE 7 - NET ASSETS HELD FOR DISPOSITION
A business unit acquired, as part of the Atlas acquisition, 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, disposed of this business unit on March 31,
1999.
F-42
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 8 - OIL AND GAS INFORMATION (UNAUDITED)
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, 1998. All reserves are located
in Pennsylvania. 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 (in thousands):
Proved oil and gas properties $ 16,370
Unproved oil and gas properties 11
-------------
Net capitalized costs at September 30, 1998 $ 16,381
=============
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 month of
September 1998 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, 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-43
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED BALANCE SHEET
Gas Oil
Proved Reserves at September 30, 1998 (mcf) (bbls)
---------------------------------------------------------------------
Proved developed reserves 31,263,480 133,755
Proved undeveloped reserves 40,015,460 -
----------- ---------
71,278,940 133,755
----------- ---------
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
(in thousands)
Future cash inflows............................................. $ 170,166
Future production and development costs......................... (77,262)
------------
Future net cash flows before income taxes....................... 92,904
Future income taxes............................................. 7,388
------------
Future net cash flows........................................... 85,516
10% annual discount for estimated timing of cash flows.......... 61,642
------------
Standardized measure of discounted future net cash flows........ $ 23,874
------------
NOTE 9 - 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, no later than August 13, 1999, offering 1.9 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.
F-44
<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-45
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
---------------------------------------------
THE ATLAS GROUP, INC.
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
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-46
<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-47
<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-48
<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.
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.
F-49
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 totalled 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).
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.
F-50
<PAGE>
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,
respectively). 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>
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-
F-51
<PAGE>
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>
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> <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, 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.
F-52
<PAGE>
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.
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.
F-53
<PAGE>
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.
<TABLE>
<CAPTION>
JUNE 30, JULY 31,
1998 1997
---- ----
<S> <C> <C>
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
============ ===========
</TABLE>
(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.
F-54
<PAGE>
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
(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>
(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>
F-55
<PAGE>
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-56
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas Pipeline G.P., Inc.
We have audited the accompanying balance sheet of Atlas Pipeline G.P.,
Inc. (the "Company") (a development stage company) as of June 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 June 30,
1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
August 11, 1999
F-57
<PAGE>
ATLAS PIPELINE G.P., INC.
A DEVELOPMENT STAGE COMPANY
BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSET
Subscriptions Receivable $ 100
========
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY $ 100
========
See notes to balance sheet
F-58
<PAGE>
ATLAS PIPELINE G.P., INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO BALANCE SHEET
June 30, 1999
NOTE 1 - NATURE OF OPERATIONS
Atlas Pipeline Partners, G.P., Inc. (a wholly owned subsidiary of Atlas
America, Inc.) 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 Resource America, Inc. ("RAI")
gathering operations. RAI gathering operations operate approximately 1,000 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, G.P., 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 limited partnership units of
Atlas Pipeline Partners, L.P.
F-59
<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 June
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 June 30,
1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LPP
Cleveland, Ohio
August 11, 1999
F-60
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSET:
Subscriptions Receivable $ 100
=========
PARTNERS' EQUITY
PARTNERS' EQUITY $ 100
=========
See notes to balance sheet
F-61
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO BALANCE SHEET
June 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 approximately 1,000 miles
of gas gathering pipelines located in the Appalachian Basin. 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, no later than August
13, 1999, offering limited partnership units. In connection therewith, the
Company will acquire the natural gas pipeline gathering systems described above
in Note 1.
F-62
<PAGE>
Appendix A
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLAS PIPELINE PARTNERS, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 Definitions.........................................................................................1
SECTION 1.2 Construction.......................................................................................22
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation..........................................................................................22
SECTION 2.2 Name...............................................................................................23
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other Offices...............................23
SECTION 2.4 Purpose and Business...............................................................................23
SECTION 2.5 Powers.............................................................................................24
SECTION 2.6 Power of Attorney..................................................................................24
SECTION 2.7 Term...............................................................................................25
SECTION 2.8 Title to Partnership Assets........................................................................26
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability............................................................................26
SECTION 3.2 Management of Business.............................................................................26
SECTION 3.3 Outside Activities of the Limited Partners.........................................................27
SECTION 3.4 Rights of Limited Partners.........................................................................27
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates.......................................................................................28
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates..................................................28
SECTION 4.3 Record Holders.....................................................................................29
SECTION 4.4 Transfer Generally.................................................................................30
SECTION 4.5 Registration and Transfer of Limited Partner Interests.............................................30
SECTION 4.6 Transfer of the General Partner's General Partner Interest.........................................31
SECTION 4.7 Transfer of Incentive Distribution Rights..........................................................32
SECTION 4.8 Restrictions on Transfers..........................................................................32
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees....................................................33
SECTION 4.10 Redemption of Partnership Interests of Non-citizen Assignees.......................................34
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
<S> <C> <C>
SECTION 5.1 Organizational Contributions.......................................................................35
SECTION 5.2 Contributions by the General Partner and its Affiliates............................................36
SECTION 5.3 Contributions by Initial Limited Partners and Reimbursement of
the General Partner................................................................................36
SECTION 5.4 Interest and Withdrawal............................................................................37
SECTION 5.5 Capital Accounts...................................................................................37
SECTION 5.6 Issuances of Additional Partnership Securities.....................................................40
SECTION 5.7 Limitations on Issuance of Additional Partnership Securities.......................................41
SECTION 5.8 Conversion of Subordinated Units...................................................................43
SECTION 5.9 Limited Preemptive Right...........................................................................45
SECTION 5.10 Splits and Combination.............................................................................45
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited Partner Interests..................................46
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes...........................................................46
SECTION 6.2 Allocations for Tax Purposes.......................................................................54
SECTION 6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders.....................................................................................56
SECTION 6.4 Distributions of Available Cash from Operating Surplus.............................................57
SECTION 6.5 Distributions of Available Cash from Capital Surplus...............................................58
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels.............................................................................................59
SECTION 6.7 Special Provisions Relating to the Holders of Subordinated Units...................................59
SECTION 6.8 Special Provisions Relating to the Holders of Incentive Distribution Rights........................60
SECTION 6.9 Entity-Level Taxation..............................................................................60
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.........................................................................................61
SECTION 7.2 Certificate of Limited Partnership.................................................................63
SECTION 7.3 Restrictions on General Partner's Authority........................................................63
SECTION 7.4 Reimbursement of the General Partner...............................................................64
SECTION 7.5 Outside Activities.................................................................................65
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the Partnership;
Contracts with Affiliates; Certain Restrictions on the General Partner.............................66
SECTION 7.7 Incurrence of Indebtedness.........................................................................68
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.8 Indemnification....................................................................................68
SECTION 7.9 Liability of Indemnitees...........................................................................70
SECTION 7.10 Resolution of Conflicts of Interest................................................................71
SECTION 7.11 Other Matters Concerning the General Partner.......................................................72
SECTION 7.12 Purchase or Sale of Partnership Securities.........................................................73
SECTION 7.13 Registration Rights of the General Partner and its Affiliates......................................73
SECTION 7.14 Reliance by Third Parties..........................................................................75
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting.............................................................................76
SECTION 8.2 Fiscal Year........................................................................................76
SECTION 8.3 Reports............................................................................................76
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information........................................................................77
SECTION 9.2 Tax Elections......................................................................................77
SECTION 9.3 Tax Controversies..................................................................................78
SECTION 9.4 Withholding........................................................................................78
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners..............................................................78
SECTION 10.2 Admission of Substituted Limited Partner...........................................................78
SECTION 10.3 Admission of Successor General Partner.............................................................79
SECTION 10.4 Admission of Additional Limited Partners...........................................................79
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership......................................80
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner..................................................................80
SECTION 11.2 Removal of the General Partner.....................................................................82
SECTION 11.3 Interest of Departing Partner and Successor General Partner........................................82
SECTION 11.4 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages......................................84
SECTION 11.5 Withdrawal of Limited Partners.....................................................................84
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XII
DISSOLUTION AND LIQUIDATION
<S> <C> <C>
SECTION 12.1 Dissolution.......................................................................................84
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution.................................85
SECTION 12.3 Liquidator........................................................................................86
SECTION 12.4 Liquidation.......................................................................................86
SECTION 12.5 Cancellation of Certificate of Limited Partnership................................................87
SECTION 12.6 Return of Contributions...........................................................................87
SECTION 12.7 Waiver of Partition...............................................................................87
SECTION 12.8 Capital Account Restoration.......................................................................87
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the General Partner.............................................88
SECTION 13.2 Amendment Procedures..............................................................................89
SECTION 13.3 Amendment Requirements............................................................................90
SECTION 13.4 Special Meetings..................................................................................91
SECTION 13.5 Notice of a Meeting...............................................................................91
SECTION 13.6 Record Date.......................................................................................91
SECTION 13.7 Adjournment.......................................................................................92
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes........................................92
SECTION 13.9 Quorum............................................................................................92
SECTION 13.10 Conduct of a Meeting..............................................................................93
SECTION 13.11 Action Without a Meeting..........................................................................93
SECTION 13.12 Voting and Other Rights...........................................................................94
ARTICLE XIV
MERGER
SECTION 14.1 Authority.........................................................................................94
SECTION 14.2 Procedure for Merger or Consolidation.............................................................95
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation...........................................96
SECTION 14.4 Certificate of Merger.............................................................................96
SECTION 14.5 Effect of Merger..................................................................................97
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests........................................................97
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XVI
GENERAL PROVISIONS
<S> <C> <C>
SECTION 16.1 Addresses and Notices.............................................................................99
SECTION 16.2 Further Action...................................................................................100
SECTION 16.3 Binding Effect...................................................................................100
SECTION 16.4 Integration......................................................................................100
SECTION 16.5 Creditors........................................................................................100
SECTION 16.6 Waiver...........................................................................................100
SECTION 16.7 Counterparts.....................................................................................100
SECTION 16.8 Applicable Law...................................................................................100
SECTION 16.9 Invalidity of Provisions.........................................................................101
SECTION 16.10 Consent of Partners..............................................................................101
</TABLE>
A-v
<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 G.P., Inc. a Delaware
corporation, 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
A-1
<PAGE>
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.
"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
A-2
<PAGE>
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.
A-3
<PAGE>
"Assignee" means a Non-citizen Assignee or a Person to whom
one or more Limited Partner Interests have been transferred in a manner
permitted under this Agreement and who has executed and delivered a
Transfer Application as required by this Agreement, but who has not
been admitted as a Substituted Limited Partner.
"Associate" means, when used to indicate a relationship with
any Person, (a) any corporation or organization of which such Person is
a director, officer or partner or is, directly or indirectly, the owner
of 20% or more of any class of voting stock or other voting interest;
(b) any trust or other estate in which such Person has at least a 20%
beneficial interest or as to which such Person serves as trustee or in
a similar fiduciary capacity; and (c) any relative or spouse of such
Person, or any relative of such spouse, who has the same principal
residence as such Person.
"Available Cash" means, with respect to any Quarter ending
prior to the Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership 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
A-4
<PAGE>
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 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.
A-5
<PAGE>
"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.
A-6
<PAGE>
"Combined Interest" has the meaning assigned to such term in
Section 11.3(a).
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" means a Partnership Security representing a
fractional part of the Partnership Interests of all Limited Partners
and Assignees and of the General 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).
A-7
<PAGE>
"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.
"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
A-8
<PAGE>
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 G.P., Inc.,
and its successors and permitted assigns as general partner of the
Partnership.
"General Partner Interest" means the ownership interest of the
General Partner in the Partnership (in its capacity as a general
partner 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).
A-9
<PAGE>
"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 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
A-10
<PAGE>
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.
A-11
<PAGE>
"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, coal mines, preparation plants 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,
but shall include reclamation expenses.
"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.
A-12
<PAGE>
"Net Income" means, for any taxable year, the excess, if any,
of the Partnership's items of income and gain (other than those items
taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year over the Partnership's items of
loss and deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such
taxable year. The items included in the calculation of Net Income shall
be determined in accordance with Section 5.5(b) and shall not include
any items specially allocated under Section 6.1(d); provided that the
determination of the items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.
"Net Loss" means, for any taxable year, the excess, if any, of
the Partnership's items of loss and deduction (other than those items
taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year over the Partnership's items of
income and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such
taxable year. The items included in the calculation of Net Loss shall
be determined in accordance with Section 5.5(b) and shall not include
any items specially allocated under Section 6.1(d); provided that the
determination of the items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.
"Net Positive Adjustments" means, with respect to any Partner,
the excess, if any, of the total positive adjustments over the total
negative adjustments made to the Capital Account of such Partner
pursuant to Book-Up Events and Book-Down Events.
"Net Termination Gain" means, for any taxable year, the sum,
if positive, of all items of income, gain, loss or deduction recognized
by the Partnership after the Liquidation Date. The items included in
the determination of Net Termination Gain shall be determined in
accordance with Section 5.5(b) and shall not include any items of
income, gain or loss specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum,
if negative, of all items of income, gain, loss or deduction recognized
by the Partnership after the Liquidation Date. The items included in
the determination of Net Termination Loss shall be determined in
accordance with Section 5.5(b) and shall not include any items of
income, gain or loss specially allocated under Section 6.1(d).
"Non-citizen Assignee" means a Person whom the 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
A-13
<PAGE>
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, the Partnership 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, 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.
A-14
<PAGE>
"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) $ million plus all cash and cash
equivalents of the Partnership Group on hand as of the close of
business on the Closing Date, (ii) all cash receipts of the Partnership
Group for the period beginning on the Closing Date and ending with the
last day of such period, other than cash receipts from Interim Capital
Transactions (except to the extent specified in Section 6.5) and (iii)
all cash receipts of the Partnership Group after the end of such period
but on or before the date of determination of Operating Surplus with
respect to such period resulting from Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the period
beginning on the Closing Date and ending with the last day of such
period and (ii) the amount of cash reserves that is necessary or
advisable in the reasonable discretion of the General Partner to
provide funds for future Operating Expenditures.
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-15
<PAGE>
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.
"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 paragraph (c) by (ii) the quotient obtained by
A-16
<PAGE>
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.
A-17
<PAGE>
"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-_________) 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 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.
A-18
<PAGE>
"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
A-19
<PAGE>
Subordinated Units with respect to each of the three consecutive,
non-overlapping four-Quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on
all Outstanding Common Units and Subordinated Units during such periods
and (B) the Adjusted Operating Surplus generated during each of the
three consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the Common Units and Subordinated
Units that were Outstanding during such periods on a fully diluted
basis (i.e., taking into account for purposes of such determination all
Outstanding Common Units, all Outstanding Subordinated Units, all
Common Units and Subordinated Units issuable upon exercise of employee
options that have, as of the date of determination, already vested or
are scheduled to vest prior to the end of the Quarter immediately
following the Quarter with respect to which such determination is made,
and all Common Units and Subordinated Units that have as of the date of
determination, been earned by but not yet issued to management of the
Partnership in respect of incentive compensation), plus the related
distribution on the General Partner Interest in the Partnership and on
the general partner interest in the 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
A-20
<PAGE>
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.
"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).
A-21
<PAGE>
"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.
A-22
<PAGE>
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. Lupin. 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 Rouper 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.
A-23
<PAGE>
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 are
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 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
A-24
<PAGE>
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 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
A-25
<PAGE>
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.
A-26
<PAGE>
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under
this Agreement except as expressly provided in this Agreement or the Delaware
Act.
SECTION 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall
participate in the operation, management or control (within the meaning of the
Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. Any action taken by any Affiliate of the General Partner or any
officer, director, employee, member, general partner, agent or trustee of the
General Partner or any of its Affiliates, or any officer, director, employee,
member, general partner, agent or trustee of a Group Member, in its capacity as
such, shall not be deemed to be participation in the control of the business of
the Partnership by a limited partner of the Partnership (within the meaning of
Section 17-303(a) of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners or Assignees under this
Agreement.
SECTION 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5 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;
A-27
<PAGE>
(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 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
A-28
<PAGE>
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
A-29
<PAGE>
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Transfer Agent) reasonably connected therewith.
SECTION 4.3 Record Holders.
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of whether
the Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any National Securities Exchange on which such Partnership Interests are listed
for trading. Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation or an agent of any of the
foregoing) is acting as nominee, agent or in some other representative 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
A-30
<PAGE>
as herein provided. The Partnership shall not recognize transfers of
Certificates evidencing Limited Partner Interests unless such transfers are
effected in the manner described in this Section 4.5. Upon surrender of a
Certificate for registration of transfer of any Limited Partner Interests
evidenced by a Certificate, and subject to the provisions of Section 4.5(b), the
appropriate officers of the General Partner on behalf of the Partnership shall
execute and deliver, and in the case of Common Units, the Transfer Agent shall
countersign and deliver, in the name of the holder or the designated transferee
or transferees, as required pursuant to the holder's instructions, one or more
new Certificates evidencing the same aggregate number and type of Limited
Partner Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the
Partnership shall not recognize any transfer of Limited Partner Interests until
the Certificates evidencing such Limited Partner Interests are surrendered for
registration of transfer and such Certificates are accompanied by a Transfer
Application duly executed by the transferee (or the transferee's
attorney-in-fact duly authorized in writing). No charge shall be imposed by the
Partnership for such transfer; provided, that as a condition to the issuance of
any new Certificate under this Section 4.5, the Partnership may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed with respect thereto.
(c) Limited Partner Interests may be transferred only in the
manner described in this Section 4.5. The transfer of any Limited Partner
Interests and the admission of any new Limited Partner shall not constitute an
amendment to this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant
to Section 10.2, the Record Holder of a Limited Partner Interest shall be an
Assignee in respect of such Limited Partner Interest. Limited Partners may
include custodians, nominees or any other individual or entity in its own or any
representative capacity.
(e) A transferee of a Limited Partner Interest who has
completed and delivered a Transfer Application shall be deemed to have (i)
requested admission as a Substituted Limited Partner, (ii) agreed to comply with
and be bound by and to have executed this Agreement, (iii) represented and
warranted that such transferee has the right, power and authority and, if an
individual, the capacity to enter into this Agreement, (iv) granted the powers
of attorney set forth in this Agreement and (v) given the consents and approvals
and made the waivers contained in this Agreement.
(f) The General Partner and its Affiliates shall have the
right at any time to transfer their Subordinated Units and Common Units (whether
issued upon conversion of the Subordinated Units or otherwise) to one or more
Persons.
A-31
<PAGE>
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
A-32
<PAGE>
without Unitholder approval. Notwithstanding anything herein to the contrary, no
transfer of Incentive Distribution Rights to another Person shall be permitted
unless the transferee agrees to be bound by the provisions of this Agreement.
The General Partner shall have the authority (but shall not be required) to
adopt such reasonable restrictions on the transfer of Incentive Distribution
Rights and requirements for registering the transfer of Incentive Distribution
Rights as the General Partner, in its sole discretion, shall determine are
necessary or appropriate.]
SECTION 4.8 Restrictions on Transfers.
(a) Except as provided in Section 4.8(d) below, but
notwithstanding the other provisions of this Article IV, no transfer of any
Partnership Interests shall be made if such transfer would (i) violate the then
applicable federal or state securities laws or rules and regulations of the
Commission, any state securities commission or any other governmental authority
with jurisdiction over such transfer, (ii) terminate the existence or
qualification of the Partnership or either Operating Partnership under the laws
of the jurisdiction of its formation, or (iii) cause the Partnership or either
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 either 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,
A-33
<PAGE>
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).
(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
A-34
<PAGE>
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.
A-35
<PAGE>
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) ______ Common Units, (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 contributions to
the Partnership in consideration for the issuance, or deemed issuance of
Additional Partnership Interests pursuant to the Distribution Support Agreement.
A-36
<PAGE>
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) Notwithstanding anything else herein contained, $________
of the proceeds received by the Partnership from the issuance of Common Units
pursuant to Section 5.3(a) will be distributed to the General Partner. Such
distribution shall be a reimbursement for certain capital expenditures incurred
by the General Partner within two years preceding the Closing Date with respect
to Assets contributed to the Partnership Group.
(c) 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).
(d) 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
"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 (c) 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
A-37
<PAGE>
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.
A-38
<PAGE>
(iii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership and,
as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of
the Code, without regard to the fact that such items are not includable
in gross income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b)
or 743(b) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment in the Capital Accounts
shall be treated as an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(v) In accordance with the requirements of Section 704(b) of
the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it was
acquired by the Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 5.5(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income
tax purposes; provided, however, that, if the asset has a zero adjusted
basis for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or
cost recovery property is reduced for federal income tax purposes
pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of
such reduction shall, solely for purposes hereof, be deemed to be an
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.
A-39
<PAGE>
(ii) Immediately prior to the transfer of a Subordinated Unit
or of a Subordinated Unit that has converted into a Common Unit
pursuant to Section 5.8 by a holder thereof (other than a transfer to
an Affiliate unless the General Partner elects to have this
subparagraph 5.5(c)(ii) apply), the Capital Account maintained for such
Person with respect to its Subordinated Units or converted Subordinated
Units will (A) first, be allocated to the Subordinated Units or
converted Subordinated Units to be transferred in an amount equal to
the product of (x) the number of such Subordinated Units or converted
Subordinated Units to be transferred and (y) the Per Unit Capital
Amount for a Common Unit, and (B) second, any remaining balance in such
Capital Account will be retained by the transferor, regardless of
whether it has retained any Subordinated Units or converted
Subordinated Units. Following any such allocation, the transferor's
Capital Account, if any, maintained with respect to the retained
Subordinated Units or converted Subordinated Units, if any, will have a
balance equal to the amount allocated under clause (B) hereinabove, and
the transferee's Capital Account established with respect to the
transferred Subordinated Units or converted Subordinated Units will
have a balance equal to the amount allocated under clause (A)
hereinabove.
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership
Interests for cash or Contributed Property or the conversion of the
General Partner's Combined Interest to Common Units pursuant to Section
11.3(b), the Capital Account of all Partners and the Carrying Value of
each Partnership property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual
sale of each such property immediately prior to such issuance and had
been allocated to the Partners at such time pursuant to Section 6.1 in
the same manner as any item of gain or loss actually recognized during
such period would have been allocated. In determining such Unrealized
Gain or Unrealized Loss, the aggregate cash amount and fair market
value of all Partnership assets (including, without limitation, cash or
cash equivalents) immediately prior to the issuance of additional
Partnership Interests shall be determined by the General Partner using
such reasonable method of valuation as it may adopt; provided, however,
that the General Partner, in arriving at such valuation, must take
fully into account the fair market value of the Partnership Interests
of all Partners at such time. The General Partner shall allocate such
aggregate value among the assets of the Partnership (in such manner as
it determines in its discretion to be reasonable) to arrive at a fair
market value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
A-40
<PAGE>
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
A-41
<PAGE>
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 _____________________________________
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 an increase in:
(A) the amount of Adjusted Operating Surplus
generated by the Partnership on a per-Unit basis (for all
Outstanding Units) with respect to each of the four most
recently completed Quarters (on a pro forma basis as described
below) as compared to
(B) the actual amount of Adjusted Operating Surplus
generated by the Partnership on a per-Unit basis (for all
Outstanding Units) (excluding Adjusted Operating Surplus
attributable to the Acquisition or Capital Improvement) with
respect to each of such four most recently completed Quarters.
If the issuance of Parity Units with respect to an Acquisition or
Capital Improvement occurs within the first four full Quarters after the Closing
Date, then Adjusted Operating Surplus as used in clauses (A) (subject to the
succeeding sentence) and (B) above shall be calculated (i) for each Quarter, if
A-42
<PAGE>
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 proceeds from such issuance are used
exclusively to repay up to $______ million of indebtedness of a Group Member
where the aggregate amount of distributions that would have been paid with
respect to such newly issued Units or Partnership Securities, plus the related
distributions on the General Partner Interest in the Partnership and the
Operating Partnership in respect of the four-Quarter period ending prior to the
first day of the Quarter in which the issuance is to be consummated (assuming
such additional Units or Partnership Securities had been Outstanding throughout
such period and that distributions equal to the distributions that were actually
paid on the Outstanding Units during the period were paid on such additional
Units or Partnership Securities) did not exceed the interest costs actually
incurred during such period on the indebtedness that is to be repaid (or, if
such indebtedness was not outstanding throughout the entire period, would have
been incurred had such indebtedness been outstanding for the entire period). In
the event that the Partnership is required to pay a prepayment penalty in
connection with the repayment of such indebtedness, for purposes of the
foregoing test the number of Parity Units issued to repay such indebtedness
shall be deemed increased by the number of Parity Units that would need to be
issued to pay such penalty.
(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.
A-43
<PAGE>
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:
(i) distributions under Section 6.4 in respect of all
Outstanding Common Units and Subordinated Units with respect to each of
the three consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the Outstanding Common Units and
Subordinated Units during such periods;
(ii) the Adjusted Operating Surplus generated during each of
the three consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the Common Units and Subordinated
Units that were Outstanding during such periods on a fully-diluted
basis (i.e. taking into account for purposes of such determination all
Outstanding Common Units, all Outstanding Subordinated Units, all
Common Units and Subordinated Units issuable upon exercise of employee
options that have, as of the date of determination, already vested or
are scheduled to vest prior to the end of the Quarter immediately
following the Quarter with respect to which such determination is made,
and all Common Units and Subordinated Units that have, as of the date
of determination, been earned by but not yet issued to management of
the Partnership in respect of incentive compensation), plus the related
distribution on the General Partner Interest in the Partnership and the
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 three four-quarter
periods.
A-44
<PAGE>
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 Combination.
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with
adjustments of distribution levels), the Partnership may make a Pro Rata
distribution of Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as, after any such
event, each Partner shall have the same Percentage Interest in the Partnership
as before such event, and any amounts calculated on a per Unit basis (including
any Common Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a
number of Units (including the number of Subordinated Units that may convert
prior to the end of the Subordination Period and the number of additional Parity
Units that may be issued pursuant to Section 5.7 without a Unitholder vote) are
proportionately adjusted retroactive to the beginning of the Partnership.
(b) Whenever such a distribution, subdivision or combination
of Partnership Securities is declared, the 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
A-45
<PAGE>
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.
(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.
A-46
<PAGE>
(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;
A-47
<PAGE>
(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
A-48
<PAGE>
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:
(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
A-49
<PAGE>
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)
A-50
<PAGE>
of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise eliminated
pursuant to Section 6.1(d)(i) or (ii).
(v) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and
(B) the amount such Partner is deemed obligated to restore pursuant to
Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership gross income and gain
in the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 6.1(d)(v) shall be made only if and
to the extent that such Partner would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this Section
6.1(d)(v) were not in this Agreement.
(vi) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the 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
A-51
<PAGE>
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 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)
A-52
<PAGE>
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
A-53
<PAGE>
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).
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
A-54
<PAGE>
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.
(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
A-55
<PAGE>
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
A-56
<PAGE>
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.
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 repurchase any
Outstanding Additional Partnership Interests issued in consideration
for 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 Distributions over the Minimum Quarterly 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;
A-57
<PAGE>
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.4(a)(vii).
(b) After Subordination Period. Available Cash with respect to
any Quarter after the Subordination Period that is deemed to be Operating
Surplus pursuant to the provisions of Section 6.3 or 6.5, subject to Section
17-607 of the Delaware Act, shall be distributed as follows, except as otherwise
required by Section 5.6(b) in respect of additional Partnership Securities
issued pursuant thereto:
(i) First, 99% to 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 repurchase any
Outstanding Additional Partnership Interests issued to it in respect of
amounts previously contributed 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;
(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 Distributions over the Minimum Quarterly 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).
A-58
<PAGE>
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, Third Target Distribution, Common Unit
Arrearages and Cumulative Common Unit Arrearages shall be proportionately
adjusted in the event of any distribution, combination or subdivision (whether
effected by a distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.10. In the event of a
distribution of Available Cash that is deemed to be from Capital Surplus, the
then applicable Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution, shall be adjusted
proportionately downward to equal the product obtained by multiplying the
otherwise applicable Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution, as the case may be, by
a fraction of which the numerator is the Unrecovered Capital of the Common Units
immediately after giving effect to such distribution and of which the
denominator is the Unrecovered Capital of the Common Units immediately prior to
giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution, shall
also be subject to adjustment pursuant to Section 6.9.
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,
A-59
<PAGE>
including the right to vote as a Common Unitholder and the right to participate
in allocations of income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such converted Subordinated
Units shall remain subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x)
and 6.7(b).
(b) The Unitholder holding a Subordinated Unit which has
converted into a Common Unit pursuant to Section 5.8 shall not be issued a
Common Unit Certificate pursuant to Section 4.1, and shall not be permitted to
transfer its converted Subordinated Units to a Person which is not an Affiliate
of the holder until such time as the General Partner determines, based on advice
of counsel, that a converted Subordinated Unit should have, as a substantive
matter, like intrinsic economic and federal income tax characteristics, in all
material respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with the condition
imposed by this Section 6.7(b), the General Partner may take whatever reasonable
steps are required to provide economic uniformity to the converted Subordinated
Units in preparation for a transfer of such converted Subordinated Units,
including the application of Sections 5.5(c)(ii) and 6.1(d)(x); provided,
however, that no such steps may be taken that would have a material adverse
effect on the Unitholders holding Common Units represented by Common Unit
Certificates.
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights.
Notwithstanding anything to the contrary set forth in this Agreement,
the holders of the Incentive Distribution Rights (a) shall (i) possess the
rights and obligations provided in this Agreement with respect to a Limited
Partner pursuant to Articles III and VII and (ii) have a Capital Account as a
Partner pursuant to Section 5.5 and all other provisions related thereto and (b)
shall not (i) be entitled to vote on any matters requiring the approval or vote
of the holders of Outstanding Units, (ii) be entitled to any distributions other
than as provided in Sections 6.4(a)(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, Second Target
Distribution and Third Target Distribution, shall be adjusted to equal the
product obtained by multiplying (a) the amount thereof by (b) one minus the sum
of (i) the highest marginal federal corporate (or other entity, as applicable)
income tax rate of the Partnership or 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
A-60
<PAGE>
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 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;
A-61
<PAGE>
(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
A-62
<PAGE>
(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 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.
A-63
<PAGE>
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 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
A-64
<PAGE>
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.
(c) Subject to Section 5.7, the General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance of Partnership
Securities or options to purchase Partnership Securities), or cause the
Partnership to issue Partnership Securities in connection with, or pursuant to,
any employee benefit plan, employee program or employee practice maintained or
sponsored by the General Partner or any of its Affiliates, in each case for the
benefit of employees of the General Partner, any Group Member or any Affiliate,
or any of them, in respect of services performed, directly or indirectly, for
the benefit of the Partnership Group. The Partnership agrees to issue and sell
to the General Partner or any of its Affiliates any Partnership Securities that
the General Partner or such Affiliate is obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs or employee
practices. Expenses incurred by the General Partner in connection with any such
plans, programs and practices (including the net cost to the General Partner or
such Affiliate of Partnership Securities purchased by the General Partner or
such Affiliate from the Partnership to fulfill options or awards under such
plans, programs and practices) shall be reimbursed in accordance with Section
7.4(b). Any and all obligations of the General Partner under any employee
benefit plans, employee programs or employee practices adopted by the General
Partner as permitted by this Section 7.4(c) shall constitute obligations of the
General Partner hereunder and shall be assumed by any successor General Partner
approved pursuant to Section 11.1 or 11.2 or the transferee of or successor to
all of the General Partner's General Partner Interest pursuant to Section 4.6.
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.
A-65
<PAGE>
(b) The Operating Subsidiary has entered into the Omnibus
Agreement with the Sponsor and the Partnership, which agreement sets forth
certain restrictions on the ability of the Operating Partnership and its
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 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.
(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 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 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.
(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 Group Member.
(g) 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
A-66
<PAGE>
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).
(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
A-67
<PAGE>
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 Partnerships 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
does not exceed 4.0 to 1. During the Subordination Period, the Partnership
A-68
<PAGE>
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 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.
A-69
<PAGE>
(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.
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
A-70
<PAGE>
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
A-71
<PAGE>
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership). The General
Partner may also adopt a resolution or course of action that has not received
Special Approval. The General Partner (including the Conflicts Committee in
connection with Special Approval) shall be authorized in connection with its
determination of what is "fair and reasonable" to the Partnership and in
connection with its resolution of any conflict of interest to consider (A) the
relative interests of any party to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interest; (B) any
customary or accepted industry practices and any customary or historical
dealings with a particular Person; (c) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Conflicts Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the General Partner (including the Conflicts Committee) to
consider the interests of any Person other than the Partnership. In the absence
of bad faith by the General Partner, the resolution, action or terms so made,
taken or provided by the General Partner with respect to such matter shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or a breach of any standard of care or duty imposed herein or therein or, to the
extent permitted by law, under the Delaware Act or any other law, rule or
regulation.
(b) Whenever this Agreement or any other agreement
contemplated hereby provides that the General Partner or any of its Affiliates
is permitted or required to make a decision (i) in its "sole discretion" or
"discretion," that it deems "necessary or appropriate" or "necessary or
advisable" or under a grant of similar authority or latitude, except as
otherwise provided herein, the General Partner or such Affiliate shall be
entitled to consider only such interests and factors as it desires and shall
have no duty or obligation to give any consideration to any interest of, or
factors affecting, the Partnership, any 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.
A-72
<PAGE>
(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.
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
A-73
<PAGE>
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,
A-74
<PAGE>
in the event that the managing underwriter or managing underwriters of such
offering advise the Partnership and the Holder in writing that in their opinion
the inclusion of all or some of the Holder's Partnership Securities would
adversely and materially affect the success of the offering, the Partnership
shall include in such offering only that number or amount, if any, of securities
held by the Holder which, in the opinion of the managing underwriter or managing
underwriters, will not so adversely and materially affect the offering. Except
as set forth in Section 7.13(c), all costs and expenses of any such registration
and offering (other than the underwriting discounts and commissions) shall be
paid by the Partnership, without reimbursement by the Holder.
(c) If underwriters are engaged in connection with any
registration referred to in this Section 7.13, the Partnership shall provide
indemnification, representations, covenants, opinions and other assurance to the
underwriters in form and substance reasonably satisfactory to such underwriters.
Further, in addition to and not in limitation of the Partnership's obligation
under Section 7.8, 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
A-75
<PAGE>
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 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
A-76
<PAGE>
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.
A-77
<PAGE>
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.
A-78
<PAGE>
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 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.
A-79
<PAGE>
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.
A-80
<PAGE>
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.
A-81
<PAGE>
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or
(vi)(A), (B), (c) or (E) occurs, the withdrawing General Partner shall give
notice to the Limited Partners within 30 days after such occurrence. The
Partners hereby agree that only the Events of Withdrawal described in this
Section 11.1 shall result in the withdrawal of the General Partner from the
Partnership.
(b) Withdrawal of the General Partner from the Partnership
upon the occurrence of an Event of Withdrawal shall not constitute a breach of
this Agreement under the following circumstances: (i) at any time during the
period beginning on the Closing Date and ending at 12:00 midnight, Eastern
Standard Time, on June 30, 2009, the General Partner voluntarily withdraws by
giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners; provided that prior to the effective date of such withdrawal,
the withdrawal is approved by Unitholders holding at least a majority of the
Outstanding Common Units (excluding Common Units held by the General Partner and
its Affiliates) and the General Partner delivers to the Partnership an Opinion
of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal (following the
selection of the successor General Partner) would not result in the loss of the
limited liability of any Limited Partner or of the limited partner of the
Operating Partnership or cause the Partnership or the Operating Partnership to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not previously
treated as such); (ii) at any time after 12:00 midnight, Eastern Standard Time,
on June 30, 2009, the General Partner voluntarily withdraws by giving at least
90 days' advance notice to the Unitholders, such withdrawal to take effect on
the date specified in such notice; (iii) at any time that the General Partner
ceases to be the 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.
A-82
<PAGE>
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 effective date
of such Departing Partner's departure, by an independent investment banking
A-83
<PAGE>
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
A-84
<PAGE>
Common Units on a one-for-one basis and (ii) all Cumulative Common Unit
Arrearages on the Common Units will be extinguished.
SECTION 11.5 Withdrawal of Limited Partners.
No Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of a Limited Partner's
Limited Partner Interest becomes a Record Holder of the Limited Partner Interest
so transferred, such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided
in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is
elected and an Opinion of Counsel is received as provided in Section 11.1(b) or
11.2 and such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and
properties of the Partnership Group.
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution.
Upon (a) dissolution of the Partnership following an Event of
Withdrawal caused by the withdrawal or removal of the General Partner as
provided in Section 11.1(a)(i) or (iii) and the failure of the Partners to
select a successor to such Departing Partner pursuant to Section 11.1 or 11.2,
then within 90 days thereafter, or (b) dissolution of the Partnership upon
A-85
<PAGE>
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.
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
A-86
<PAGE>
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
A-87
<PAGE>
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).
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;
A-88
<PAGE>
(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 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;
A-89
<PAGE>
(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 occurred as a
result of an amendment approved pursuant to Section 13.3(c), (ii) enlarge
A-90
<PAGE>
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.
A-91
<PAGE>
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.
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.
A-92
<PAGE>
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 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.
A-93
<PAGE>
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
A-94
<PAGE>
Person who is the beneficial owner, and the Partnership shall be entitled to
assume it is so acting without further inquiry. The provisions of this Section
13.12(b) (as well as all other provisions of this Agreement) are subject to the
provisions of Section 4.3.
ARTICLE XIV
MERGER
SECTION 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
SECTION 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization
of each of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of
the business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or
consolidation;
(d) The manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or into, cash,
property or general or limited partner interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if any general or limited
partner interests, securities or rights of any constituent business entity are
not to be exchanged or converted solely for, or into, cash, property or general
or limited partner interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partner interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) which the holders of
such general or limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their general or limited partner
interests, securities or rights, and (ii) in the case of securities represented
by certificates, upon the surrender of such certificates, which cash, property
or general or limited partner interests, rights, securities or obligations
A-95
<PAGE>
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 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
A-96
<PAGE>
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.
A-97
<PAGE>
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this Agreement, if
at any time not more than 20% of the total Limited Partner Interests of any
class then Outstanding is held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15.1(b) is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any such
Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "Current Market Price" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per limited partner interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), the last
quoted price on such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the over-the-counter market, as reported by the
Nasdaq Stock Market or such other system then in use, or, if on any such day
such Limited Partner Interests of such class are not quoted by any such
organization, the average of the closing bid and asked prices on such day as
furnished by a 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
A-98
<PAGE>
Interests of such class (as of a Record Date selected by the General Partner) at
least 10, but not more than 60, days prior to the Purchase Date. Such Notice of
Election to Purchase shall also be published for a period of at least three
consecutive days in at least two daily newspapers of general circulation printed
in the English language and published in the Borough of Manhattan, New York. The
Notice of Election to Purchase shall specify the Purchase Date and the price
(determined in accordance with Section 15.1(a)) at which Limited Partner
Interests will be purchased and state that the General Partner, its Affiliate or
the Partnership, as the case may be, elects to purchase such Limited Partner
Interests, upon surrender of Certificates representing such Limited Partner
Interests in exchange for payment, at such office or offices of the Transfer
Agent as the Transfer Agent may specify, or as may be required by any National
Securities Exchange on which such Limited Partner Interests are listed or
admitted to trading. Any such Notice of Election to Purchase mailed to a Record
Holder of Limited Partner Interests at his address as reflected in the records
of the Transfer Agent shall be conclusively presumed to have been given
regardless of whether the owner receives such notice. On or prior to the
Purchase Date, the General Partner, its Affiliate or the Partnership, as the
case may be, shall deposit with the Transfer Agent cash in an amount sufficient
to pay the aggregate purchase price of all of such Limited Partner Interests to
be purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 days prior to the
Purchase Date, and if on or prior to the Purchase Date the deposit described in
the preceding sentence has been made for the benefit of the holders of Limited
Partner Interests subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor, without
interest, upon surrender to the Transfer Agent of the Certificates representing
such Limited Partner Interests, and such Limited Partner Interests shall
thereupon be deemed to be transferred to the General Partner, its Affiliate or
the Partnership, as the case may be, on the record books of the Transfer Agent
and the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the owner
of all such Limited Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited Partner Interests (including all
rights as owner of such Limited Partner Interests pursuant to Articles IV, V, VI
and XII).
(c) At any time from and after the Purchase Date, a holder of
an Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
A-99
<PAGE>
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.
A-100
<PAGE>
SECTION 16.4 Integration.
This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
SECTION 16.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
SECTION 16.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach 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-101
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
ATLAS PIPELINE PARTNERS G.P., INC.
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 G.P., INC.
By:_______________________________
Name:_____________________________
Title:____________________________
A-102
<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 Rouper 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 G.P., Inc., its
General Partner
________________________________________ By:_________________________________________
as Transfer Agent and Registrar Name:____________________________________
By:_____________________________________ By:_________________________________________
Authorized Signature Secretary
</TABLE>
A-103
<PAGE>
[Reverse of Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as follows according to applicable laws
or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT/TRANSFERS MIN ACT
TEN ENT - as tenants by the entireties ____________ Custodian ____________
(Cust) (Minor)
JT TEN - as joint tenants with right of 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
Rouper 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-104
<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 (Signature)
OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. OR BY A (Signature)
COMMERCIAL BANK OR TRUST
COMPANY
</TABLE>
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered on
the books of the Partnership, unless the Certificate evidencing the Common Units
to be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on the
form set forth below or (b) on a separate application that the Partnership will
furnish on request without charge. A transferor of the Common Units shall have
no duty to the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of the
Common Units.
A-105
<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: _________________
______________________________________________ ______________________________
Social Security or other identifying number of Signature of Assignee
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).
Complete Either A or B:
A. Individual Interestholder
A-106
<PAGE>
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.
A-107
<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
Glossary of Terms
Adjusted Operating Surplus is defined in the "Cash Distribution Policy -
Subordination Period; Conversion of Subordinated Units" section of the
prospectus.
Available Cash is defined in the "Cash Distribution Policy - Distributions of
Available Cash from Operation Surplus - Available Cash" section of the
prospectus.
bcf is defined in the "Prospectus Summary - Atlas Pipeline" section of the
prospectus.
Capital Surplus is defined in the "Cash Distribution Policy - Distributions of
Available Cash from Operating Surplus - Operating Surplus and Capital Surplus"
section of the prospectus.
mmcf is defined in the "Prospectus Summary - Atlas America and Resource Energy"
section of the prospectus.
Operating Surplus is defined in the "Cash Distribution Policy - Distributions of
Available Cash from Operating Surplus - Operating Surplus and Capital Surplus"
section of the prospectus.
Other Delivery Point is defined in the "Prospectus Summary - Atlas Pipeline"
section of the prospectus.
Working Capital Borrowings is defined in the "Cash Distribution Policy -
Subordination Period; Conversion of Subordinated Units" section of the
prospectus.
C-1
<PAGE>
APPENDIX D
Pro Forma Available Cash from
Operating Surplus
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1998 1999
------------ ---------------
(in thousands)
<S> <C> <C>
Pro forma net income .................................. $ 805 $ 530
Add: Depreciation, depletion, and amortization......... 3,495 458
Less: Pro forma maintenance capital expenditures(a).... 895 189
------ ---
Pro forma Available Cash from Operating
Surplus(b)(c)(d)(e).................................. $3,405 $ 799
====== ===
</TABLE>
- ----------------
(a) Consistent with the requirements of the partnership agreement, we have
deducted an amount of maintenance capital expenditures which we
determined would have been appropriate for our level of operations in
1998.
(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 one quarter and for four
quarters on the common units, the subordinated units and the general
partner interest to be outstanding immediately after the transactions
is approximately:
<TABLE>
<CAPTION>
Four Quarters One Quarter
------------- -----------
(in thousands)
<S> <C> <C>
Common units........................................ $3,226 $ 806
Subordinated units.................................. 827 207
Combined 2% general partner interest................ 83 21
------ ------
Total................................. $4,136 $1,034
====== ======
</TABLE>
(d) Our pro forma Available Cash from Operating Surplus generated during
1998 would have been sufficient to pay the minimum quarterly
distribution on the common units.
D-1
<PAGE>
(e) Our pro forma Available Cash form Operating Surplus generated during
the first quarter of 1999 would have been sufficient to allow us to pay
the full minimum quarterly distribution on the common units.
D-2
<PAGE>
Appendix E
This table sets forth programs in which Atlas America serves as operator and/or
drilling contractor for third party general partners as well as the partnerships
in which Atlas America's affiliates served as managing general partner.
ATLAS AMERICA, INC. HISTORICAL PRODUCTION RECORD
As of December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Amount
Year Wells Total Invested Total
Were Placed Total mcfs in Amount
Into Production Wells(l) Produced Wells(2) Returned(3)
- --------------- -------- -------- ---------------- -----------
<S> <C> <C> <C> <C>
1973 6 2,509,236 $ 576,000 $ 4,015,217
1974 18 2,946,593 2,387,200 3,912,076
1975 21 4,216,675 2,814,200 6,646,801
1976 14 2,886,085 1,819,200 4,371,213
1977 26 9,249,096 3,912,600 16,290,635
1978 78 7,908,916 12,399,900 19,089,393
1979 46 9,254,567 7,404,000 19,743,042
1980 41 5,784,913 6,561,100 13,659,970
1981 77 6,393,648 15,382,850 17,131,621
1982 63 2,483,831 12,438,500 5,795,400
1983 22 1,296,607 6,725,480 3,036,981
1984 47 4,709,058 10,663,250 10,323,461
1985 39 4,913,152 8,971,200 10,264,820
1986 45 5,632,560 9,649,100 10,735,876
1987 12 1,559,947 2,425,800 2,713,796
1988 37 3,865,839 7,688,386 6,926,354
1989 48 3,969,740 9,967,768 7,005,989
1990 46 5,051,865 9,038,238 9,111,581
1991 79 8,590,676 16,034,382 15,741,230
1992 64 8,015,782 14,250,032 14,383,556
1993 107 10,318,207 21,958,681 17,077,751
1994 94 6,432,284 20,418,366 10,413,865
1995 105 6,466,579 22,350,889 10,936,284
1996 114 4,744,470 25,396,708 8,092,130
1997 102 2,785,785 20,678,334 4,886,603
1998 111 1,160,369 23,270,358 1,921,602
----- ------------ ------------- --------------
TOTAL 1,462 133,146,480 $295,182,522 $254,227,247
===== ============ ============= ==============
</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; (iii) 127 wells drilled from 1980 to 1985 which
were sold in 1993 and are no longer operated by Atlas America; and (iv)
wells which were drilled recently but are not yet in production.
(2) Represents funds paid to Atlas America as operator and/or drilling
contractor for drilling and completing the designated wells.
(3) Includes amounts paid by Atlas America as operator of the wells to a
third party managing general partner and/or sponsor of the program.
E-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
----
Guide to Reading this Prospectus................................. iv
Prospectus Summary............................................... 1
Risk Factors..................................................... 21
The Transactions; Use of Proceeds................................ 33
Pro Forma Capitalization......................................... 34
Dilution......................................................... 34
Cash Distribution Policy......................................... 35
Cash Available for Distribution.................................. 45
Selected Financial and Operating Data of Resource America, Inc.
Gathering Systems.............................................. 48
Selected Unaudited Pro Forma Operations of Atlas
Pipeline....................................................... 50
Management's Discussion and Analysis of Historical
and Pro Forma Financial Condition and Results of Operations.... 51
Business......................................................... 58
Atlas America, Inc. and Resource Energy, Inc..................... 70
Management....................................................... 70
Security Ownership of Principal Beneficial
Owners and Management.......................................... 74
Conflicts of Interest and Fiduciary Responsibilities............. 75
Description of the Common Units.................................. 80
Description of the Subordinated Units............................ 82
The Partnership Agreement........................................ 84
Units Eligible for Future Sale................................... 99
Tax Considerations............................................... 100
Legal Matters.................................................... 122
Experts.......................................................... 122
How to Obtain Other Information About Us......................... 123
Forward-Looking Statements....................................... 123
Underwriting..................................................... 124
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-Glossary Of Terms..................................... C-1
Appendix D-Pro Forma Available Cash from Operating Surplus....... D-1
Appendix E - Atlas America, Inc. Historical Production
Record......................................................... E-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>
1,920,000 Common Units
ATLAS PIPELINE PARTNERS, L.P.
Representing Limited
Partner Interests
-------
[LOGO]
-------
FRIEDMAN BILLINGS RAMSEY
<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:
Securities and Exchange Commission registration fee......................$11,049
NASD filing fee.......................................................... 4,475
AMEX listing fee......................................................... 20,000
Printing and engraving expenses.......................................... *
Legal fees and expenses.................................................. *
Accounting fees and expenses............................................. *
Transfer agent and registrar fees........................................ *
Miscellaneous............................................................ *
TOTAL........................................................... *
- ---------------
*To be filed by amendment.
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 __ of the Underwriting Agreement [to be] 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, Atlas America's Certificate of Incorporation provides that its officers and
directors (including those who act at its request as officers of and directors
of subsidiaries of Atlas America) shall not be personally liable to Atlas
America or its stockholders for monetary damages for breach of fiduciary duty,
except for liability (i) for any breach of their duty of loyalty to Atlas
America or its stockholders, (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, Atlas America's By-laws provide for indemnification of its
officers and directors to the fullest extent permitted under Delaware law,
including indemnification for their service at Atlas America's request as
officers and directors of subsidiaries of Atlas America.
<PAGE>
Substantially the same provisions regarding indemnification are
contained in the Certificate of Incorporation and By-laws 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
or Atlas Pipeline GP pursuant to the foregoing provisions, or otherwise, Atlas
Pipeline, Atlas America and Atlas Pipeline GP 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.
Resource Energy, Inc., the corporate parent of Atlas America and
indirect corporate parent of Atlas Pipeline GP, 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 the consummation of the offering, Atlas Pipeline
will issue 484,615 subordinated units to Atlas America as partial consideration
for the gathering systems. This offering was exempt from registration under the
Securities Act of 1933, as amended, by reason of Section 4(2) thereof and/or
Regulation D. 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:
*1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Agreement of Limited Partnership of
Atlas Pipeline Partners, LP (included as Appendix A to the
prospectus).
*3.2 Certificate of Limited Partnership of Atlas Pipeline Partners, LP.
*3.3 Certificate of Limited Partnership of Atlas Pipeline Operating
Limited Partnership.
*5.1 Opinion of Ledgewood Law Firm, P.C. as to the legality of the
securities being registered.
*8.1 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 Limited Partnership
*10.2 Form of Omnibus Agreement between Atlas Pipeline Partners, L.P. and
Atlas America, Inc.
<PAGE>
*10.3 Form of Master Natural Gas Agreement between Atlas Pipeline Partners,
L.P. and Atlas America, Inc.
*10.4 Form of Distribution Support Agreement between Atlas Pipeline
Partners, L.P. and Atlas Pipeline Partners GP, Inc.
*10.5 Form of Letter of Credit in favor of Atlas Pipeline Partners, L.P.
23.1 Consent of Grant Thornton
23.2 Consent of McLaughlin & Courson
*23.3 Consent of Ledgewood Law Firm, P.C. (contained in Exhibit 5.1)
*23.4 Consent of Andrews & Kurth L.L.P. (contained in Exhibit 8.1)
24.1 Powers of Attorney (included on the signature page)
27 Financial Data Schedules
- -------------------
*To be filed by amendment.
(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:
(1) 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.
<PAGE>
(2) 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Moon Township,
Pennsylvania, on August 13, 1999.
ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, Inc. its
general partner
By: /s/ Tony C. Banks
-----------------------------------
Name: Tony C. Banks
Title: President
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Jonathan Z. Cohen, Tony C. Banks, and
Michael L. Staines, and each of them, as their true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for them and in
their names, places and steads, 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.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated below:
Signature Title Date
--------- ----- ----
/s/ Edward E. Cohen Chairman of the Board August 13, 1999
- ----------------------
/s/ Jonathan Z. Cohen Vice Chairman August 13, 1999
- ----------------------
President and Director
/s/ Tony C. Banks (Chief Executive Officer) August 13, 1999
- ----------------------
Vice President and Controller
/s/ William R. Seiler (Chief Financial Officer) August 13, 1999
- ----------------------
/s/ George C. Beyer Director August 13, 1999
- ----------------------
/s/ William R. Bagnell Director August 13, 1999
- ----------------------
<PAGE>
CONSENT OF GRANT THORNTON LLP
We have issued our reports dated July 14, 1999 accompanying the combined
financial statements of Resource America, Inc. Gathering Operations and the
combined financial statements of The Atlas Group, Inc. Gathering Operations
contained in the Registration Statement and Prospectus of Atlas Pipeline
Partners, L.P. We consent to the use of the aforementioned reports in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
/s/ GRANT THORNTON LLP
----------------------
Cleveland, Ohio
August 12, 1999
<PAGE>
CONSENT OF GRANT THORNTON LLP
We have issued our report dated August 3, 1999 accompanying the consolidated
financial statements of Atlas America, Inc. contained in the Registration
Statement and Prospectus of Atlas Pipeline Partners, L.P. We consent to the use
of the aforementioned report in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts".
/s/ GRANT THORNTON LLP
------------------------
Cleveland, Ohio
August 12, 1999
<PAGE>
CONSENT OF GRANT THORNTON LLP
We have issued our reports dated August 11, 1999 accompanying the financial
statements of Atlas Pipeline GP, Inc. and the financial statements of Atlas
Pipeline Partners, L.P. contained in the Registration Statement and Prospectus
of Atlas Pipeline Partners, L.P. We consent to the use of the aforementioned
reports in the Registration Statement and Prospectus, and to the use of our name
as it appears under the caption "Experts".
/s/ GRANT THORNTON LLP
-------------------------
Cleveland, Ohio
August 12, 1999
<PAGE>
McLAUGHLIN & COURSON
CERTIFIED PUBLIC ACCOUNTANTS
2002 LAW & FINANCE BUILDING
PITTSBURGH, PA 15219
-------------
412/261-0630
FAX 412/261-3582
CONSENT OF INDEPENDENT AUDITOR
------------------------------
The firm, as Independent Certified Public Accountants, hereby consents
to the use of the audit report dated October 20, 1997 on the consolidated
statements of financial position of The Atlas Group, Inc. and subsidiaries as of
July 31, 1997, and the related consolidated statements of income and cash flows
for the year then ended, and 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 the related consolidated statements of
income and cash flows for the eleven months then ended, in the filing of Form
S-1 with the U.S. Securities and Exchange Commission by Atlas Pipeline Partners,
L.P.
/s/ McLaughlin & Courson
--------------------------
McLaughlin & Courson
August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998 DEC-31-1998
<CASH> 36 0 26
<SECURITIES> 0 0 0
<RECEIVABLES> 234 0 262
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 270 0 288
<PP&E> 9,136 0 8,907
<DEPRECIATION> (1,360) 0 (1,237)
<TOTAL-ASSETS> 10,592 0 10,526
<CURRENT-LIABILITIES> 105 0 70
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 3,675 0 3,519
<TOTAL-LIABILITY-AND-EQUITY> 10,592 0 10,526
<SALES> 0 0 0
<TOTAL-REVENUES> 722 69 1,045
<CGS> 0 0 0
<TOTAL-COSTS> 462 74 696
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 84 0 87
<INCOME-PRETAX> 260 (5) 349
<INCOME-TAX> 104 (2) 139
<INCOME-CONTINUING> 156 (3) 210
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 156 (3) 210
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001092914
<NAME> ATLAS PIPELINE PARTNERS, L.P.
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 9,231
<SECURITIES> 0
<RECEIVABLES> 3,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,291
<PP&E> 25,358
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,080
<CURRENT-LIABILITIES> 15,525
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 38,725
<TOTAL-LIABILITY-AND-EQUITY> 84,080
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 11-MOS YEAR
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1997
<PERIOD-START> AUG-01-1997 AUG-01-1996
<PERIOD-END> JUN-30-1998 JUL-31-1997
<CASH> 5,292 9,386
<SECURITIES> 0 0
<RECEIVABLES> 7,809 4,691
<ALLOWANCES> 392 300
<INVENTORY> 783 176
<CURRENT-ASSETS> 13,824 14,339
<PP&E> 67,580 60,881
<DEPRECIATION> (32,715) (29,394)
<TOTAL-ASSETS> 49,135 46,200
<CURRENT-LIABILITIES> 17,472 18,355
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 22,277 20,613
<TOTAL-LIABILITY-AND-EQUITY> 49,135 46,700
<SALES> 21,777 22,354
<TOTAL-REVENUES> 54,513 64,013
<CGS> 19,895 18,473
<TOTAL-COSTS> 52,580 59,249
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 634 681
<INCOME-PRETAX> 1,933 4,764
<INCOME-TAX> 525 1,270
<INCOME-CONTINUING> 1,408 3,494
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,408 3,494
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-29-1998 DEC-31-1997 DEC-31-1996
<CASH> 18 30 0
<SECURITIES> 0 0 0
<RECEIVABLES> 193 213 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 211 243 0
<PP&E> 20,182 18,946 0
<DEPRECIATION> (11,918) (10,820) 0
<TOTAL-ASSETS> 8,475 8,369 0
<CURRENT-LIABILITIES> 110 41 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 2,787 2,799 0
<TOTAL-LIABILITY-AND-EQUITY> 8,475 8,369 0
<SALES> 0 0 0
<TOTAL-REVENUES> 2,026 2,578 2,795
<CGS> 0 0 0
<TOTAL-COSTS> 2,046 2,326 1,913
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 277 370 242
<INCOME-PRETAX> (20) 252 882
<INCOME-TAX> (8) 101 353
<INCOME-CONTINUING> (12) 151 529
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (12) 151 529
<EPS-BASIC> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001092914
<NAME> ATLAS PIPELINE PARTNERS, L.P.
<MULTIPLIER> 1
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAY-6-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 100
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
