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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Pride Companies, L.P.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
NOTICE OF SOLICITATION OF CONSENTS
OF LIMITED PARTNERS
To the Limited Partners of Pride Companies, L.P.:
PRIDE COMPANIES, L.P., a Delaware limited partnership (the "Partnership"),
hereby solicits the consent of limited partners of the Partnership as of
September 19, 1996 to certain amendments (the "Proposed Amendments") to the
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement").
The primary purpose of the Proposed Amendments is to modify the capital
structure of the Partnership. The Proposed Amendments provide for the
Partnership's convertible preferred units (the "Preferred Units") and the
Partnership's common units ("Common Units") to be treated as a single class of
limited partner units with identical rights and privileges (the "Units"), and
the elimination of certain existing contingent distribution preferences of the
General Partners. These amendments will result in the elimination of the
respective cumulative distribution arrearages of both the currently outstanding
Preferred and Common Units, and the elimination of distribution and liquidation
preferences currently attributable to the Preferred Units. The Proposed
Amendments also provide that the currently outstanding Common Units shall be
subject to a 1 for 21 reverse unit split. Therefore, if the Proposed Amendments
are approved and implemented, upon the effective date of the Proposed
Amendments, the holders of Preferred Units will own in aggregate 4,700,000 Units
or approximately 95% of the Units representing an approximate 93.1% limited
partner interest in the Partnership, and the limited partner interest of the
holders of Common Units will decrease to 250,000 Units or approximately 5% of
the Units representing an approximate 4.9% limited partner interest in the
Partnership. Currently, the holders of Preferred Units own in aggregate an
approximate 46.3% limited partner interest in the Partnership. The General
Partners will continue to own a 2% general partner interest in the Partnership.
The amendments to the Preferred and Common Units are conditioned upon the
approval for listing of the single class of Units on the New York Stock
Exchange.
The Proposed Amendments also include certain other changes to the
Partnership Agreement including the terms of certain new convertible preferred
equity securities which may be issued to the Partnership's bank lenders in lieu
of payment for certain Partnership debt if the Partnership successfully
refinances its existing credit facility with other third party creditors. The
Proposed Amendments and related matters are more fully discussed in the attached
Consent Solicitation Statement, which (together with the appendices thereto)
forms a part of this notice and is incorporated herein by reference.
Adoption of the Proposed Amendments requires the consent of limited
partners holding 66 2/3% in interest of each of the Preferred Units and the
Common Units, as separate classes, and the approval of the special general
partner. The solicitation of limited partner consents is being made upon the
terms and is subject to the conditions in this Consent Solicitation Statement
and the accompanying form of Consent. The special general partner of the
Partnership, Pride SGP, Inc., which is the holder of all currently outstanding
Common Units, has given its approval of the Proposed Amendments in its capacity
as special general partner.
This solicitation will expire at 5:00 p.m., central standard time, on
November 15, 1996, (the "Expiration Date") unless extended for a specified
period or on a daily basis until the requisite consents have been received.
Holders as of the record date may revoke their consents at any time up to the
Expiration Date.
By Order of the Managing General
Partner
Judy Sharrow, Secretary
Pride Refining, Inc.
YOU ARE ASKED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING CONSENT IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
PRIDE COMPANIES, L.P.
---------------------
CONSENT SOLICITATION STATEMENT
---------------------
This Consent Solicitation Statement is furnished by Pride Refining, Inc., a
Texas corporation, as Managing General Partner of Pride Companies, L.P., a
Delaware limited partnership (the "Partnership"), to the holders of the
Partnership's convertible preferred limited partner units (the "Preferred
Units") and holders of the Partnership's common limited partner units (the
"Common Units") as of October 4, 1996 (the "Record Date") in connection with the
solicitation (the "Solicitation") of the consent ("Consent") of the limited
partners of the Partnership to adopt certain amendments (the "Proposed
Amendments") to the Amended and Restated Agreement of Limited Partnership of the
Partnership, as amended to date (the "Partnership Agreement"). The Proposed
Amendments are proposed by Pride Refining, Inc., as Managing General Partner of
the Partnership. The primary purpose of the Proposed Amendments is to modify the
capital structure of the Partnership. The Proposed Amendments provide for the
Preferred Units and the Common Units to be treated as a single class of limited
partner units with identical rights and privileges (the "Units"), and the
elimination of certain existing contingent distribution preferences of the
General Partners. These amendments will result in the elimination of the
respective cumulative distribution arrearages of both the Preferred and Common
Units, and the elimination of distribution and liquidation preferences and
certain other rights currently attributable to the Preferred Units. In return,
the limited partner interest of holders of Preferred Units in the Partnership
will increase from approximately 46.3% to 93.1% immediately after the Proposed
Amendments become effective.
Pride Refining, Inc., a Texas corporation (the "Managing General Partner"),
owns a 1.9% general partner interest in and serves as the managing general
partner of the Partnership. Pride SGP, Inc. (the "Special General Partner" or
"Pride SGP") owns a .1% general partner interest in and serves as the special
general partner of the Partnership. The Special General Partner also currently
holds an approximate 51.7% limited partner interest in the Partnership through
its ownership of all of the currently outstanding Common Units. The Preferred
Units, all of which are publicly held, represent an approximate 46.3% limited
partner interest in the Partnership.
Preferred Units are currently entitled to quarterly, cumulative preferred
distribution of Available Cash (as defined in the Partnership Agreement) from
Partnership operations of $.65 per Unit (the "Base Amount"). Arrearages with
respect to distributions on the Preferred Units are cumulative but do not bear
interest. Beginning with the first quarter of 1992, Available Cash was
insufficient to pay the Base Amount. As a result, the Preferred Units have
accumulated arrearages in the amount of $11.35 per Preferred Unit through the
quarter ended June 30, 1996. The Proposed Amendments will change the Preferred
Units into Units and eliminate the preference with respect to the payment of
distributions (including the accumulated arrearages) and the preference upon
dissolution currently attributable to the Preferred Units.
Common Units are currently entitled to quarterly, cumulative distributions
of Available Cash from Partnership operations of the Base Amount of $.65 per
Unit, following the payment of the Preferred Unit distributions (including
cumulative arrearages). The Common Units have accumulated arrearages in an
amount of $13.00 per Common Unit through the quarter ended June 30, 1996.
Arrearages with respect to distributions on the Common Units are cumulative but
do not bear interest. The Proposed Amendments will change the Common Units into
Units and eliminate the accumulated distribution arrearages to date on the
Common Units.
The Proposed Amendments provide that the currently outstanding Common Units
shall be subject to a 1 for 21 reverse unit split. Subsequent to the reverse
unit split, each Preferred Unit and each Common Unit will change into one Unit.
Therefore, upon effectiveness of the Proposed Amendments, the former holders of
Preferred Units will own in aggregate 4,700,000 Units or approximately 95% of
the Units, representing an approximate 93.1% limited partner interest in the
Partnership, and the Special General Partner's Common
(Cover continued on following page)
<PAGE> 4
Units representing a 51.7% limited partner interest will be reduced to 250,000
Units, approximately 5% of the Units, or an approximate 4.9% limited partner
interest.
The Proposed Amendments will also eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. The Managing General Partner and Special General
Partner will continue to own 1.9% and .1% general partner interests,
respectively.
The Proposed Amendments will also decrease the requisite vote for removal
of the Managing General Partner in certain circumstances after March 31, 1998
and limit reimbursement of the Managing General Partner for certain compensation
paid pursuant to employment agreements.
The Partnership has reached an agreement with its lenders to restructure
its existing bank debt. If the Proposed Amendments are approved by November 15,
1996 and other specified closing conditions are met, the banks have agreed to
convert a portion of their term loan into convertible senior secured notes,
lower certain interest rates and credit and loan fees and extend the maturity of
the Partnership's debt. If the Partnership subsequently refinances its credit
facility with other third party creditors, a portion of such convertible senior
secured notes would automatically be converted into a convertible preferred
equity security of the Partnership and a portion of the debt owed to Pride SGP
would be converted to a subordinated convertible preferred equity security. See
"Agreement with Credit Facility Lenders to Restructure Debt" for a description
of the Partnership's agreement with its lenders and the terms of the convertible
preferred equity securities that would be issued to the Partnership's bank
lenders upon refinancing of the Partnership's credit facility. The Proposed
Amendments include the annexation of certificates of designations to the
Partnership Agreement, which establish the terms of such convertible preferred
equity securities when and if they are issued.
SEE "RISK FACTORS AND OTHER CONSIDERATIONS" ON PAGE 12 FOR CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE PROPOSED AMENDMENTS.
Pursuant to the Partnership Agreement, adoption of the Proposed Amendments
requires the approval of holders of 66 2/3% of the total outstanding Preferred
Units and 66 2/3% of the total outstanding Common Units and the approval of the
Special General Partner. Only Limited Partners or assignees who are record
holders of Preferred or Common Units on the Record Date will be taken into
account for the purpose of determining whether the requisite level of approval
for the Proposed Amendments has been achieved. As of the Record Date, there were
4,700,000 Preferred Units and 5,250,000 Common Units outstanding. The Special
General Partner, the holder of all currently outstanding Common Units has given
its approval of the Proposed Amendments in its capacity as special general
partner. If the Proposed Amendments are adopted by the Partnership, the Managing
General Partner, the Special General Partner, and the Managing General Partner
on behalf of the Limited Partners will execute an amendment to the Partnership
Agreement effecting the Proposed Amendments. Adoption of the Proposed Amendments
will bind all holders of Preferred and Common Units regardless of whether they
withhold or grant consent to the Proposed Amendments.
Application is being made to list the Units on the New York Stock Exchange
and the effectiveness of the Proposed Amendments is conditioned upon the
acceptance of the single class of Units for listing on the New York Stock
Exchange.
---------------------
This Consent Solicitation Statement and the related form of Consent are
first being sent to the holders of Preferred and Common Units on or about
October [ ], 1996.
The date of this Consent Solicitation is October [ ], 1996.
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THIS SOLICITATION WILL EXPIRE AT 5:00 P.M., CENTRAL STANDARD TIME, ON
NOVEMBER 15, 1996, (THE "EXPIRATION DATE") UNLESS EXTENDED FOR A SPECIFIED
PERIOD OR ON A DAILY BASIS UNTIL THE REQUISITE CONSENTS HAVE BEEN RECEIVED.
HOLDERS AS OF THE RECORD DATE MAY REVOKE THEIR CONSENTS AT ANY TIME UP TO THE
EXPIRATION DATE. SEE "THE SOLICITATION."
THE PARTNERSHIP WILL NOT SOLICIT CONSENTS FROM LIMITED PARTNERS OR
ASSIGNEES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION WOULD NOT BE IN
COMPLIANCE WITH THE APPLICABLE SECURITIES OR BLUE SKY LAWS.
Partnership has engaged Kissel-Blake Inc. to assist in the solicitation of
consents. Other than as discussed above, the Partnership has made no
arrangements and has no understanding with any independent dealer, salesman or
other person regarding the solicitation of consents hereunder, and no person has
been authorized by the Partnership to give any information or to make any
representation in connection with the solicitation of consent to the Proposed
Amendments, other than those contained herein and, if given or made, such other
information or representations must not be relied upon as having been
authorized. The delivery of this Consent Solicitation Statement shall not, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof.
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files (and will file) reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at 7
World Trade Center, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies
may be obtained at the prescribed rates from the Public Reference Section of the
SEC at its principal office in Washington, D.C., and may be obtained from the
Website that the SEC maintains at http://www.sec.gov. Such reports, proxy
statements and other information concerning the Partnership can also be
inspected at the office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, the exchange on which the Preferred Units are listed (and
on which application is being made to list the single class of Units).
iii
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
CONSENT SOLICITATION STATEMENT........................................................
AVAILABLE INFORMATION.................................................................
SUMMARY...............................................................................
Summary Information About the Partnership...........................................
The Solicitation....................................................................
Partnership Financial Results and Business Considerations...........................
Reasons for Adoption of Proposed Amendments.........................................
The Proposed Amendments.............................................................
Certain Risk Factors related to Proposed Amendments.................................
Summary of Certain Current Partnership Provisions...................................
Comparative Rights of the Preferred Units and the Units.............................
Comparative Rights of the Common Units and the Units................................
Agreement with Credit Facility Lenders to Restructure Debt..........................
Conditions to the Effectiveness of the Proposed Amendments..........................
No Appraisal Rights.................................................................
Consequences if the Proposed Amendments Are Not Adopted.............................
PRO FORMA ILLUSTRATION OF RECAPITALIZATION AND REFINANCING............................
RISK FACTORS AND OTHER CONSIDERATIONS.................................................
Risk Factors........................................................................
Partnership Financial Results.......................................................
Agreement with Credit Facility Lenders to Restructure Debt..........................
Business Considerations and Risk Factors............................................
REASONS FOR ADOPTION OF PROPOSED AMENDMENTS...........................................
Increase in Relative Limited Partner Interest of Preferred Unitholders..............
Opportunities Pursuant to Bank Agreement............................................
Improved Access to Debt and Equity Markets..........................................
CONSEQUENCES IF PROPOSED AMENDMENTS NOT APPROVED....................................
OPINION OF INDEPENDENT INVESTMENT BANKER [FINANCIAL ADVISOR]..........................
RECOMMENDATION OF THE MANAGING GENERAL PARTNER........................................
BUSINESS..............................................................................
General.............................................................................
Other Matters.......................................................................
Financial Condition.................................................................
Capital Expenditures................................................................
Credit Facilities...................................................................
AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT............................
THE SOLICITATION......................................................................
Voting Securities, Record Date and Outstanding Units................................
Consent and Revocation of Consent...................................................
Required Level of Consent...........................................................
Solicitation of Consents............................................................
No Appraisal Rights.................................................................
</TABLE>
iv
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<TABLE>
<S> <C>
CURRENT PARTNERSHIP CASH DISTRIBUTION POLICY..........................................
General.............................................................................
Distributions Prior to the Initial Conversion Date..................................
Distributions After the Initial Conversion Date.....................................
Distributions in Respect of Incentive Interests and SPU.............................
Certain Additional Distributions....................................................
Distributions Upon Liquidation......................................................
Adjustment of Base Amount, Preferred Amount and Target Amounts......................
COMPARISON OF PREFERRED UNITS, COMMON UNITS, AND UNITS................................
THE PROPOSED AMENDMENTS...............................................................
MECHANICS OF PARTNERSHIP CAPITAL STRUCTURE CHANGES CONTEMPLATED BY PROPOSED
AMENDMENTS..........................................................................
MARKET FOR PARTNERSHIP'S PREFERRED UNITS AND STATUS OF DISTRIBUTIONS TO HOLDERS OF
PREFERRED AND COMMON UNITS..........................................................
CONFLICTS OF INTEREST OF THE GENERAL PARTNERS.........................................
UNIT OWNERSHIP........................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................
Security Ownership of Certain Beneficial Owners as of August 31, 1996...............
Security Ownership of Management....................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................
FEDERAL INCOME TAX CONSEQUENCES.......................................................
</TABLE>
v
<PAGE> 8
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the detailed information contained elsewhere in this Consent
Solicitation Statement. Holders of Preferred and Common Units are urged to read
the more detailed information set forth elsewhere in this Consent Solicitation
Statement and its Annexes.
SUMMARY INFORMATION ABOUT THE PARTNERSHIP
Pride Companies, L.P. (the "Partnership"), a Delaware limited partnership,
owns and operates a modern simplex petroleum refinery facility located near
Abilene, Texas; a crude oil gathering business that gathers, transports, and
resells and redelivers crude oil in the Texas and New Mexico markets; and
certain integrated product pipeline operations. See "Business."
Pride Refining, Inc., a Texas corporation (the "Managing General Partner"),
owns a 1.9% general partner interest in and serves as the managing general
partner of the Partnership. Pride SGP, Inc. (the "Special General Partner" or
"Pride SGP") owns a .1% general partner interest in and serves as the special
general partner of the Partnership. The Special General Partner also holds an
approximate 51.7% limited partner interest in the Partnership through its
ownership of all of the currently outstanding common limited partner units (the
"Common Units"). Certain members of the management of the Managing General
Partner are also members of the management of Pride SGP. The Partnership's
convertible preferred limited partner units (the "Preferred Units"), all of
which are publicly held, represent an approximate 46.3% limited partner interest
in the Partnership.
In accordance with the Amended and Restated Agreement of Limited
Partnership of Pride Companies, L.P., as amended to date (the "Partnership
Agreement"), the Managing General Partner conducts, directs and exercises
control over substantially all of the activities of the Partnership. The
principal executive offices of the General Partners and the Partnership are
located at 1209 North Fourth Street, Abilene, Texas 79601, and the telephone
number of the offices is (915) 674-8000.
THE SOLICITATION
This Consent Solicitation Statement is being furnished to limited partners
and assignees as of the Record Date of October 4, 1996, in connection with the
Solicitation. The Solicitation is being made upon the terms and is subject to
the conditions in this Consent Solicitation Statement and the accompanying form
of Consent. See "The Solicitation".
A copy of the Partnership Agreement as amended and restated to reflect the
Proposed Amendments is attached hereto as Appendix A, and has been marked to
show changes from the current Partnership Agreement. Appendix A also includes
the certificates of designations for two series of convertible preferred equity
securities which may be issued to the Partnership's current bank lenders.
The Proposed Amendments require the approval of holders of 66 2/3% of the
total outstanding Preferred Units and 66 2/3% of the total outstanding Common
Units and approval of the Special General Partner for adoption. Only Limited
Partners or assignees who are record holders of Preferred or Common Units on the
Record Date will be taken into account for the purpose of determining whether
the requisite level of approval for the Proposed Amendments has been achieved.
The Special General Partner, the holder of all currently outstanding Common
Units, has given its approval of the Proposed Amendments in its capacity as
special general partner, and has received instructions allowing it to vote at
least 66 2/3% of the Common Units for the Proposed Amendment.
1
<PAGE> 9
PARTNERSHIP FINANCIAL RESULTS AND BUSINESS CONSIDERATIONS
Industry Condition. The Partnership's operating results are dependent upon
producing and selling quantities of refined products at refinery margins
sufficient to cover fixed and variable expenses. The refining business is highly
competitive, and the Partnership's margins are significantly impacted by general
industry trends. In recent years, crude oil costs and prices of refined products
have fluctuated substantially. Industry margins are determined by a variety of
regional, national and global trends, including oil prices, weather, and
economic conditions.
Losses. The Partnership's operations have generated losses in each of the
last five years and current ratios of less than one to one in each of the last
three years. These financial results are primarily a result of depressed
refining margins, increasing depreciation expense and interest expense and
related fees. Crude gathering volumes also decreased in the first six months of
1996 and in the years ended December 31 of 1995 and 1994. During 1994, the
United States refining industry experienced its worst margins since the
inception of the Partnership in 1990. Although the Partnership has achieved
certain reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. The Partnership's return to
profitability and long-term viability is dependent upon restructuring its credit
facility, increased volumes and/or improved profit margins as well as continued
cost control initiatives.
High Level of Debt; July 1997 Maturity. The Partnership is highly
leveraged, with significant funding requirements for near-term obligations. At
September 6, 1996, the Partnership's debt exceeded $52.5 million, of which $44.6
million is scheduled to mature on July 31, 1997. The Partnership must therefore
restructure the terms of its debt facilities or obtain alternative means of
financing prior to July 31, 1997. The Partnership has pledged substantially all
its assets as collateral for its debt. Due to its negative operating results,
the Partnership has been unable to comply with certain provisions of its credit
agreement and as a result, various amendments and restatements of the credit
agreement have been required in the past two years. Certain of these amendments
increased the overall cost of the facilities to the Partnership.
Agreement with Credit Facility Lenders. The Partnership has reached an
agreement with its lenders to restructure the existing bank debt. If the
Proposed Amendments are adopted by November 15, 1996, and other specified
conditions are met, the lenders have agreed to convert a portion of their term
loans into convertible senior secured notes, to lower certain interest rates and
credit and loan fees and to extend the maturity of the debt. The agreement with
the banks also contemplates that the Partnership would refinance with new third
party creditors the letter of credit facility, the revolving credit facility,
the term loan, and possibly a portion of the notes received by the lenders upon
the recapitalization of the Partnership and that a portion of the convertible
senior secured notes would automatically convert into convertible preferred
equity securities of the Partnership. There can be no assurance the Partnership
will be able to obtain the adoption of the Proposed Amendments, or refinance its
credit facility with new lenders.
Consideration of Alternatives to Proposed Amendments. Alternatives to the
adoption of the Proposed Amendments and the refinancing of the bank debt that
the Managing General Partner considered included conversion of the Partnership
to a corporation and the dissolution of the Partnership. After analysis of these
alternatives and consultations with various financial advisors, the Managing
General Partner determined that these options provided lower potential for the
Partners to receive the full value of their investment in the Partnership than
proposing the adoption of the Proposed Amendments to modify the capital
structure of the Partnership and attempting to refinance the Partnership's bank
debt.
2
<PAGE> 10
REASONS FOR ADOPTION OF PROPOSED AMENDMENTS
The Managing General Partner believes that the adoption of the Proposed
Amendments to accomplish the proposed capital restructure of the Partnership is
in the best interest of the Partnership. The principal reasons favoring the
adoption of the Proposed Amendments and the changes to the Preferred and Common
Units include the following:
- Lack of Distributions and Existence of Accumulated Distribution
Obligation. The Managing General Partner does not believe that the
accumulated arrearages on the Preferred and Common Units will be paid in
the foreseeable future. The Managing General Partner believes that the
elimination of these rights and their associated uncertainties will
improve the Partnership's ability to acquire new financing.
- Agreement with Partnership Lenders to Restructure Debt. The Partnership
has reached an agreement with its lenders to restructure its existing
bank debt. If the Proposed Amendments are approved by November 15, 1996
and other specified closing conditions are met, the banks have agreed to
convert a portion of their term loan into convertible senior secured
notes, to lower certain interest rates and credit and loan fees and to
extend the maturity of the Partnership's credit facility to November 30,
1997. If the Partnership subsequently refinances its credit facility with
new creditors, a substantial portion of such convertible senior secured
notes would automatically be converted into convertible preferred equity
securities of the Partnership.
- Improved Access to Debt and Equity Markets. The Partnership's recent
results and current business plan require it to improve its ability to
acquire new financing. The Managing General Partner expects that with the
capital structure changes resulting from the Proposed Amendments, the
Partnership will have improved access to the public and private equity
and debt capital markets, potentially enabling it to raise capital on
more favorable terms than are now available to it. This access may be of
particular benefit if the Partnership proposes to issue equity or debt
securities to reduce or replace existing debt, to seek additional funds
for capital expenditures or otherwise to expand its business.
THE PROPOSED AMENDMENTS
The Proposed Amendments will change the Preferred and Common Units into a
single class of limited partner units with identical rights and privileges (the
"Units") and eliminate the respective cumulative distribution arrearages of the
Preferred and Common Units. The Proposed Amendments will also eliminate the
distribution preference as well as the preferences upon dissolution currently
attributable to the Preferred Units.
The Proposed Amendments provide that immediately prior to the effectiveness
of the changes to the Preferred and Common Units, the currently outstanding
Common Units will be subject to a 1 for 21 reverse unit split. Subsequent to the
reverse unit split, each Preferred and Common Unit will change into one Unit.
Therefore, immediately upon effectiveness of the Proposed Amendments, the former
holders of Preferred Units will own in aggregate an approximate 93.1% limited
partner interest in the Partnership, and the Special General Partner's limited
partner interest will be reduced from an approximate 51.7% interest to a 4.9%
limited partner interest. Currently the holders of Preferred Units own in
aggregate an approximate 46.3% limited partner interest in the Partnership.
The Proposed Amendments will eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. See "Conflicts of Interest of the General Partners" for
a description of two plans that have been established in part to provide
incentives to key employees of the Managing General Partner for their activities
on behalf of the Partnership.
The Proposed Amendments will decrease the requisite vote for removal of the
Managing General Partner in certain circumstances after March 31, 1998 and limit
reimbursement of the Managing General Partner for compensation paid to certain
individuals who are also shareholders of the Managing General Partner pursuant
to employment agreements.
3
<PAGE> 11
The Proposed Amendments also include by annexation certificates of
designations containing the terms and conditions of two series of convertible
preferred equity securities which will be issued to the Partnership's bank
lenders in lieu of certain Partnership debt if the Partnership successfully
refinances its credit facility with different third party creditors following
adoption of the Proposed Amendments.
Promptly after the adoption of the Proposed Amendments, the Managing
General Partner, the Special General Partner and the Managing General Partner on
behalf of the Limited Partners will execute the amended and restated partnership
agreement incorporating the Proposed Amendments, which will be effective in
accordance with its terms upon its execution. Thereafter, all current holders of
Preferred and Common Units, including non-consenting holders, will be bound by
the amended and restated partnership agreement incorporating the Proposed
Amendments and all Preferred and Common Units will be converted into Units. See
"The Proposed Amendments" and Appendix A hereto.
CERTAIN RISK FACTORS RELATED TO PROPOSED AMENDMENTS
- Conflicts of Interest. The Managing General Partner may be viewed as
having a conflict of interest with the holders of Preferred and Common
Units with respect to the determination of the number of Units into which
the existing Common Units and Preferred Units will be changed and other
aspects of the capital structure changes because of the differences
between the Managing General Partner's ownership interest and those of the
holders of Preferred and Common Units.
- Loss of Preferred Unit Distribution Preference. The Preferred Units
currently have preference over the Common Units with respect to certain
distributions. If the Proposed Amendments are effected, holders of
Preferred Units will relinquish their preferences with respect to
distributions.
- Loss of Preferred Unit Liquidation Preference. The Preferred Units
currently have certain preferences over the Common Units with respect to
amounts, if any, available for distribution with respect to limited
partner interests upon liquidation of the Partnership after the payment of
creditors, establishment of loss reserves and recognition of partner
capital accounts. If the Proposed Amendments are effected, holders of
Preferred Units will lose this preference.
- Possible Issuance of Convertible Preferred Equity Securities to Lenders.
If the Proposed Amendments are adopted and the recapitalization of the
Partnership is completed, the Partnership will issue its credit facility
lenders certain convertible senior secured notes, two series of which
would be automatically converted into preferred equity securities of the
Partnership if the Partnership subsequently refinances a portion of its
debt with new creditors. These series of preferred units would have
preferential cumulative distribution rights as well as certain liquidation
preferences. In addition, Pride SGP has agreed to convert its unsecured $2
million note either into Units or into a subordinated convertible
preferred equity security upon the conversion of certain senior secured
notes by the lenders. This preferred equity security also would
automatically convert into Units upon the conversion of certain
convertible securities of the lenders.
- Future Dilution of Units. If the Proposed Amendments are adopted, the
Partnership Agreement will contain no restrictions on the ability of the
Partnership to issue additional units. The issuance of additional limited
partner units, including additional Units or a senior class of limited
partner interests, could adversely affect distributions, market price and
relative voting power of the Units outstanding prior to such issuance. The
convertible preferred equity securities of the Partnership which would be
automatically issued to the Partnership's current lenders if the Proposed
Amendments are adopted and the Partnership successfully refinances its
credit facility would be convertible into Units at the holder's option
after certain dates and redeemable for Units by the Partnership in certain
circumstances. The issuance of Units to the Partnership's current lenders
upon conversion of the various notes and preferred equity securities and
to Pride SGP upon conversion of certain debt could be significant. See
"Pro Forma Illustration of Recapitalization and Refinancing" and "Risk
Factors and other Considerations -- Future Dilution of Units."
4
<PAGE> 12
- Uncertainty Regarding Future Distributions. The ability of the
Partnership to make distributions depends upon the Partnership's operating
performance, the servicing of Partnership debt, the amount of reserves for
and rate of capital expenditures and other factors. Therefore, there can
be no assurance that cash distributions will be made, or if made, at what
level. In addition, contractual agreements of the Partnership may also
restrict the payment of distributions.
- Uncertainty Regarding Market Price of Units. There is currently no
trading market for the Units. Although application is being made to list
the Units on the NYSE and the effectiveness of the Proposed Amendments is
conditioned upon the acceptance of the single class of Units on the NYSE,
there is no assurance that holders of the Units will be able to sell their
Units at favorable prices or that the per unit trading prices for the
Units will be comparable to the per unit trading prices for the Preferred
Units prior to the changes.
- No Appraisal Rights. If the Proposed Amendments are adopted, all holders
of Preferred and Common Units will be bound by the amended and restated
partnership agreement incorporating the Proposed Amendments even though
they individually may have voted against them. Holders of Preferred and
Common Units will not be entitled to receive cash payment from the
Partnership for the fair value of their Preferred or Common Units if they
dissent and the Proposed Amendments are nevertheless adopted and the
Preferred and Common Units are changed into a single class of Units.
SUMMARY OF CERTAIN CURRENT PARTNERSHIP PROVISIONS
Current Preferred Unit Conversion Provisions. The Partnership Agreement
currently provides for conversion of the Preferred Units to Common Units the
first day of the third calendar quarter following the later to occur of December
31, 1994 and the last day of the calendar quarter in which all arrearages in the
Base Amount in respect of the Preferred Units have been paid (the "Initial
Conversion Date"). As of June 30, 1996, the accumulated arrearages with respect
to the Preferred Units were an aggregate amount of $53,345,000 or $11.35 per
Preferred Unit. The Partnership Agreement provides conversion at the election of
the holder thereof at a conversion rate of one Common Unit for each Preferred
Unit, on the Initial Conversion Date and on each anniversary date thereafter and
under certain other circumstances. The Managing General Partner does not believe
that the cumulative arrearages on the Preferred Units will be distributed in the
foreseeable future.
Current Distribution Provisions. The Partnership Agreement currently
provides for quarterly distributions of Available Cash (as defined in the
Partnership Agreement) from operations of the Partnership. The Partnership
Agreement only provides for distributions to be made to the extent there is
Available Cash for the quarter in question. In general, distributions of
Available Cash are made 2% to the General Partners and 98% to the holders of
limited partner interests (the "Limited Partners"). The determination of
priority in the distribution of the 98% to the Limited Partners pursuant to the
Partnership Agreement as currently in effect is outlined below.
Currently holders of the Preferred Units are entitled to quarterly
cumulative, preferred distribution of Available Cash equal to the Base Amount
($.65 per Unit), and any arrearages from prior quarters, before any Available
Cash may be distributed in respect of the Common Units. Any remaining Available
Cash is then distributed to holders of Common Units until they have been
distributed the Base Amount ($.65 per Unit) and any permitted arrearages. After
the Preferred Units and the Common Units receive the Base Amount (and any
arrearages), the Preferred Units and the Common Units share pro rata (as
determined by the number of Common Units into which the Preferred Units are at
the time convertible) in distributions of additional Available Cash, subject to
certain special distribution rights of the General Partners referenced below.
The distributions to holders of Preferred and Common Units are subject to the
General Partners' 2% distribution and in certain cases, to special distribution
rights of the General Partners referenced below. See "Current Partnership Cash
Distribution Policy -- Distributions Prior to the Initial Conversion Date."
After the Initial Conversion Date, the Partnership Agreement provides that
quarterly distributions to Limited Partners of Available Cash will first be made
to the holders of Preferred Units that have not been converted into Common Units
in the Preferred Amount ($.65 per Unit) and any arrearages from prior
5
<PAGE> 13
quarters. Holders of Common Units then receive distribution of all remaining
Available Cash. The distributions to holders of Preferred and Common Units are
subject to the General Partners' 2% distribution and, in certain cases to the
special distribution rights of the General Partners referenced below. See
"Current Partnership Cash Distribution Policy -- Distributions After the Initial
Conversion Date."
The Partnership Agreement provides that all distributions to holders of
limited partner interests are subject to the right of the Managing General
Partner to receive distributions in respect of the Incentive Interests (the
right to receive certain incentive distributions of Available Cash if cash
distributed for any calendar quarter in respect of the Preferred Units and the
Common Units exceeds specified target levels) and the Special General Partner
with respect to the special redeemable partnership unit ("SPU"). Distributions
with respect to these interests generally only apply in circumstances of higher
levels of Available Cash than the Partnership has experienced to date.
Current Limits on Sales of Additional Units. The Partnership Agreement
currently prohibits the issuance of any Partnership equity interests ranking
senior to the Preferred Units (in priority of distribution prior to, or upon,
liquidation) prior to the Initial Conversion Date without the approval of
holders of at least 66 2/3% of the outstanding Preferred Units. In addition, the
Partnership is currently prohibited from issuing additional Preferred Units or
any other equity securities of the Partnership with a comparable value to and
ranking on a parity with the Preferred Units prior to the Initial Conversion
Date without the requisite approval of 66 2/3% of the outstanding Preferred
Units described above.
Pursuant to the terms of the Partnership Agreement, after the Initial
Conversion Date, the Managing General Partner may cause the Partnership to issue
additional Units or other Partnership Securities ranking junior to, on parity
with, or senior to the Preferred Units in priority of distribution prior to or
upon liquidation without the approval of the holders of the Preferred Units.
Current Preferred Unit Preference on Liquidation. Upon termination of the
Partnership, the Preferred Units are entitled to certain liquidation preferences
over the Common Units with respect to amounts, if any, available for
distribution with respect to limited partner interests after the payment of
creditors and the establishment of loss reserves. Any cash (or other assets) of
the Partnership remaining after the satisfaction of creditors is first
distributed proportionately to partners in amounts up to the partners'
respective capital accounts and then the Preferred Units receive preference with
respect to 98% of further cash (or other assets) available to the extent of the
Preferred Unit Redemption Amount (as defined in the Partnership Agreement). See
"Cash Distribution Policy -- Distributions Upon Liquidation."
Incentive Interest. The Incentive Interests represent the right of the
Managing General Partner to receive cash distributions if distributions with
respect to Preferred Units and the Common Units for any calendar quarter exceed
specified levels.
Special Participating Unit (SPU). The SPU represents the right of the
Special General Partner to receive certain distributions commencing in the
calendar year from and after January 1, 1994 after the Base Amount or Preferred
Amount (as defined in the Partnership Agreement) and any arrearages in respect
to the Preferred Units and Common Units in a quarter have been paid.
6
<PAGE> 14
COMPARATIVE RIGHTS OF THE PREFERRED UNITS AND THE UNITS
If the Proposed Amendments are adopted and the Preferred Units are changed
into Units by adoption of the Proposed Amendments, the rights and limitations to
which holders of Units resulting from the changes in the Preferred Units will be
subject will be similar in some respects and will differ in other respects from
those to which they are subject as holders of Preferred Units. These rights and
limitations include, but are not limited to, the following.
<TABLE>
<CAPTION>
PREFERRED UNITS UNITS
- -------------------------------------------- --------------------------------------------
<S> <C>
- - Holders of Preferred Units are entitled to - Holders of Units will have no preferential
quarterly cumulative, preferred distribution rights. The Managing General
distributions of Available Cash equal to Partner does not believe that the
the Base Amount ($.65 per Unit) and any Partnership will make any distributions on
arrearages from prior Units in the foreseeable future.
quarters before any Available Cash may be
distributed with respect to the Common - The Units will not be entitled to a
Units, subject to the General Partners' 2% liquidation preference. Instead, they will
distribution. The Managing General Partner share in amounts, if any, distributed
does not believe that the Partnership will after the payment of creditors and
make these distributions in the establishment of loss reserves,
foreseeable future. proportionally in accordance with the
terms of the Partnership Agreement. After
- - Upon liquidation of the Partnership, the a refinancing of the Partnership's credit
Preferred Units are entitled to certain facility, they will share in amounts, if
liquidation preferences over the Common any, distributed after the payment of
Units with respect to amounts, if any, creditors, establishment of loss reserves,
distributed after the payment of and liquidation of preferred equity,
creditors, establishment of loss reserves proportionally in accordance with the
and distributions to partners in amounts terms of the Partnership Agreement.
equal to partner's respective capital
accounts. - The Units evidenced by Depositary Receipts
resulting from the changes in the
Preferred Units, will be freely
transferable. Application has been made to
list the Units on the NYSE and
- - Preferred Units evidenced by Depositary effectiveness of the Proposed Amendments
Receipts are freely transferable and trade is conditioned upon the approval for
on the New York Stock Exchange (the listing of the Units on the NYSE.
"NYSE").
- The Partnership will continue to file
reports required under the Exchange Act
and provide the holders of Units reports
required under the rules of the SEC and
- - The Partnership files reports required by the NYSE.
the Exchange Act and provides holders of
Preferred Units reports required under the - Holders of Units will have substantially
rules of the SEC and NYSE. the same voting rights with respect to
most of such issues. The holders of Units
- - Holders of Preferred Units have limited will generally not be entitled to vote on
voting rights on issues such as certain the issuance of additional Partnership
amendments of the Partnership Agreement, equity interests, including the possible
dissolution of the Partnership, sale of issuance of certain convertible cumulative
substantially all of its assets, removal preferred units contemplated by the
and replacement of the general partners Partnership's agreement with its credit
and mergers or consolidations. In facility lenders.
addition, the holders of Preferred Units
are currently entitled to vote as a
separate class to approve the issuance of
certain additional Partnership equity
interests.
</TABLE>
7
<PAGE> 15
COMPARATIVE RIGHTS OF THE COMMON UNITS AND THE UNITS
If the Proposed Amendments are adopted and the Common Units are changed
into Units by adoption of the Proposed Amendments, the rights and limitations to
which holders of Units resulting from the changes in the Common Units will be
subject will be similar in some respects and will differ in other respects from
those to which they are subject as holders of Common Units. These rights and
limitations include, but are not limited to, the following.
<TABLE>
<CAPTION>
COMMON UNITS UNITS
- -------------------------------------------- --------------------------------------------
<S> <C>
- - Following payment of preferred - Holders of Units will have no preferential
distributions to holders of Preferred distribution right. The Managing General
Units, holders of Common Units are Partner does not believe that the
entitled to quarterly cumulative Partnership will make any distributions in
distributions of Available Cash equal to the foreseeable future.
the Base Amount ($.65 per Unit) and any
arrearages from applicable prior quarters
before the remainder of Available Cash is
distributed between the Preferred and
Common Units, subject to the General
Partners' 2% distribution. The Managing
General Partner does not believe that the - The Units evidenced by Depositary Receipts
Partnership will make these distributions will generally be freely transferable.
in the foreseeable future. Application has been made to list the
Units on the NYSE and effectiveness of the
- - Common Units held by the Special General Proposed Amendments is conditioned upon
Partner are currently transferable in the approval for listing of the Units on
accordance with the terms of the the NYSE. However, the Units held by the
Partnership Agreement in a transaction Special General Partner following the
registered under the Securities Act of effectiveness of the Proposed Amendments
1933 or for which an exemption from will be only transferable in transactions
registration is available. Common Units that are either registered pursuant to the
are not listed on the NYSE. Securities Act of 1933 or for which an
exemption from registration is available.
- The Partnership will continue to file
reports required under the Exchange Act
- - The Partnership files reports required by and provide the holders of Units reports
the Exchange Act and provides holders of required under the rules of the SEC and
Common Units reports required under the the NYSE.
rules of the SEC and NYSE.
- - Holders of Common Units have limited - Holders of Units will have substantially
voting rights on issues such as certain the same voting rights with respect to
amendments of the Partnership Agreement such issues.
dissolution of the Partnership, sale of
substantially all of its assets, removal
and replacement of the general partners
and mergers or consolidations.
</TABLE>
AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT
The Partnership has reached an agreement with its lenders under its credit
facility (the "Banks") to restructure the Partnership's existing bank debt (the
"Bank Agreement"). If the Proposed Amendments are approved by November 15, 1996,
and certain other closing conditions are met, the Banks have agreed to reduce
the balance of the Partnership's term loan from its current outstanding balance
($42,182,000 as of September 6, 1996) to a balance of $25 million in exchange
for the issuance to the Banks of three series of convertible senior secured
notes by the Partnership: Series A Notes in the aggregate principal amount of
$2.5 million, Series B Notes in the aggregate principal amount of not more than
$12.5 million (the amount by which the term note exceeds $32.5 million
immediately prior to issuance of such notes) and Series C Notes in the aggregate
principal amount of $5 million. The Series A, B, and C Notes (collectively, the
"Senior Secured Notes") would be secured by the collateral currently pledged to
the Banks under the credit facility, and would mature on November 30, 1997.
8
<PAGE> 16
Upon the adoption of the Proposed Amendments by November 15, 1996, the
Banks have also agreed to extend the maturity of the Partnership's debt to
November 30, 1997, and to lower certain interest rates and fees associated with
the Partnership's credit facility.
If the Partnership subsequently refinances its credit facility with new
lenders, the Bank Agreement provides that Series B and C of the Senior Secured
Notes would automatically be converted into convertible preferred equity
securities of the Partnership. The Series A Secured Notes, if not included as a
part of the refinanced debt, would automatically convert to unsecured
convertible senior notes.
The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued to the Banks if the Partnership's credit facility is
successfully refinanced after the adoption of the Proposed Amendments. The
convertible preferred units, if issued, will be entitled to preferential
quarterly distributions in an amount equal to 6% per annum in the first three
years after issuance, 12% per annum in the fourth and fifth years after
issuance, and 15% per annum thereafter. In certain circumstances in the initial
three year period, distributions could be paid by the issuance of additional
securities at a rate of 8% per annum.
The convertible preferred units would be mandatorily redeemable by the
Partnership 5 years and 3 months after their issuance or earlier upon the
occurrence of certain default events. They also would be subject to optional
redemption by the Partnership in cash under certain circumstances. One series of
the convertible preferred units would be convertible into Units at the
Partnership's option in certain circumstances. The preferred units would also be
optionally convertible into Units at the holder's option based upon a formula
using the liquidation preference of the convertible preferred units.
In addition, Pride SGP has agreed to convert its unsecured $2 million note
either into Units or into a subordinated convertible preferred equity security
upon the conversion of certain senior secured notes by the lenders. It is
anticipated that this series of subordinated preferred units would have
preferential cumulative distribution rights as well as certain liquidation
preferences. They also would automatically convert into Units upon the
conversion of certain convertible securities of Banks. See "Agreement with
Credit Facility Lenders to Restructure Debt."
CONDITIONS TO THE EFFECTIVENESS OF THE PROPOSED AMENDMENTS
The principal conditions to the effectiveness of the Proposed Amendments
are (i) approval of the Proposed Amendments by the consent of holders of 66 2/3%
of each of the outstanding Preferred Units and Common Units, acting as separate
classes, and the approval of the Special General Partner, and (ii) approval of
the single class of Units for listing on the NYSE.
NO APPRAISAL RIGHTS
Holders of the Preferred and Common Units who withhold consent from the
Proposed Amendments will have no appraisal, dissenters' or similar rights.
Therefore, holders of Preferred or Common Units will not be entitled to receive
cash payments from the Partnership for the fair value of their Preferred or
Common Units if they withhold consent and the Proposed Amendments are
nevertheless adopted. However, they will hold Units as a result of changes to
their Preferred and Common Units.
CONSEQUENCES IF THE PROPOSED AMENDMENTS ARE NOT ADOPTED
If the Proposed Amendments are not adopted, the Partnership currently
intends to continue to operate as an ongoing business in its current form. It is
impossible to predict, however, whether the Partnership will be able to obtain
alternate financing prior to July 31, 1997 (the date that the Partnership's debt
matures) if the Partnership does not accomplish significant changes to its
capital structure such as those contemplated by the Proposed Amendments. The
failure to either refinance the debt or further restructure the debt would have
a material adverse effect on the Partnership. Possible courses of action to be
taken by the Partnership or its lenders in the event of a default by the
Partnership under its credit facility would include the sale of equity and other
interests to raise capital, the sale of assets and a reorganization or
liquidation and resulting dissolution of the Partnership.
9
<PAGE> 17
PRO FORMA ILLUSTRATION OF RECAPITALIZATION AND REFINANCING
The following table illustrates the current levels of bank term debt, Pride
SGP notes, and the equity structure of the Partnership as of September 6, 1996
and the pro forma debt and equity structure of the Partnership as of that date
as adjusted for the adoption of the Proposed Amendments and the subsequent
refinancing of the Partnership's credit facility. This table should be read in
conjunction with the Partnership's financial statements and the related notes
thereto included elsewhere in this Consent Solicitation Statement and the terms
of the Bank Agreement.
<TABLE>
<CAPTION>
SEPTEMBER 6, 1996
---------------------------------------------------------
AS ADJUSTED FOR AS ADJUSTED FOR
ACTUAL RECAPITALIZATION(1) REFINANCING(2)
----------- ------------------- ---------------
<S> <C> <C> <C>
Long-Term Debt (excluding revolving credit facility,
letter of
credit facility and related party debt)................. $42,182,000 $25,000,000 $27,500,000(4)
Convertible Senior Secured Series A Promissory Notes...... -- $ 2,500,000(3) --(4)
Convertible Senior Secured Series B Promissory Notes...... -- $ 9,682,000(3)(5) --
Convertible Senior Secured Series C Promissory Notes...... -- $ 5,000,000(3) --
Unsecured notes to Pride SGP.............................. $ 2,450,000 $ 2,450,000 $ 450,000
----------- ----------- -----------
Total Debt........................................ $44,632,000 $44,632,000 $27,950,000
Pro Forma Illustration of Effect of Restructuring on
Partnership Equity:
Convertible Preferred Units............................. 46.3%(6) -- --
Common Units............................................ 51.7%(6) -- --
Units................................................... -- 98%(7) 65.27%(9)
Series B Cumulative Convertible Preferred Units......... -- -- 19.01%(9)(11)
Series C Cumulative Convertible Preferred Units......... -- -- 9.8%(9)(12)
Subordinated Convertible Preferred Units(8)(10)......... -- -- 3.92%
General partners' interest.............................. 2% 2% 2%
</TABLE>
- ---------------
(1) Assumes that the recapitalization contemplated by the Proposed Amendments
has been effected.
(2) Assumes the refinancing of the Partnership's credit facility (including
revolving credit facility, letter of credit facility and the new $25
million term loan) and the Convertible Senior Secured Series A Promissory
Notes in the aggregate principal amount of $2.5 million.
(3) Amount shown is aggregate principal amount. Each series of Convertible
Senior Secured Promissory Notes is convertible into Units by the holders in
certain circumstances and during certain periods.
(4) If the Convertible Senior Secured Series A Promissory Notes are not paid
off as part of a refinancing, they will convert into Unsecured Series A
Notes, convertible into Units at the election of the holders of the notes.
(5) The aggregate principal amount will be equal to the outstanding amount of
the Partnership's term note minus $32,500,000 at time of adoption of
Proposed Amendments.
(6) Percentage based upon total outstanding Common Units assuming full
conversion of Convertible Preferred Units.
(7) Upon the recapitalization contemplated by the Amendments, former holders of
Convertible Preferred Units will hold approximately 95% of the outstanding
Units and former holders of Common Units will hold approximately 5% of the
total outstanding Units.
(8) Percentage based upon total outstanding Units assuming full conversion of
the Pride SGP Subordinated Convertible Preferred Units at the same time as
conversion of the Series B and C Notes. If the Subordinated Convertible
Preferred Units were to be converted prior to the Series B and Series C
Notes or Units, and thus be subject to dilution thereby, the Subordinated
Convertible Preferred Units would only represent a 2.76% ownership interest
in the Partnership. However, the percentages do not reflect any adjustment
for any accrued and unpaid interest or other arrearage under the Pride SGP
$2 million note at the time of conversion.
(9) Percentage based upon total outstanding Units after conversion of
subordinated convertible preferred units and assuming full conversion of an
approximate $9.7 million and $5 million of Series B and Series C Cumulative
Convertible Preferred Units, respectively, in accordance with their
respective terms.
(10) Subordinated convertible preferred units must convert into Units upon
conversion of the Unsecured Series A Notes or Series B or Series C
Cumulative Convertible Preferred Units.
(11) Series B Cumulative Convertible Preferred Units are convertible into Units
after a certain date by election of the holders.
(12) Series C Cumulative Convertible Preferred Units are convertible into Units
after a certain date by election of the holders or by the Partnership after
the payment of the Series A Notes (or conversion of all Series A Notes into
Units at the election of the holders).
10
<PAGE> 18
RISK FACTORS AND OTHER CONSIDERATIONS
Before completing the enclosed form of Consent, each Limited Partner should
carefully read the entire Consent Solicitation Statement including the
Appendices; the Partnership's Form 10-K for the year ended December 31, 1995 and
the Partnership's Forms 10-Q for the quarters ended March 31, 1996 and June 30,
1996, and should give particular attention to the following considerations:
RISK FACTORS
Conflicts of Interest
The Managing General Partner is proposing the Proposed Amendments including
the changes to the Preferred and Common Units and other changes to the
Partnership's capital structure because it believes that it is in the best
interest of the Partnership and the holders of the Preferred and Common Units.
The Managing General Partner may, however, be viewed as having a conflict of
interest with the holders of Preferred and Common Units with respect to the
determination of the number of Units into which the existing Common Units and
Preferred Units will be changed and other aspects of the capital structure
changes contemplated by the Proposed Amendments because of the difference
between the Managing General Partner's ownership interest and those of the
holders of Preferred and Common Units.
If these potential conflicts of interest did not exist, it is possible that
the terms of the capital structure changes contemplated by the Proposed
Amendments might be different than the terms approved by the Board of Directors
of the Managing General Partner. For additional information concerning the
potential conflicts of interest between the Managing General Partner and the
holders of Preferred and Common Units in the formulation of capital structure
changes contemplated by the Proposed Amendments and the procedures adopted by
the Managing General Partner to prevent these conflicts from having an impact on
the terms of the Proposed Amendments, see "Conflicts of Interest of the General
Partners."
Loss of Distribution Preference and Other Rights of Preferred Units
The Partnership Agreement currently requires the Partnership to make
quarterly cumulative preferred distributions of Available Cash (as defined in
the Partnership Agreement) from Partnership operations of $.65 per Unit, before
making distributions to holders of Common Units. After Preferred Units are
changed into Units, holders of Preferred Units will lose this distribution
preference currently associated with their ownership of Preferred Units ($11.35
per Preferred Unit through the quarter ended June 30, 1996). The payment of
distributions depend upon the Partnership's operating margins, the servicing of
Partnership debt, the amount of reserves for and rate of capital expenditures,
needs of the Partnership for liquidity and other factors. Regardless of whether
the Proposed Amendments are approved, the Managing General Partner does not
believe the Partnership will make any distributions in the foreseeable future.
The Partnership Agreement currently provides that, upon liquidation of the
Partnership, the Preferred Units are entitled to certain liquidation preferences
over the Common Units with respect to amounts, if any, distributed after the
payments of creditors, establishment of loss reserves and distributions to
partners in amounts equal to partners respective capital accounts. If the
Proposed Amendments are effected, holders of Preferred Units will lose this
preference.
If the Proposed Amendments are effected, holders of Preferred Units will
also lose certain other rights currently associated with their ownership of
Preferred Units including the ability to vote as a separate class on certain
matters such as the issuance of other Partnership securities.
Uncertainty Regarding Future Distributions
The ability of the Partnership to make distributions depends upon the
Partnership's operating performance. Historically, the Partnership's operating
results have varied on a seasonal basis, and such variations have resulted in
significant changes in the cash flow generated by the Partnership from quarter
to quarter. The Partnership's businesses have also historically been cyclical,
with significant changes in the cash flow generated at the different stages of
its business cycle. In addition, certain determinations that affect the
11
<PAGE> 19
amount of available cash to be distributed by the Partnership, such as the level
of cash reserves, are made at the sole discretion of the Managing General
Partner after considering various factors, including, but not limited to, the
Partnership's current liabilities and the current interest rate on borrowings.
Therefore, there can be no assurance that cash distributions will be made, or if
made, at what level. In addition, contractual agreements of the Partnership may
also restrict the payment of distributions.
Future Dilution of Units
If the Proposed Amendments are adopted, the Partnership Agreement will not
contain restrictions on the ability of the Partnership to issue additional
equity interests. Any increase in the number of limited partner interests
outstanding as the result of the issuance of additional limited partner
interests, including additional Units or classes thereof, would result in a
corresponding decrease in the proportionate ownership interest in the
Partnership represented by Units then outstanding and such issuance may,
therefore, adversely affect the amount of cash distributed with respect to, and
the market price of, and the relative voting power of the Units outstanding
prior to such issuance.
The issuance of senior classes of limited partner interests which have
preferences in distribution prior to or upon liquidation, including the
convertible preferred equity securities of the Partnership which may be issued
to the Partnership's current lenders, including the Special General Partner, may
also adversely affect the amount of cash distributed with respect to, and the
market price of, outstanding Units and may dilute the Unitholders' ability to
approve or disapprove certain actions by the Partnership. Under the current
rules of the NYSE, the Partnership may not issue Units equal to 20% or more of
the then-outstanding limited partner units in connection with any future
transactions without Unitholder approval.
As discussed in "Agreement with Credit Facility Lenders to Restructure
Debt," if the Proposed Amendments are adopted and the recapitalization of the
Partnership is completed, the Partnership will issue its credit facility lenders
certain convertible senior secured notes which would be automatically converted
into preferred equity securities of the Partnership if the Partnership
subsequently refinances its credit facility with different third party
creditors. These series of preferred units would have preferential cumulative
distribution rights as well as certain liquidation preferences. They also would
be convertible into Units at the holder's option after certain dates, and the
Series C Units would be redeemable for Units by the Partnership in certain
circumstances. In addition, Pride SGP has agreed to convert its $2 million note
to the Partnership into either Units or a subordinated convertible preferred
equity in certain circumstances. These issuances of Units to the Partnership's
current lenders could have a significant dilutive effect on existing Units, the
precise extent of which is not currently known.
In addition, the Managing General Partner recognizes the possibility that
the issuance of additional limited partner interests, either ranking on par
with, or senior to, the Units could be part of an overall plan to refinance the
Partnership's indebtedness maturing in 1997, or at some other point in the
future.
No Dissenters', Appraisal or Similar Rights for Nonconsenting Unitholders
If the Proposed Amendments are adopted, all holders of Preferred and Common
Units will be bound by the Proposed Amendments even though they, individually,
may have voted against the Proposed Amendments. Under applicable state law and
the terms of the Partnership Agreement, holders of Preferred and Common Units
will have no dissenters', appraisal or similar rights in connection with the
changes to the Preferred and Commons Units, nor will such rights be voluntarily
accorded to holders of Preferred and Common Units by the Partnership. Therefore,
holders of Preferred and Common Units will not be entitled to receive cash
payment from the Partnership for the fair value of their respective Preferred
and Common Units if they dissent and the Proposed Amendments are nevertheless
effected.
Uncertainty Regarding Market Price of Units
At present there is no trading market for the Units. Application has been
made to list the single class of Units on the NYSE. There can be no assurance
that holders of the Units will be able to sell their Units at favorable prices
or that the per unit trading prices for the Units will be comparable to the per
unit trading
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prices for the Preferred Units. A large number of Units may be traded by former
holders of Preferred Units immediately following the effectiveness of the
changes to the Preferred and Common Units for various reasons. This might tend
to depress the market price of the Units. The Units held by the Special General
Partner following the effectiveness of the Proposed Amendments will only be
transferable in transactions that are either registered pursuant to the
Securities Act of 1933 or for which an exemption from registration is available.
The closing price on the New York Stock Exchange on September 19, 1996 for
Preferred Units was $4.25 per unit. This was above the book value of the
Partnership of $3.59 per Preferred Unit. The Managing General Partner does not
believe that it has any basis for predicting whether or not the Units will trade
above or below book value or historical trading levels of the Preferred Units.
It is possible that the Units, when first issued and trading, will trade at
prices below the Partnership's book value per unit or the historical trading
levels of the Preferred Units.
The actual value and liquidity of the Units in the future will depend upon
the results of operations, financial condition and prospects of the Partnership,
the market capitalization of the Units, the interest of securities firms in
making a market in the Units and other factors.
No Independent Representation
The terms of the Proposed Amendments were evaluated and determined by the
Managing General Partner without independent legal representation of the holders
of Preferred or Common Units. Such separate representation might have caused the
terms of the Proposed Amendments to be different in some respects from those
described herein. However, the adoption of the Proposed Amendments is contingent
upon receipt of the approval of the holders of at least 66 2/3% in interest of
the holders of the Preferred Units as well as the approval of the holders of at
least 66 2/3% in interest of the Common Units and approval of the Special
General Partner. The Managing General Partner has retained Stephens, Inc. to
evaluate the fairness of the adoption of the Proposed Amendments from a
financial point of view to the disinterested holders of Preferred Units. See
"Opinion of Independent Financial Advisor."
PARTNERSHIP FINANCIAL RESULTS
Industry Condition
The refining business is highly competitive, and the Partnership's
profitability can be significantly impacted by general industry trends. In
recent years, crude oil costs and prices of refined products have fluctuated
substantially. During 1994, the United States refining industry experienced its
worst overall margins since the inception of the Partnership in 1990. Crude
gathering volumes and margins also decreased in 1994. Industry margins are
determined by a variety of regional, national and global trends, including oil
prices, weather, and economic conditions.
Recent Losses
The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These financial results are primarily a result of depressed refining
margins, increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. In addition, although the Partnership has achieved
certain reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. See "The Partnership
Business -- Financial Condition -- Credit Facilities" for a detailed discussion
of interest rates and fees on the Partnership's various credit facilities and
loans. The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins as well as continued cost control initiatives.
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High Level of Debt; July 1997 Maturity
At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is scheduled to mature on July 31, 1997. The Partnership and
its subsidiaries have pledged substantially all its assets as collateral for its
debt. The agreement with the Partnership's bank lenders to restructure the
Partnership's debt under its credit facility is conditioned upon the adoption of
the Proposed Amendments and the implementation of the recapitalization of the
Partnership. If the Proposed Amendments are not adopted, the Partnership must
therefore obtain alternative means of financing prior to July 31, 1997. The
Managing General Partner intends to refinance the Partnership's debt with
additional third party lenders. There are no assurances, however, that
refinancing will be successful. The failure to refinance the debt would have a
material adverse effect on the Partnership. In addition, it is unlikely that the
Partnership will be able to obtain new financing to reduce or replace existing
debt upon more favorable terms or to otherwise raise capital on acceptable terms
without capital structure changes such as those proposed by the Proposed
Amendments.
AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT
The Partnership has reached an agreement with the Banks, its lenders under
its credit facility, to restructure the Partnership's existing bank debt (the
"Bank Agreement"). If the Proposed Amendments are approved by November 15, 1996,
and certain other closing conditions are met, the Banks have agreed to reduce
the balance of the Partnership's term loan from its current outstanding balance
($42,182,000 as of September 6, 1996) to a balance of $25 million in exchange
for the issuance to the Banks of three series of convertible senior secured
notes by the Partnership: Series A Notes in the aggregate principal amount of
$2.5 million, Series B Notes in the aggregate principal amount of not more than
$12.5 million (the amount by which the term note exceeds $32.5 million) and
Series C Notes in the aggregate principal amount of $5 million. The Series A, B,
and C Notes (collectively, the "Senior Secured Notes") would be secured by the
collateral currently pledged to the Banks under the credit facility, and would
mature on November 30, 1997. Upon the adoption of the Proposed Amendments by
November 15, 1996, the Banks have also agreed to extend the maturity of the
Partnership's debt to November 30, 1997, and to lower certain interest rates and
fees associated with the Partnership's credit facility.
If the Partnership subsequently refinances its credit facility with
different third party creditors, pursuant to the terms of the Bank Agreement,
the Series B and Series C of the Senior Secured Notes would automatically be
converted into a convertible preferred equity security of the Partnership. The
Series A Secured Notes, if not included as a part of the refinanced debt, would
automatically convert to unsecured convertible senior notes.
The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued if the Partnership's credit facility is successfully
refinanced after the adoption of the Proposed Amendments. The convertible
preferred units, if issued, will be entitled to preferential quarterly payments
in an amount equal to 6% per annum in the first three years after issuance, 12%
per annum in the fourth and fifth years after issuance, and 15% per annum
thereafter. In certain circumstances in the initial three year period,
distributions could be paid by the issuance of additional securities at a rate
of 8% per annum.
The convertible preferred units would be mandatorily redeemable by the
Partnership 5 years and 3 months after their issuance or earlier upon the
occurrence of certain default events. They also would be subject to optional
redemption by the Partnership in cash and in some cases in Units under certain
circumstances. They would be optionally convertible into Units at the holder's
option based upon a formula using the liquidation preference of the convertible
preferred units. In addition, Pride SGP has agreed to convert its unsecured $2
million note either into Units or into a subordinated convertible preferred
equity security upon the conversion of certain senior secured notes by the
lenders. See "Agreement of Credit Facility Lenders to Restructure Debt" for a
more detailed description of various aspects of the Bank Agreement.
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BUSINESS CONSIDERATIONS AND RISK FACTORS
Supply and Demand for Gasoline, Military Aviation Fuel and Other Products
The Partnership's principal business consists of refining crude oil into
commercial and military aviation fuel, conventional gasoline, low sulfur diesel
fuel, vacuum gas oil, liquified petroleum gas and vacuum residuum. Demand for
gasoline is affected by a number of factors which cannot be controlled by the
Partnership. Population levels, gasoline prices, per capita income and the
availability of alternatives to automobile travel affect consumption of
gasoline. Expansion of fuel refinery capacity in Central or West Texas or a
construction of a pipeline from the Gulf Coast or Dallas-Fort Worth area to
Abilene could have an adverse effect on the Partnership's earnings. The
Partnership is dependent upon obtaining supply contracts for military aviation
fuels to Dyess Air Force Base and Fort Worth Naval Air Station and other
regional military facilities.
Dependence Upon Certain Customers
The United States Government (military aviation fuel contracts) and Diamond
Shamrock (vacuum gas oil purchases) accounted for approximately 10% and 13%;
respectively, of the Partnership's total revenues for the year ended December
31, 1995.
Competition
Markets for refined petroleum products are highly competitive and pricing
is the primary competitive factor. The Partnership both sells and competes with
various oil companies. The Partnership's competitors include major integrated
oil companies which, because of their more diverse operations, larger refineries
and strong capitalization, may be better able than the Partnership to withstand
volatile industry conditions, including shortages or excesses of crude oil or
refined products or intense price competition.
Volatility of Refining Margins
The Partnership's operating results depend in large part upon producing and
selling quantities of refined products at refinery margins sufficient to cover
fixed and variable costs. The Refinery's income and cash flow are derived from
the margin between its cost to obtain and refine crude oil and the price for
which the Partnership can sell military aviation fuel, gasoline and other
products produced in the refining process. The price at which the Partnership
can sell its fuel, gasoline and other products is strongly influenced by the
price of crude oil. In recent years, crude oil costs have fluctuated
substantially. Although an increase or decrease in the price of crude oil
generally results in a corresponding increase or decrease in the prices of
refined products, there is usually a lag in the movement of product prices, both
up and down, in relation to the movement of the crude oil prices. The crude oil
currently processed by the Refinery is WTI crude oil. During the period January
1, 1993 through August 31, 1996, the posting price for WTI crude oil has varied
from approximately $12.25 to $23.75 per barrel.
The general level of crude oil prices can also have a significant effect on
the margins in the crude gathering business. The Partnership's crude oil
requirements are supplied from sources which include major oil companies, large
independent producers and smaller local producers. Crude oil supply contracts
are generally relatively short-term contracts with market-responsive pricing
provisions. Margins in the Crude Gathering System generally tend to be
influenced by competition and the general level of crude oil. When prices are
higher, crude oil can generally be resold at higher margins. Additionally,
transportation charges are slightly less competitive when higher crude oil
prices result in increased exploration and development. Conversely, when crude
oil prices decrease, margins on the resale of crude oil and transportation
charges generally tend to decrease.
Crude Oil Supply
The Refinery's primary feedstock is a locally produced, high quality crude
oil known as WTI crude oil, which is delivered to the Refinery primarily through
the Comyn pipeline system. Local supply is primarily
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dependent on the level and success of exploration and drilling activity in the
Austin Chalk and West Central Texas areas. While historically the results of
local exploration and drilling activity have caused production to exceed local
crude oil demand, there is no assurance that this situation will continue in the
future. Any significant long-term interruption in crude oil supply or the crude
oil transportation system would have an adverse effect on the Partnership's
operations.
Seasonality and Weather
Gasoline consumption is typically highest in the United States in the
summer months and lowest in the winter months. As a result, margins for gasoline
tend to be higher in the summer months. Diesel consumption in the southern
United States is generally higher just prior to and during the winter months
when commercial trucking is routed on southern highways to avoid severe weather
conditions further north. Additionally, diesel fuel prices tend to increase
during the winter months when refiners divert heating fuels to northern areas.
During unseasonably warm winters, diesel prices do not increase as in colder,
longer winters. The Refinery's prices for military aviation fuel JP-8 are also
influenced by these trends since the pricing for JP-8 is based on Jet A, a
kerosene based product, and the price of diesel and heating fuels affect the
price of kerosene.
Government Regulation, Environmental Risks
The Partnership's operations are subject to a variety of federal, state and
local laws and regulations governing product specifications and the generation,
treatment, storage, transportation and disposal of solid and hazardous waste and
materials. In recent years, environmental laws and regulations which affect the
Partnership's operations, processes and margins have become increasingly
stringent. Examples are the Clean Air Act Proposed Amendments and the related
implementing regulations.
Although the Refinery is capable of processing currently utilized
feedstocks [AT FULL CAPACITY] in substantial compliance with existing
environmental regulations, the Partnership cannot predict the nature, scope or
effect of legislation or regulatory requirements that could be imposed or how
existing or future laws or regulations will be administered or interpreted with
respect to products or activities to which they have not been previously
applied. Compliance with more stringent laws or regulations, as well as more
vigorous enforcement policies of the regulatory agencies, could adversely affect
the financial position and the results of operations of the Partnership and
could require substantial expenditures by the Partnership.
In addition, the Partnership's operations are inherently subject to
accidental spills, discharges or other releases of petroleum or hazardous
substances which may occur and may give rise to liability to governmental
entities or private parties under federal, state or local environmental laws, as
well as under common law. Accidental discharges of contaminants have occurred
from time to time during the normal course of the Partnership's operations,
including discharges associated with the Refinery, pipeline and trucking
operations. The Partnership has undertaken, intends to undertake or has
completed all investigative or remedial work thus far requested by governmental
agencies to address potential contamination by the Partnership. Although the
Partnership has invested substantial resources to prevent and minimize
accidental discharges and to remediate contamination resulting from prior
discharges, there can be no assurance that future action will not be taken in
connection with past discharges, that governmental agencies will not assess
penalties against the Partnership in connection with any past or future
contamination or that third parties will not assert claims against the
Partnership for damages allegedly arising out of any past or future
contamination. The Managing General Partner believes the Partnership is
adequately insured against such accidental discharge. See "Business -- Other
Matters.
Damage to Refinery on Pipelines; Natural Hazards
All of the Partnership's refining activities currently are conducted at the
Refinery's single location. The Refinery is the Partnership's principal
operating asset. As a result, the operations of the Partnership would be subject
to significant interruption if the Refinery were to experience a major accident,
be damaged by severe weather or other natural disaster, or otherwise forced to
shut down. Significant damage to the Partnership's pipelines could also
interrupt or otherwise materially affect operations. Although the Partnership
currently
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maintains business interruption insurance against some types of risks in amounts
which the Managing General Partner believes to be reasonable, if the Refinery
were to experience an interruption in supply or operations, the Partnership's
business could be materially adversely affected.
REASONS FOR ADOPTION OF PROPOSED AMENDMENTS
The Managing General Partner believes that the adoption of the Proposed
Amendments to accomplish the proposed capital restructure of the Partnership is
in the best interest of the Partnership.
INCREASE IN RELATIVE LIMITED PARTNER INTEREST OF PREFERRED UNITHOLDERS
Although the Proposed Amendments include the elimination of distribution
arrearages and distribution and liquidation preferences of the Preferred Units,
the adoption of the Proposed Amendments will result in an increase, upon such
adoption, in the aggregate limited partner interest of the holders of the
Preferred Units from an approximate 46.3% to an approximate 93.1% limited
partner interest. This increase would result from the 1 for 21 reverse unit
split of the currently outstanding Common Units immediately prior to the change
of the Preferred and Common Units into the single class of Units. As discussed
in "Risk Factors and Other Considerations -- Future Dilution of Units", the
relative limited partner interest of holders of Units would be proportionately
reduced by any issuance of additional limited partner interests, including,
without limitation, Units issued with respect to the convertible preferred
equity securities to be issued to the Partnership's bank lenders and Pride SGP
in certain circumstances after the adoption of the Proposed Amendments.
OPPORTUNITIES PURSUANT TO BANK AGREEMENT
The Bank Agreement provides the opportunity for the Partnership to reduce
certain interest rates and bank fees otherwise owed by the Partnership if the
Proposed Amendments are adopted by November 15, 1996, and to realize further
potential savings if the Partnership is successful in refinancing its remaining
debt with new third party lenders.
If the Proposed Amendments are approved by November 15, 1996, and certain
other closing conditions are met, the Banks have agreed to reduce the balance of
the Partnership's term loan from its current outstanding balance ($42,182,000 as
of September 6, 1996) to a balance of $25 million in exchange for the issuance
to the Banks of three series of convertible senior secured notes by the
Partnership: Series A Notes in the aggregate principal amount of $2.5 million,
Series B Notes in the aggregate principal amount of not more than $12.5 million
(the amount by which the term note exceeds $32.5 million immediately prior to
issuance of such notes) and Series C Notes in the aggregate principal amount of
$5 million. Upon the adoption of the Proposed Amendments by November 15, 1996,
the Banks have also agreed to extend the maturity of the Partnership's debt to
November 30, 1997.
Currently, the Partnership's term loan is subject to a facility fee of
approximately 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. At June 30, 1996, the Partnership had accrued $1 million
in facility fees which was subsequently reduced by an amendment fee of $400,000
paid to the Banks. If the Proposed Amendments are adopted by November 15, the
facility fee will be discontinued and the amount accrued will be forgiven. The
Partnership's current advances under its revolver and term loan are bearing
interest at the prime rate plus 2% and 3%, respectively. (The prime rate was
8.25% as of June 30, 1996). The Senior Secured Notes would bear interest at the
prime rate plus 100 basis points per annum. The fixed quarterly payments which
would be due on the convertible preferred units issued upon conversion of the
Senior Secured Notes is fixed at a per annum cash rate of 6% during the first
three years or 8% per annum if distributions are paid by the issuance of
additional securities.
The conversion of two series of the Senior Secured Notes into convertible
preferred equity securities of the Partnership could reduce the overall debt
level of the Partnership. In addition, one series of the convertible preferred
equity securities would be convertible into Units at the Partnership's option
after the Series A notes were either repaid in full and/or converted into Units
by their holders. If the Partnership subsequently refinances its credit facility
with new third party creditors, the Bank Agreement provides that Series B and C
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of the Senior Secured Notes would automatically be converted into convertible
preferred equity securities of the Partnership. The Series A Secured Notes, if
not included as a part of the refinanced debt, would automatically convert to
unsecured convertible senior notes.
IMPROVED ACCESS TO DEBT AND EQUITY MARKETS
The Proposed Amendments and the changes to the Preferred and Common Units
and the other capital structure changes to be effected thereby are intended,
among other things, to increase the equity capitalization of the Partnership,
improve the balance sheet and creditworthiness of the Partnership and enhance
the Partnership's financial flexibility. Although the Partnership has not sought
to raise additional capital to date, if the Proposed Amendments are adopted, the
Partnership intends to attempt to refinance its credit facility with different
third party lenders. The Partnership believes that absent capital structure
changes including the elimination of cumulative distribution arrearages and the
existing distribution preference of the Preferred Units it is unlikely that the
Partnership will be able to raise equity or other capital on reasonable terms,
thereby negatively affecting the Partnership's ability to achieve its business
plan.
CONSEQUENCES IF PROPOSED AMENDMENTS NOT APPROVED
If the Proposed Amendments are not approved by the holders of Preferred and
Common Units, or if the Proposed Amendments are not effected for any other
reason, the Partnership currently intends to continue operating as an ongoing
business in its current form. It is unlikely that the Partnership will be able
to restructure the terms of its debt facilities or obtain alternate financing
with acceptable terms prior to July 31, 1997 (the date of maturity of the
Partnership's debt) if the Partnership does not accomplish significant changes
to its capital structure such as those contemplated by the Proposed Amendments.
Although no other transaction is currently being considered by the Partnership
as an alternative to the capital structure changes contemplated by the Proposed
Amendments, the Partnership may from time to time explore other alternatives.
The failure to refinance the debt would have a material adverse effect on the
Partnership. Possible courses of action to be taken by the Partnership or its
lenders in the event of a default by the Partnership would include the sale of
equity and other interests to raise capital, the sale of assets and a
reorganization or liquidation and resulting dissolution of the Partnership.
OPINION OF INDEPENDENT FINANCIAL ADVISOR
The Board of Directors of the Managing General Partner has retained
Stephens Inc. to evaluate the fairness to the disinterested holders of Preferred
Units from a financial point of view of the adoption of the Proposed Amendments.
The Board of Directors of the Managing General Partner has received an opinion
from Stephens Inc. dated September 25, 1996, to the effect that, as of the date
of the opinion, the consideration to be received by the disinterested holders of
Preferred Units is fair to them from a financial point of view. This opinion is
subject to certain limitations and assumptions stated therein. Stephens Inc.'s
opinion is set forth in full as Appendix B to this Consent Solicitation
Statement, and should be read in its entirety. Any description of or reference
to Stephen Inc.'s opinion is subject to, and qualified in its entirety by
reference to, the full text of such fairness opinion as set forth in such
Appendix B.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In its
analyses, Stephens Inc. made numerous assumptions with respect to general
business and economic conditions and other matters, many of which are beyond the
control of the Partnership or Stephens Inc. Any projections or estimates
contained in its analyses are not necessarily indicative of future results,
prices or values, which may be significantly more or less favorable than as set
forth in such analyses.
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RECOMMENDATION OF THE MANAGING GENERAL PARTNER
After considering the advantages and disadvantages of changing the capital
structure of the Partnership, the Managing General Partner has concluded that
implementing the changes contemplated by the Proposed Amendments is desirable
and the changes are fair to the holders of Preferred and Common Units. THE
MANAGING GENERAL PARTNER RECOMMENDS THAT HOLDERS OF PREFERRED AND COMMON UNITS
VOTE FOR THE PROPOSED AMENDMENTS. The Managing General Partner further believes
that the allocation of Units upon the effectiveness of the Proposed Amendments
between the current holders of Preferred Units and the Special General Partner,
the current sole holder of Common Units is fair, from a financial point of view,
to holders of both Preferred and Common Units.
The Managing General Partner's recommendation and conclusions are based, in
part, on the opinions of independent investment banking firm discussed above and
the conclusions of the Conflicts and Audit Committee of the Board of Directors
of the Managing General Partner. No special committee or other entity was formed
or engaged to negotiate on behalf of the holders of Preferred and Common Units
or either class thereof.
BUSINESS
GENERAL
The Partnership owns and operates a modern simplex petroleum refinery
facility located near Abilene, Texas (the "Refinery"); a crude oil gathering
business (the "Crude Gathering System") that gathers, transports, and resells
and redelivers crude oil in the Texas and New Mexico markets; and certain
integrated product pipeline operations.
The Partnership's principal business consists of refining crude oil into
commercial and military aviation fuel, conventional gasoline, low sulfur diesel
fuel, vacuum gas oil, liquefied petroleum gas and vacuum residuum. The Refinery
is approximately ten miles north of Abilene, Texas and consists of processing
equipment newly constructed or modernized since 1981. The Refinery has a
permitted capacity of 44,500 barrels per day ("BPD"). The Refinery includes a
34,500 BPD basic atmospheric crude oil distillation unit and a 15,000 BPD
auxiliary atmospheric crude oil distillation unit. These units effect the
primary separation of crude oil into its constituent products. The Refinery
includes a 13,500 BPD vacuum distillation unit to fractionate residuum remaining
after distillation of lighter products into vacuum gas oil. The Refinery is
augmented with a catalytic reformer unit ("CRU") which allows heavy naphtha to
be converted into a high octane unleaded gasoline blend stock. The Refinery is
also equipped with a 12,000 BPD distillate desulfurization unit ("DDU") to
produce diesel fuel that complies with federal environmental regulations. For
the year ended December 31, 1995, the Refinery processed crude oil into refined
products at an average rate of approximately 29,800 BPD. In the first six months
of 1996, refinery throughput averaged approximately 30,500 BPD.
The Partnership owns two common carrier pipeline systems. The Partnership's
primary product delivery facilities consist of a pipeline that connects the
Refinery to the Partnership's Aledo terminal and the Fort Worth Naval Air
Station (formerly Carswell Air Force Base) located northwest of Fort Worth,
Texas (the "Aledo Pipeline") and a pipeline that connects the Refinery to
Conoco, Inc.'s products terminal near Abilene, Dyess Air Force Base in Abilene,
Texas, and the Partnership's product terminal at San Angelo, Texas (the "San
Angelo Pipeline").
The Partnership delivers military aviation fuel through both the Aledo
Pipeline and the San Angelo Pipeline. Conventional gasoline is delivered through
the Aledo Pipeline to the Partnership's Aledo terminal and through the San
Angelo Pipeline to the Partnership's San Angelo terminal for sales to
non-military customers in the communities west of the Dallas-Fort Worth ("DFW")
metropolitan area along Interstate 20 and in the San Angelo area. Diesel fuel is
also delivered to the Aledo and San Angelo terminals for sales to non-military
customers in the DFW metropolitan area and the San Angelo area. Additional
products are delivered by truck and rail throughout the Partnership's market
area. The Partnership completed construction, in early 1992, of storage tanks,
pumping facilities, and a vacuum gas oil pipeline system connecting the
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Refinery to two major pipelines which enable the Partnership to transport its
vacuum gas oil to the Gulf Coast and Midwest.
The Partnership also owns and operates a crude oil gathering system
connected by pipeline into the Refinery. For the year ended December 31, 1995,
the volume of crude oil gathered by the crude oil gathering system was
approximately 66,900 BPD, and 63,200 BPD during the first six months of 1996.
The Partnership's Crude Gathering System is divided into two distinct areas: (i)
truck-based crude oil gathering and (ii) pipeline operations. The trucking
operations comprise six district offices located in the Abilene, Dallas, Graham,
Lubbock, Midland, and San Angelo, Texas areas. These districts use a truck fleet
to transport crude oil from individual leases or small gathering systems to
injection stations owned and operated by the Partnership along common carrier
pipeline systems. At July 31, 1996, the Crude Gathering System operated 49 crude
oil injection stations located on various common carrier pipeline systems
including the Amoco, Arco, Chevron, Comyn, Conoco, Texas Plains, EOTT, Exxon,
Mobil, Koch, Sun, and other Texas-New Mexico pipeline systems.
At July 31, 1996, the pipeline assets used in the Crude Gathering System
consisted of in excess of 901 miles of active pipeline, the major portion of
which is the Comyn pipeline system with approximately 416 miles of trunkline and
190 miles of gathering lines, and the additional 242 miles of trunkline and 29
miles of gathering line in the Texas Plains System discussed below. Pride SGP
owns trunkline segments of the Comyn pipeline system totaling 270 miles and
certain related pumping facilities. For the six months ended June 30, 1996 and
the year ended December 31, 1995, the crude oil transported through the active
segment of the Comyn pipeline system which is owned by Pride SGP accounted for
approximately 64% and 72% respectively of the total crude oil received by the
Refinery. The Partnership and Pride SGP have a lease agreement wherein the
Partnership has the right to use the segments of the Comyn pipeline owned by
Pride SGP, in exchange for the Partnership's provision of maintenance and repair
and in the case of the 143-mile section from Hearne to Comyn, the payment of
$.20 per barrel of crude oil transported. For the six months ended June 30, 1996
and the year ended December 31, 1995, the Partnership paid or accrued payments
to Pride SGP of approximately $500,000 and $873,000 respectively and provided
maintenance and repair services valued at approximately $85,000 and $250,000,
respectively. On December 1, 1994, the Partnership acquired from Diamond
Shamrock Refining and Marketing Company ("Diamond Shamrock") a 50% interest in
the Texas Plains System which owns a 271 mile crude oil and vacuum gas oil
pipeline extending from the Partnership's refinery to Borger, Texas, which is
connected to a pipeline that carries product to Diamond Shamrock's refinery in
McKee, Texas. On March 1, 1996, the Partnership exchanged its two New Mexico
pipeline systems for the remaining 50% interest in the Texas Plains System which
was owned by Scurlock Permian Corporation.
The Partnership primarily sells to other branded product companies and
branded Pride dealers. A number of major petroleum product marketers in West
Texas do not have local refinery facilities or sales terminals. Accordingly,
such marketers supplement their local needs by purchases or product exchanges
with local suppliers, such as the Partnership. The Partnership currently sells
its vacuum gas oil production to refiners that operate catalytic cracking
facilities, and sells or exchanges diesel, conventional gasoline, and other
products depending on local market needs throughout the region. The Partnership
has five exchange agreements and three sales agreements with various companies
for products supplied out of the San Angelo terminal and one exchange agreement
and two sales agreements with various companies for product supplied out of the
Aledo terminal and one exchange agreement and one sales agreement for product
supplied out of the Refinery. These exchange agreements have enabled the
Partnership to expand its marketing area to Amarillo, Texas, Lubbock, Texas,
Midland/Odessa, Texas, El Paso, Texas and Wichita Falls, Texas without incurring
transportation costs to these cities.
OTHER MATTERS
Increasing public and governmental concern about air quality is expected to
result in continued regulation of air emissions. Regulations relating to carbon
monoxide and regulations on oxygen content in gasoline and sulfur content in
diesel fuel are expected to be increasingly important as a means of improving
air quality in urban areas. In response to environmental regulations which
became effective generally in October 1993, the
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Partnership constructed a DDU at the refinery that permits the Refinery to
reduce the sulfur content of highway use diesel fuel. In addition, the
Partnership plans to spend a total of approximately $675,000 in 1996, 1997 and
1998 on several projects to comply with various other environment requirements
including $400,000 for a sewer system upgrade.
Effective January 1, 1995, the Clean Air Act Amendment of 1990 requires
that certain areas of the country use reformulated gasoline ("RFG"). The Abilene
and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and
Tarrant Counties, which comprise the Dallas-Fort Worth metroplex area, do
require RFG; however, Pride's Aledo terminal lies outside this area and is
allowed to supply conventional gasoline that is not destined for sale in these
four counties. In addition to the requirement for RFG in certain areas, new but
much less restrictive regulations take effect that impose new quality standards
for conventional gasoline in the rest of the country.
In early 1993, the United States Environmental Protection Agency ("EPA")
filed an administrative complaint and compliance order against the Partnership.
The complaint proposed an assessment of $553,000 in penalties and fulfillment of
a compliance order at an unspecified cost against the Partnership. The principal
violations alleged by the EPA include the failure to monitor ground water
properly and to implement a ground water monitoring program. Management believes
that it has complied or is complying with the matter specified by the EPA and
has filed an answer to the complaint. On February 8, 1996, the Partnership
received a letter from the EPA offering to settle the complaint for $405,000 in
penalties plus fulfillment of the compliance order. The Partnership will
continue to contest the matter vigorously until a more favorable settlement can
be reached with the EPA.
The Partnership is also subject to the rules and regulations of
Occupational Safety and Health Administration, Texas Air Control Board, Texas
Railroad Commission, and Texas Water Commission.
The Partnership has filed a substantial claim against the Defense Fuel
Supply Center relating to erroneous pricing of fuel purchased over a period of
several years from the Partnership and its predecessors. The ultimate outcome of
this matter cannot presently be determined.
FINANCIAL CONDITION
Financial Resources and Liquidity
Cash flows have been and will continue to be significantly affected by
fluctuations in the cost and volume of crude oil and refined products held in
inventory and the timing of accounts receivable collections. Cash flows are also
affected by refining margins and crude oil gathering margins. For the six months
ended June 30, 1996, cash was provided by the reduction in accounts receivable
and increase in accounts payable. For the year ended December 31, 1995, cash was
provided by the reduction in inventories (resulting from the liquidation of
volumes on hand), decrease in accounts receivable and increase in accounts
payable.
The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These financial results are primarily a result of depressed refining
margins, increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. Although the Partnership has achieved certain
reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. The Partnership's return to
profitability and long-term viability is dependent upon restructuring its credit
facility, increased volumes and/or improved profit margins as well as continued
cost control initiatives.
At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is scheduled to mature on July 31, 1997; thus the
Partnership must restructure the terms of its debt facilities or obtain
alternative means of financing prior to this date.
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CAPITAL EXPENDITURES
For the first six months of 1996, the Partnership incurred approximately
$964,000 of maintenance capital expenditures. Maintenance capital expenditures
for 1995 totaled $1.2 million.
CREDIT FACILITIES
Letters of credit are an integral part of the operations of the Crude
Gathering System since the Partnership takes title to both first purchased
barrels and custom gathered barrels. The Partnership's credit facility was
restated and amended August 13, 1996 to extend the maturity date to July 31,
1997. Under this credit facility, the Partnership has a $6,500,000 standby
letter of credit facility for general corporate purposes and the purchase of
crude oil and other refinery feedstocks ("Facility A") and a $45,000,000 standby
letter of credit facility for the purchase of crude oil ("Facility B"). The fee
on outstanding standby letters of credit is 1 and 1/2% per annum. For the
unused portion of the standby letter of credit facility, the fee is one-half of
1% per annum. Though no advances had been drawn under either the Facility A or
Facility B letter of credit facility, the Partnership did have approximately
$721,000 and $44.1 million, respectively, in outstanding standby letters of
credit as of June 30, 1995.
Under the amended credit facility, the Partnership also has available to it
a revolving line of credit of $8.0 million (the "Revolver") and a $45 million
term loan (the "Term Loan"). The amount available under the Revolver is subject
to a borrowing base which includes a reduction by the amount of letters of
credit issued under the Facility A. Advances under the Revolver and Term Loan
bear interest at prime plus 2% and 3%, respectively, payable monthly. The prime
rate was 8.25% as of June 30, 1996. The Term Loan is subject to a facility fee
of approximately 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. At June 30, 1996, the Partnership had accrued $1 million
in facility fees which was subsequently reduced by an amendment fee of $400,000
paid to the banks. This fee will be discontinued upon the adoption of the
Proposed Amendments and the amount accrued will be forgiven. The Partnership has
pledged substantially all its assets and the assets of its subsidiaries as
collateral. In addition, the General Partners guaranteed the facility and Pride
SGP as guarantor has pledged its assets at no cost to the Partnership as
collateral for such loans. The Partnership may elect to prepay the credit
facilities without any prepayment penalty. The fee for the unused portion of the
Revolver is one-half of 1% per annum. At June 30, 1996, the balances outstanding
under on the Revolver and Term Loan were $0 and $42.9 million respectively. The
Partnership is required to make scheduled principal payments on the Term Loan in
the amount of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of adjusted income of the Partnership
("excess cash," as defined in the credit agreement), for the preceding quarter.
The Partnership has classified $1.8 million of the Term Loan as current as of
June 30, 1996. Advances under the Revolver are subject to repayment on a daily
basis. Subject to the Borrowing Base, the Partnership may borrow any amounts
previously repaid.
The credit facility also includes a $2.5 million uncommitted line of credit
("Uncommitted Line"). Advances under the Uncommitted Line are made solely at the
lenders' discretion and bear interest at the prime rate plus 4%. The Uncommitted
Line must be completely paid off for fifteen consecutive days each month. There
were no advances under the Uncommitted Line at June 30, 1996.
The amended credit agreement also requires the Partnership to pay a monthly
monitoring fee of $10,000 and restricts the payment of distributions to
Preferred and Common Unitholders throughout the term of the amended credit
agreement.
The amended and restated credit agreement contains certain restrictive
covenants which, among other things, impose limitations with respect to
incurrence of additional indebtedness or liens, distributions, guarantees,
mergers, consolidation and specified sales of assets. The Partnership is also
required to satisfy certain financial tests including net worth, working
capital, fixed charge coverage and limitations on capital expenditures.
The Partnership has two outstanding financing agreements to fund working
capital with Pride SGP, the Special General Partner, entered into on March 26,
1993 and September 7, 1995. Pride SGP has made
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unsecured loans to the Partnership in the principal amount of $2.5 million,
bearing interest at prime plus 2%, and the Partnership is required to pay
interest only during the term of such loan. The prime rate was 8.25% at June 30,
1996. The loans mature July 31, 1997. Upon completion of refinancing, $2 million
of the $2.5 million will convert to either Units or a subordinated convertible
preferred equity. See "Agreement with Credit Facility Lenders to Restructure
Debt -- Conversion of SGP Notes."
The Partnership also has a nonrecourse loan from Diamond Shamrock with an
outstanding balance of $5.8 million at June 30, 1996, bearing interest at 8% per
annum with monthly interest payments. The assets of Pride Borger, Inc., which
owns 50% of the Texas Plains System, are pledged as collateral. Pride Borger,
Inc. has also guaranteed the note. Monthly principal payments are made to
Diamond Shamrock based on the number of throughput barrels for the prior month
in the Texas Plains System. Current maturities are estimated to be $158,000 at
June 30, 1996.
During 1995, the Partnership converted non-interest bearing accounts
payable to the United States Government related to pricing adjustments which had
been accrued since 1993 to a $2.4 million installment loan. The principal
balance was $1.8 million at June 30, 1996. The note bears interest based on the
rate set by the Secretary of the Treasury. This rate was 5.875% as of June 30,
1996. The note requires monthly payments of $84,000. The note matures June 1,
1998. The Partnership has classified $922,000 of the note as current as of June
30, 1996.
On January 9, 1995, the Partnership executed a note to a local bank related
to the renovation and refinancing of its administrative offices in Abilene.
Prior to this, the Partnership had to lease additional office space from a third
party. The note bears interest at prime plus one-half of 1% and had an
outstanding principal balance of $381,000 at June 30, 1996. The note matures
January 9, 2000. The Partnership has classified $16,000 of the note as current
as of June 30, 1996.
At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is due on July 31, 1997; thus the Partnership must
restructure the terms of its debt facilities or obtain alternative means of
financing prior to this date. The Partnership is considering alternatives to
refinance the debt, however, there are no assurances any refinancing will be
successful and the failure to refinance such debt could have a material adverse
effect on the Partnership.
If the Partnership is not able to consummate a refinancing of its debt, the
required principal payments on the amended credit facility and other loans would
total approximately $44.6 million by July 31, 1997. If the Partnership is not
able to consummate a refinancing or extension of its indebtedness prior to its
maturity, the Partnership would be in default under its amended credit
agreement, which default, if not waived, could be materially adverse to the
Partnership. The Partnership would not be able to meet the obligations with its
cash and securities and cash flows from operations. It is not possible to
determine what actions, if any, would be taken by the Partnership's bank lenders
in the event of a default by the Partnership under its credit facility, or what
effect such actions would have on the Partnership, or what actions the
Partnership might take in such circumstances. Such actions might include the
sale of equity and other interests in order to raise capital, the sale of assets
or a reorganization or liquidation and resulting dissolution of the Partnership.
For a description of the relative preferences of holders of Preferred Units and
Common Units in the event of dissolution of the Partnership, see "Current
Partnership Cash Distribution Policy -- Distributions Upon Liquidation" and
"Comparison of Preferred Units, Common Units, and Units." The Managing General
Partner believes that, if the Proposed Amendments are not adopted, it will be
difficult, if not impossible, for the Partnership to raise new capital or debt.
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AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT
Background and Summary of Bank Agreement
The Partnership has reached an agreement with the lenders under its credit
facility (the "Banks") to restructure the Partnership's existing bank debt (the
"Bank Agreement"). On August 13, 1996, the Partnership and the Banks executed
several documents that together constitute the Bank Agreement as discussed
herein. The Amended and Restated Credit Facility was effective upon execution.
Certain aspects of the Bank Agreement are conditioned upon the Proposed
Amendments being adopted by November 15, 1996, and other aspects of the Bank
Agreement are conditioned upon there being a subsequent refinancing of the
Partnership's credit facility with different third party lenders. Although there
is no guarantee that these conditions will be met, the Bank Agreement commits
the Banks and the Partnership to take certain actions with respect to the
restructure of the Partnership's credit facility and overall capitalization of
the Partnership if certain other steps are accomplished.
If the Proposed Amendments are approved by November 15, 1996 and other
specified conditions are met, the Banks have agreed to reduce the balance of the
Partnership's term loan from its current outstanding balance ($42,182,000 as of
September 6, 1996) to a balance of $25 million in exchange for the issuance to
the Banks of three series of convertible senior secured notes issued by the
Partnership which will be secured by the collateral currently pledged to the
Banks under the credit facility and mature on November 30, 1997. Upon the
adoption of the Proposed Amendments by November 15, 1996 and the satisfaction of
the other closing conditions, the Banks have also agreed to extend the maturity
of the Partnership's debt to November 30, 1997, and to lower certain interest
rates and fees associated with the Partnership's credit facility.
If the Partnership subsequently refinances its credit facility with
different third party creditors, pursuant to the terms of the Bank Agreement,
two of the three series of the convertible senior secured notes will
automatically convert into convertible preferred equity securities of the
Partnership. The series of senior secured notes that does not automatically
convert into preferred equity securities will automatically convert into
convertible senior notes if not included as a part of the refinanced debt. The
payment under such notes would be guaranteed by Pride SGP and secured by the
assets of Pride SGP.
The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued to the Partnership's current lenders if the
Partnership's credit facility is successfully refinanced after the adoption of
the Proposed Amendments. The convertible preferred units, if issued, will be
entitled to preferential quarterly payments beginning at a cash rate of 6% per
annum for the first three years and increasing periodically. The convertible
preferred units will be subject to mandatory redemption by the Partnership 5
years and 3 months after their issuance, or earlier in certain default
situations. They also will be subject to optional redemption by the Partnership
in cash and in some case in Units in certain circumstances. The convertible
preferred units will also be optionally convertible into Units at the holder's
option based upon a formula using the liquidation preference of the convertible
preferred units.
Series A, B and C Convertible Notes
As discussed above, if the Proposed Amendments are approved by November 15,
1996 and other specified closing conditions are met, the Banks will receive
three series of convertible senior secured notes issued by the Partnership
pursuant to the terms of a Note Agreement dated August 13, 1996: Series A Notes
in the aggregate principal amount of $2.5 million, Series B Notes in the
aggregate principal amount of not more than $12.5 million (the amount by which
the term note exceeds $32.5 million) and Series C Notes in the aggregate
principal amount of $5 million. The Series A, B, and C notes (collectively, the
"Senior Secured Notes") will be secured by the collateral currently pledged to
the Banks under the credit facility. Upon issuance, each Senior Secured Note
will mature on November 30, 1997, bear interest at the prime rate plus 100 basis
points per annum ("BPPA") payable monthly in cash only, and rank pari passu in
seniority with other bank credit facilities.
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Prior to refinancing of the Partnership's credit facility, the Senior
Secured Notes may be prepaid in cash in whole at the option of the Partnership
at 100% of the principal amount plus interest thereon to the prepayment date.
After the refinancing of the Partnership's credit facility, the Series A Notes
can be prepaid in cash either in whole or in part at the option of the
Partnership.
The Series A Notes will be subject to optional conversion by holder's
election after December 31, 1997 into Units at a ratio of 2% of all outstanding
Units per $1 million liquidation preference. The Series B Notes will be subject
to optional conversion by holder's election after the earlier of (i) March 31,
1998, or (ii) 18 months from the adoption of the Proposed Amendments, into Units
at a ratio of 2% of all outstanding Units per $1 million liquidation preference.
The Series C Notes will be subject to optional conversion by holder's election
after the earlier to occur of the repayment and/or conversion of all Series A
Notes or December 31, 1997 into Units at a ratio of 2% of all outstanding Units
per $1 million liquidation preference. The Bank Agreement contains various
anti-dilution provisions which also affect the number of Units into which the
Senior Secured Notes are convertible. See "-- Anti-Dilution Provisions" below.
The Bank Agreement also provides that if the Partnership makes pro rata
distributions of warrants or other rights to purchase Units to its Unitholders,
the Senior Secured Notes will be treated for the purpose of such distribution as
if fully converted into Series B and C Units.
Series B and C Convertible Preferred Units
If the Partnership refinances its credit facility after the adoption of the
Proposed Amendments, pursuant to the terms of the Bank Agreement, the Series B
and C Senior Secured Notes will automatically convert into convertible preferred
equity securities of the Partnership. The Series A Senior Secured Notes, if not
included as a part of the refinanced debt, will automatically convert into
convertible senior notes that are not secured by the Partnership's assets but
that are guaranteed by Pride SGP.
The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued if the Series B and C Senior Secured Notes automatically
convert into convertible preferred equity securities of the Partnership. The
certificates of designations provide for a series of newly created Series B
Cumulative Convertible Preferred Units (the "Series B Units") and a series of
newly created Series C Cumulative Convertible Preferred Units (the "Series C
Units"). Each Series B and Series C Unit will have an initial stated value of
$1,000 per unit. The certificates of designations are included at the end of
Appendix A hereto.
The Series B and C Units, if issued, will be entitled to preferential
quarterly payments in an amount equal to 6% per annum in the first three years
after issuance, 12% per annum in the fourth and fifth years after issuance, and
15% per annum thereafter. In certain circumstances in the initial three year
period, the Partnership may elect to make distributions by the issuance of
additional securities at a rate of 8% per annum.
The Series B and C Units will be mandatorily redeemable by the Partnership
5 years and 3 months after their issuance or earlier upon the occurrence of
certain default events. The Series C Units will be callable in whole or in part
by the Partnership for Units at a ratio of 2% of all outstanding Units per $1
million liquidation preference, after the Series A Notes are repaid in full
(and/or converted into Units by their holders). In addition, the Series C Units
will be callable in whole or in part after the Series A Notes are repaid in full
(and/or converted into Units by their holders) for cash payment in the amount of
par plus accrued interest. Notwithstanding the foregoing, the Partnership will
not have a right to convert Series C Units into Units if the Series A Notes or
the Series B Units are in default. The Series B Units will be callable in whole
or in part after the Series A Notes are repaid in full (and/or converted into
Units by their holders) for cash payment in the amount of par plus accrued
interest. The Series B Units are not callable for Units by the Partnership at
any time. Any call for redemption of Series B or Series C Units in cash by the
Partnership will trigger an option, whether or not otherwise existing, for the
holders to convert the Series B or Series C Units into Units.
The Series B Units will be subject to optional conversion into Units at the
holder's election no later than one year from their issuance at a ratio of 2% of
all outstanding Units per $1 million liquidation preference. The Series C Units
will be subject to optional conversion into Units by the holder's election no
earlier than the date
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of the full repayment and/or conversion of all Series A Notes or the date the
Series A notes become convertible, into Units at a ratio of 2% of all
outstanding Units per $1 million liquidation preference.
The Bank Agreement provides that conversions of Senior Secured Notes,
Series A unsecured notes, and Series B and Series C Units will be limited in
number as long as the Partnership is required to incur material expense for
partnership accounting and asset valuation in connection with conversions into
Units. With certain exceptions for proposed public sales and the payment of
accounting costs by holders, a maximum of approximately eight conversions could
occur at holders' options during any twelve month period.
Anti-Dilution Provisions
The certificates of designations for the Series B and Series C Units
contain provisions providing for the adjustment of the number of Units into
which the Series B and Series C Units are convertible upon the occurrence of
certain events, including any Unit split or distribution of additional Units by
the Partnership; the issuance of additional Units (or securities convertible
into or exchangeable for Units) by the Partnership at a price below the
then-current market price of the Units or below the conversion price of the
Series B or Series C Units, or the consummation by the Partnership of certain
significant transactions, such as a merger, consolidation, asset sale,
liquidation or recapitalization.
The certificates of designations also provide that the number of Units into
which the Series B and Series C Units are convertible will be adjusted upon the
issuance of any additional Units to the Special General Partner in the same
manner as for a distribution of additional Units by the Partnership without
consideration, whether or not the Partnership receives any consideration for the
issuance of the Units to the Special General Partner.
The Bank Agreement contains anti-dilution provisions substantially
identical to the ones described above providing for the adjustment of the number
of Units into which the Senior Secured Notes are convertible.
As a result of such provisions, the holders of the Series B and Series C
Units and Senior Secured Notes will have the benefit of anti-dilution provisions
that holders of Units will not have. Therefore, upon the issuance of additional
Units by the Partnership or the occurrence of other dilutive events, the
dilution of the ownership interests of holders of Units will be greater than it
would be in the absence of such provisions.
Conversion of SGP Notes
The Partnership may convert the $2 million Pride SGP note and the $450,000
Pride SGP note into Units. Pursuant to the Bank Agreement, upon refinancing of
the Partnership's credit facility the Pride SGP $2 million note, if not
previously converted, will be converted into Units or subordinated convertible
preferred units of the Partnership. Any such subordinated preferred units will
convert into Units if the Series B or Series C Units or the unsecured Series A
Note convert into Units. The Bank Agreement prohibits the payment of principal
or interest to the Special General Partner pursuant to the $2 million Pride SGP
note or any distributions with respect to the subordinated preferred units into
which the $2 million SGP Note is convertible while any Senior Secured Notes or
Series B or Series C Units are outstanding. The Bank Agreement prohibits the
payment of principal or interest to the Special General Partner pursuant to the
$450,000 SGP note until the credit facility is refinanced by a third party
lender or lenders.
Warrants Related to Pipeline Sale
The Bank Agreement provides for the issuance of warrants to purchase Units
if Pride SGP sells its pipeline system to the Partnership for Units. The
warrants will be automatically exercised for Units based on a formula using the
number of Units outstanding before and after such sale. Any Units received by
Pride SGP will be pledged to secure Pride SGP's guarantee of amounts due under
the credit facility or pursuant to the Senior Secured Notes or Series B or C
Units.
The purpose of the warrants is, in effect, to extend to the holders of any
Units into which the Senior Secured Notes or Series B and Series C Units shall
have been converted the anti-dilution protections provided
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to the holders of such securities in the Bank Agreement and the certificates of
designations in connection with such a sale of the pipeline system.
Registration Rights Agreements
As part of the Bank Agreement, the Partnership has agreed to make up to two
registrations of Units with the Securities and Exchange Commission under the
Securities Act, upon the request of holders of Units originally acquired
pursuant to conversion of Senior Secured Notes or Series B or Series C Units or
acquired in certain other circumstances by the initial holders of such
securities. In addition, such holders will have certain preferential rights to
participate in over-allotment options and have piggyback registration rights in
other public offerings of Units by the Partnership.
Rights Offering Limitations
The Partnership has agreed to limit rights offerings to its Unitholders
while any Series B or C Units are outstanding to no more than two rights
offering in any four-year period and no more than one rights offering in any
12-month period. The exercise price for any rights cannot be less than
two-thirds of the conversion price of the Series B and C Units, and aggregate
cash proceeds to the Partnership cannot exceed $7.5 million per offering.
In connection with any rights offering, holders of Series B and Series C
Units and Senior Secured Notes will be entitled to receive such number of rights
that they would have been entitled to receive if they had previously converted
their Series B or Series C Units or Senior Secured Notes into Units, whether or
not they have the right to effect such conversion at the time of the rights
offering.
Other Provisions
As a part of the terms of the Bank Agreement, the Partnership will continue
to be subject to restrictions on its use of available funds as long as any
Senior Secured Notes or the Series B and Series C Units are outstanding. These
terms apply differently to the application of all funds received outside the
ordinary course of business generally, as a result of litigation proceeds, and
from offerings of Partnership securities.
THE SOLICITATION
VOTING SECURITIES, RECORD DATE AND OUTSTANDING UNITS
The Solicitation is being made on the terms and is subject to the
conditions in this Consent Solicitation Statement and the accompanying form of
Consent. Only Limited Partners or Assignees who are record holders of Preferred
or Common Units on the Record Date shall be taken into account for the purpose
of determining whether the requisite level of approval for the Proposed
Amendments has been achieved. With respect to voting rights attributable to
Preferred Units that are owned by Assignees who have not yet been admitted as
Limited Partners, the Managing General Partner shall be deemed to be the Limited
Partner with respect thereto and shall grant or withhold consent on behalf of
such Preferred Units in accordance with the written direction of such record
holder or absent direction of such record holder, shall withhold such Consent.
Each record holder of a Preferred Unit has a vote according to his percentage
interest in the Partnership.
The Common and Preferred Units are comprised of units of Partnership
interests of Limited Partners and Assignees. On the Record Date, there were 505
holders of record of the Partnership's Preferred Units with a total of 4,700,000
Preferred Units outstanding, and one holder of record of the Partnership's
Common Units which is Pride SGP with a total of 5,250,000 Common Units
outstanding. Currently all of the Preferred Units are deposited with
ChaseMellon, as depositary units.
CONSENT AND REVOCATION OF CONSENT
The Partnership will accept forms of Consent at any time before the
Expiration Date, which is November 15, 1996. The enclosed form of Consent, when
properly completed and returned, will constitute a
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Unitholder's consent or the withholding of such consent to the approval of the
Proposed Amendments in accordance with the instructions contained therein. If a
Unitholder executes and returns a form of Consent and does not specify
otherwise, the Units represented by such form of Consent will be voted "for"
approval of the Proposed Amendments in accordance with the recommendation of the
Managing General Partner.
A Unitholder who has executed and returned a form of Consent may revoke it
at any time before the Expiration Date by (x) executing and returning a form of
Consent bearing a later date, or (y) filing written notice of such revocation
with the Secretary of the Managing General Partner stating that the form of
Consent is revoked. Any such written notice or later dated form of Consent
should be sent to the principal executive offices of the Partnership at 1209
North Fourth Street, Abilene, Texas 79601, Attention: Judy Sharrow.
REQUIRED LEVEL OF CONSENT
Pursuant to the Partnership Agreement, the Proposed Amendments require the
approval of holders of 66 2/3% of the outstanding Preferred Units and the
approval of the holders of 66 2/3% of the outstanding Common Units, in each case
as of the close of business on the Record Date, and the approval of the Special
General Partner for adoption.
Because the approval of holders of 66 2/3% of the total outstanding Common
and Preferred Units, including holders of 66 2/3% of each of the Preferred Units
and the Common Units as a class is required to approve the Proposed Amendments,
withholding Consent will have the same effect as a vote against the Proposed
Amendments.
The executive officers and directors of the Managing General Partner own
73,635 Preferred Units (approximately 1.6% of the total Preferred Units
outstanding), and they have advised the Partnership that they each intend to
Consent, as to their Preferred Units, to the Proposed Amendments. The Special
General Partner owns 100% of the currently outstanding Common Units, and it has
given its approval to the Proposed Amendments in its capacity as Special General
Partner, and has received instructions allowing it to vote at least 66 2/3% of
the Common Units for the Proposed Amendments. For further information concerning
the ownership of Common and Preferred Units by the Managing General Partner's
affiliates, executive officers and directors, see "Principal Unitholders."
SOLICITATION OF CONSENTS
The cost of soliciting consents will be borne by the Partnership. To assist
in the solicitation of consents, the Partnership has engaged Kissel-Blake Inc.
for a fee of $6,000, plus reasonable out-of-pocket expenses. In addition, the
Partnership will reimburse brokers, banks and other persons holding Preferred
Units in their names, or in the names of nominees, for their expenses in sending
these consent solicitation materials to beneficial owners.
Other than as discussed above, the Partnership has made no arrangements and
has no understanding with any independent dealer, salesman or other person
regarding the solicitation of tenders or consents hereunder, and no person has
been authorized by the Partnership to give any information or to make any
representation in connection with the solicitation of consent to the Proposed
Amendments, other than those contained herein and, if given or made, such other
information or representations must not be relied upon as having been
authorized. Consents may be solicited by directors, officers and other employees
of the Managing General Partner, who will receive no additional compensation
therefor. The delivery of this Consent Solicitation Statement shall not, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof.
NO APPRAISAL RIGHTS
Holders of Preferred and Common Units who object to the Proposed Amendments
and the resulting capital structure changes including changes to the Preferred
and Common Units will have no appraisal, dissenters' or similar rights (i.e.,
the right, instead of receiving Units, to seek a judicial determination of the
"fair value" of their Preferred or Common Units and to compel the purchase of
their Preferred or Common
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Units for cash in that amount) under state law or the Partnership Agreement, nor
will such rights be voluntarily accorded to holders of Preferred and Common
Units by the Partnership. Thus, approval of the Proposed Amendments by the
requisite Consent of holders of Preferred Units and Common Units will bind all
holders of Preferred and Common Units, and objecting holders of Preferred and
Common Units will have no alternative to receipt of Units other than selling
their Preferred or Common Units prior to the effectiveness of the Proposed
Amendments.
CURRENT PARTNERSHIP CASH DISTRIBUTION POLICY
GENERAL
The following section sets forth the current cash distribution policy of
the Partnership as prescribed by the Partnership Agreement. If the Proposed
Amendments are adopted, the cash distribution provisions of the Partnership
Agreement will be materially changed. However, please note that the Managing
General Partner does not believe that the Partnership will make any cash
distribution to Unitholders in the foreseeable future. See "Risk Factors and
Other Considerations -- Uncertainty Regarding Future Distributions."
The Partnership Agreement provides for quarterly distributions of available
cash from operations ("Available Cash"). Available Cash for any calendar quarter
consists generally of the Partnership's net income for such quarter, as
determined in accordance with generally accepted accounting principles
(excluding gain and loss on the sale of capital assets),
<TABLE>
<S> <C> <C> <C>
(a) plus (i) Depreciation, amortization and other noncash charges (less noncash
credits) for such quarter,
(ii) the amount of any reduction in reserves of the Partnership of the types
referred to in (b)(iv) below during such quarter,
(iii) at the option of the Managing General Partner, a cumulative amount (the
"Special Amount") not to exceed $10 million in the aggregate for such
quarter and all previous quarters prior to the Initial Conversion Date,
to the extent Available Cash in such quarter is otherwise insufficient to
distribute the Base Amount in respect of the Preferred Units, and
(b) minus (i) all payments of principal on Partnership indebtedness made during such
quarter by the Partnership (other than principal payments made with the
proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets),
(ii) capital expenditures made by the Partnership during such quarters (other
than capital expenditures financed or anticipated to be refinanced with
the proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets),
(iii) investments for such quarter in any entity to the extent that such
investments are not otherwise included under clauses (b)(i) or (ii)
(other than investments financed or anticipated to be refinanced with the
proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets), and
(iv) the amount of reserves established by the Managing General Partner during
such quarter that are necessary or appropriate (A) to provide funds for
the future payment of items of the types specified in clauses (b)(i) and
(b)(ii) above, (B) to provide for additional working capital, (C) to
provide funds for cash distributions with respect to any one or more of
the next four quarters or (D) to provide funds for the future payment of
interest.
</TABLE>
Each distribution of Available Cash is generally made 2% to the General
Partners and 98% to the Unitholders, in the manner specified below, subject to
distributions with respect to the Incentive Interests and the SPU.
29
<PAGE> 37
DISTRIBUTIONS PRIOR TO THE INITIAL CONVERSION DATE
For each calendar quarter ending prior to the Initial Conversion Date,
holders of the Preferred Units are entitled to a quarterly, cumulative,
preferred distribution of Available Cash of $.65 per Unit (the "Base Amount")
($2.60 per Unit on an annualized basis) plus the amount of any cumulative
arrearages in the Base Amount with respect to all prior quarterly periods before
any Available Cash may be distributed in respect of the Common Units.
Concurrently with any distribution to the holders of Units (including the
quarterly, cumulative, preferred distribution to holders of Preferred Units),
the General Partners will receive a distribution equal to 2% of the total amount
being distributed. The "Initial Conversion Date" is the first day of the third
calendar quarter following the period that ends on the later of (i) December 31,
1994 and (ii) the last day of the quarter in which all arrearages in the Base
Amount in respect of the Preferred Units have been paid (the "Initial Period").
Prior to the Initial Conversion Date, distributions by the Partnership of any
Available Cash remaining after distribution of the Base Amount in respect of the
Preferred Units plus all arrearages in the Base Amount with respect to such
Preferred Units are to be distributed first 2% to the General Partners and 98%
to all holders of Common Units, pro rata, until there has been distributed in
respect of each outstanding Common Unit the Base Amount for such quarter and any
permitted arrearages. If, for any quarter ending prior to the Initial Conversion
Date, Available Cash is sufficient to make additional distributions, the holders
of the Preferred Units and the Common Units are to share, pro rata, in such
distributions subject to the right of the General Partners to receive 2% of all
distributions and certain distributions in respect of the Incentive Interests
and SPU. See " -- Distributions in Respect of Incentive Interests and SPU."
Beginning in the calendar quarter following substantial completion of the
expansion of the Refinery as determined by an independent engineering firm, the
Common Units began to accrue arrearages in distributions not paid to the extent
of the Base Amount with respect to such Common Units. These arrearages are to be
paid out of Available Cash in excess of the Base Amount in respect of the
Preferred Units (including all arrearages) and the Base Amount in respect of the
Common Units. No Common Unit arrearages are to be paid or will accrue after the
Initial Conversion Date and any accumulated Common Unit arrearages then existing
are to be canceled. Arrearages with respect to distributions on the Units are
cumulative but do not bear interest. Distributions with respect to the Preferred
Units in excess of the Base Amount in any quarter will not affect the right of
the Preferred Units to receive the Base Amount plus any arrearages with respect
thereto for any subsequent quarter.
DISTRIBUTIONS AFTER THE INITIAL CONVERSION DATE
Preferred Units that are not converted on or after the Initial Conversion
Date continue to be entitled to receive a quarterly distribution equal to the
Base Amount (the "Preferred Amount") plus any arrearages therein before any
distributions are made in respect of the Common Units. Accordingly,
distributions by the Partnership of Available Cash with respect to each calendar
quarter after the Initial Conversion Date are first made 2% to the General
Partners and 98% to the holders of the outstanding Preferred Units until there
has been distributed in respect of each outstanding Preferred Unit (i) the
Preferred Amount plus (ii) the amount of any cumulative arrearages in the Base
Amount and (iii) the amount of any cumulative arrearages in the Preferred Amount
with respect to all prior quarterly periods. Thereafter, distributions by the
Partnership of any remaining Available Cash for each calendar quarter ending
after the Initial Conversion Date will be distributed 2% to the General Partners
and 98% to all holders of Common Units subject to distributions in respect of
Incentive Interests and the SPU. See " -- Distributions in Respect of Incentive
Interests and SPU."
For information concerning the convertibility of the Preferred Units into
Common Units after the Initial Conversion Date and upon certain other
circumstances and the rights of the Partnership, in certain instances, to redeem
the Preferred Units. See "Description of the Units -- Conversion and Redemption
of Preferred Units."
DISTRIBUTIONS IN RESPECT OF INCENTIVE INTERESTS AND SPU
In consideration for managing the Partnership, the Managing General Partner
has received Incentive Interests representing the right to receive cash
distributions if distributions in respect of the Preferred Units
30
<PAGE> 38
and the Common Units exceed specified levels. The Incentive Interests are
exclusive to and non-assignable by the Managing General Partner except that such
interest will be assigned to any successor managing general partner. For any
calendar quarter ending prior to the Initial Conversion Date, with respect to
which Available Cash is distributed in respect of the Preferred Units and the
Common Units in an amount equal to the Base Amount plus any cumulative
arrearages in the Base Amount plus certain additional distributions, and for any
calendar quarter ending after the Initial Conversion Date with respect to which
Available Cash is distributed in respect of the Preferred Units in an amount
equal to the Preferred Amount plus any cumulative arrearages in the Preferred
Amount with respect to all prior quarterly periods, and in respect of the Common
Units in an amount equal to the Base Amount plus certain additional
distributions, the Managing General Partner will be entitled to receive, in
addition to distributions in respect of its 1.9% general partner interest,
certain distributions in respect of the Incentive Interests. The amount of these
distributions are determined based upon the level of quarterly distribution of
Available Cash per Unit and the Annual Percentage Yield to Unitholders as
calculated in accordance with the terms of the Partnership Agreement, and
certain "Target Amounts."
The Special General Partner was allocated certain taxable income for 1990
otherwise allocable to Unitholders ("Special Capital"), including approximately
$5 million of taxable income for 1990 otherwise allocable to the holders of
Preferred Units, for which it was issued a special redeemable partner unit
("SPU"). The SPU represents the right to receive a quarterly distribution,
commencing from and after January 1, 1994 and ending when the Special Capital
(plus the cumulative yield thereon) has been fully repaid, of (i) an amount
equal to a cumulative annual 10% yield, from and after January 1, 1994, on the
remaining Special Capital and (ii) an amount equal to 15% annually of the
initial Special Capital; provided that no distribution shall be made in respect
of the SPU unless and until the Base Amount or Preferred Amount (as the case may
be) and any accrued and unpaid arrearages in respect of the Preferred Units and
the Common Units for each such quarter have been paid.
CERTAIN ADDITIONAL DISTRIBUTIONS
The Partnership Agreement also contains provisions governing certain
preferences and priorities upon the distribution of certain distributable assets
including debt securities or other property or assets of the Partnership, net
proceeds to the Partnership from borrowings, sales of debt or equity securities,
and sales or other voluntary or involuntary dispositions or capital assets.
DISTRIBUTIONS UPON LIQUIDATION
Upon dissolution and liquidation of the Partnership, Partnership cash (or
other assets) is applied first to the payment of creditors of the Partnership in
the order of priority provided by law and to the creation of a reserve of cash
or other assets of the Partnership for contingent liabilities in an amount, if
any, determined by the liquidator to be appropriate for such purposes. Any
remaining cash (or other assets) will be distributed to the partners in
proportion to their adjusted capital account balances. Immediately prior to
liquidation, capital accounts will be adjusted to take into account any net
unrealized gain or loss in the Partnership's assets. To the extent that there is
net unrealized gain in the Partnership's assets, such gain will be allocated
first 98% to holders of Preferred Units (in proportion to their Preferred Unit
ownership) until their capital accounts equal, on a per-unit basis, the
Preferred Unit Redemption Amount. To the extent there is a net unrealized loss
(and the per unit capital account balance for the Preferred Units is less than
the Preferred Unit Redemption Amount), such loss will be allocated first to the
Common Units to the extent of their positive capital account balances.
"Preferred Unit Redemption Amount" means, at any time with respect to any
Preferred Unit, the initial public offering price per Preferred Unit less any
amounts previously distributed in respect of a Preferred Unit other than from
Available Cash (but not including amounts previously distributed in respect of
arrearages) plus the amount of any accrued and unpaid arrearages in the Base
Amount or Preferred Amount. As of June 30, 1996, the Preferred Unit Redemption
Amount was $30.85.
31
<PAGE> 39
ADJUSTMENT OF BASE AMOUNT, PREFERRED AMOUNT AND TARGET AMOUNTS
The Base Amount, the Preferred Amount, the Target Amounts and the Capital
Target Amount are to be proportionately adjusted in the event of any combination
or subdivision (whether effected by a distribution payable in Units or
otherwise) of Units. The Base Amount, the Preferred Amount, the Target Amounts
and the Capital Target Amount are also to be adjusted (but not prior to the end
of the Initial Period) if legislation is enacted which causes the Partnership to
become taxable as a corporation or as an association taxable as a corporation
for federal income tax purposes.
COMPARISON OF PREFERRED UNITS, COMMON UNITS, AND UNITS
If the Proposed Amendments are adopted and the Preferred Units and Common
Units are changed into Units, the rights and limitations to which holders of
Units will be subject will be similar in some respects and will differ in other
respects from those to which they are subject as holders of Preferred and Common
Units.
Distributions. Holders of Preferred Units are currently entitled to
quarterly cumulative, preferred distribution and special distribution rights of
the General Partners of Available Cash equal to the Base Amount ($.65 per Unit)
and any arrearages from prior quarters before any Available Cash may be
distributed with respect to the Common Units, subject to the General Partners'
2% distribution. Following payment of preferred distributions to holders of
Preferred Units, holders of Common Units are currently entitled to quarterly
cumulative distributions of Available Cash equal to the Base Amount ($.65 per
Unit) and any arrearages from applicable prior quarters before the remainder of
Available Cash is allocated pro rata between the Preferred and Common Units,
subject to the General Partners' 2% distribution and special distribution rights
of the General Partners. The Partnership Agreement currently provides that all
Unitholder distributions are subject to the right of the Managing General
Partner to receive distributions in respect of the Incentive Interests (the
right to receive certain incentive distributions of Available Cash in the event
cash distributed for any calendar quarter in respect of the Preferred Units and
the Common Units exceeds specified target levels) and the Special General
Partner with respect to the special redeemable partnership unit ("SPU").
Following the effectiveness of the Proposed Amendments, holders of Units
will be entitled to pro rata quarterly distributions of Available Cash, subject
only to the General Partners' 2% distribution. The Units will not provide for
any base amount distribution per quarter or for the cumulation of any such
distribution amount per quarter.
The ability of the Partnership to make distributions depends upon the
Partnership's operating performance. Historically, the Partnership's operating
results have varied on a seasonal basis, and such variations have resulted in
significant changes in the cash flow generated by the Partnership from quarter
to quarter. The Partnership's businesses have also historically been cyclical,
with significant changes in the cash flow generated at the different stages of
its business cycle. In addition, certain determinations that affect the amount
of Available Cash to be distributed by the Partnership, such as the level of
cash reserves, are made at the sole discretion of the Managing General Partner
after considering various factors, including, but not limited to, the
Partnership's current liabilities and the current interest rate on borrowings.
Therefore, there can be no assurance that cash distributions will be made, or if
made, at what level. In addition, contractual agreements of the Partnership may
also restrict the payment of distributions.
Current Preferred Unit Preference on Liquidation. Any cash (or other
assets) of the Partnership remaining after the satisfaction of creditors will be
distributed to the partners in proportion to their adjusted capital account
balances. Immediately prior to liquidation, capital accounts will be adjusted to
take into account any net unrealized gain or loss in the Partnership's assets.
To the extent that there is net unrealized gain in the Partnership's assets,
such gain will be allocated first 98% to holders of Preferred Units (in
proportion to their Preferred Unit ownership) until their capital accounts
equal, on a per-unit basis, the Preferred Unit Redemption Amount. To the extent
there is a net unrealized loss (and the per unit capital account balance for the
Preferred Units is less than the Preferred Unit Redemption Amount), such loss
will be allocated first to the Common Units to the extent of their positive
capital account balances. See "Current Partnership Cash Distribution
Policy -- Distributions Upon Liquidation."
32
<PAGE> 40
Transferability. Preferred Units evidenced by Depositary Receipts are
freely transferable and trade on the New York Stock Exchange (the "NYSE"). The
Common Units held by the Special General Partner are currently transferable in
accordance with the terms of the Partnership Agreement if the transaction is
registered under the Securities Act or an exemption is available.
The Units are not listed on the NYSE, but application is being made to list
the single class of Units on the NYSE and effectiveness of the Proposed
Amendments is conditioned upon the approval for listing of the Units on the
NYSE. The Units evidenced by Depositary Receipts that result from the changes to
the Preferred Units will be freely transferable. The Units held by the Special
General Partner as a result of the changes to the Common Units will be freely
transferable in a transaction registered under the Securities Act or for which
an exemption from such registration is available.
Partnership Reports. The Partnership files reports required by the Exchange
Act and provides holders of both Preferred and Common Units reports required
under the rules of the SEC and NYSE. The Partnership will continue to file
reports required under the Exchange Act and provide the holders of Units reports
required under the rules of the SEC and the NYSE.
Voting Rights. Holders of Preferred and Common Units generally have voting
rights on issues such as certain amendments of the Partnership Agreement,
dissolution of the Partnership, sale of substantially all of the Partnership's
assets, removal and replacement of the General Partners and mergers or
consolidations. Holders of Units will have substantially the same voting rights
with respect to such issues.
The Partnership Agreement currently prohibits the issuance of any
Partnership equity interests ranking senior to the Preferred Units (in priority
of distribution prior to, or upon, liquidation) prior to the Initial Conversion
Date without the approval of holders of at least 66 2/3% of the outstanding
Preferred Units. In addition, the Partnership is currently prohibited from
issuing additional Preferred Units or any other equity securities of the
Partnership with a comparable value to and ranking on a parity with the
Preferred Units prior to the Initial Conversion Date without the requisite
approval of 66 2/3% of the outstanding Preferred Units described above. If the
Proposed Amendments are adopted, the Partnership Agreement will no longer
contain restrictions on the ability of the Partnership to issue Partnership
equity interests, whether or not ranking senior to the Units.
THE PROPOSED AMENDMENTS
The Proposed Amendments will change the Preferred and Common Units into
Units, a single class of limited partner units with identical rights and
privileges, and eliminate the respective cumulative distribution arrearages of
the Preferred and Common Units. The Proposed Amendments will also eliminate the
distribution preference as well as the preferences upon dissolution currently
attributable to the Preferred Units.
The Proposed Amendments provide that immediately prior to the effectiveness
of the changes to the Preferred and Common Units, the Common Units shall be
subject to a 1 for 21 reverse unit split. Subsequent to the reverse unit split,
each Preferred Unit and each Common Unit will change into one Unit. Therefore,
immediately following the effectiveness of the Proposed Amendments, the former
holders of Preferred Units will own in aggregate 4,700,000 Units or an
approximate 93.1% limited partner interest in the Partnership, and the Special
General Partner's limited partner interest will be reduced from 5,250,000 Common
Units or an approximate 51.7% limited partner interest to 250,000 Units or an
approximate 4.9% interest. Currently the holders of Preferred Units only own in
aggregate an approximate 46.3% limited partner interest in the Partnership.
The Proposed Amendments will also eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. As a result, if the Proposed Amendments are approved,
all holders of Units will share, pro rata, in future Partnership distributions
to holders of Units, subject only to the right of the General Partners to
receive 2% of all distributions. The ability of the Partnership to make
distributions depends upon the Partnership's operating performance, the
servicing of Partnership debt, the
33
<PAGE> 41
amount of reserves for and rate of capital expenditures and other factors.
Therefore, there can be no assurance that cash distributions will be made, or if
made, at what level. In addition, contractual agreements of the Partnership may
also restrict the payment of distributions. See "Conflicts of Interest of the
General Partners" for a description of two plans that have been established in
part to provide incentives to key employees of the Managing General Partner for
their activities on behalf of the Partnership.
The Proposed Amendments also include by annexation certificates of
designations containing the terms and conditions of certain convertible
preferred equity securities which may be issued to the Partnership's bank
lenders in lieu of certain Partnership debt if the Partnership successfully
refinances its credit facility with different third party creditors following
the adoption of the Proposed Amendments. The certificates of designations
provide for Series B Units, a series of newly created Series B Cumulative
Convertible Preferred Units, and Series C Units, a newly created Series C
Cumulative Convertible Preferred Units. The Series B and C Units, if issued,
will be entitled to preferential quarterly payments in an amount equal to 6% per
annum in the first three years after issuance, 12% per annum in the fourth and
fifth years after issuance, and 15% per annum. In certain circumstances in the
initial three year period, distributions could be paid by the issuance of
additional securities at a rate of 8% per annum.
The Series B and C Units would be mandatorily redeemable by the Partnership
5 years and 3 months after their issuance or earlier upon the occurrence of
certain default events. They also would be subject to optional redemption by the
Partnership in cash under certain circumstances. In certain circumstances, the
Partnership will be able to call the Series C Units for Units at a ratio of 2%
of all outstanding Units per $1 million liquidation preference. See "Agreement
with Credit Facility Lenders to Restructure Debt -- Series B and C Convertible
Preferred Units and -- Anti-Dilution Provisions" for a more detailed description
of the terms of the Series B and C Units.
The Proposed Amendments provide that if the Partnership issues additional
Partnership securities, other than Units, after the adoption of the Proposed
Amendments, the terms of such additional Partnership securities may be set forth
in a certificate of designations. In such case, the Managing General Partner
would attach the certificate of designations to the Partnership Agreement as an
annex and it would be incorporated into the Partnership Agreement. Certificates
of designations may be amended by the approval of a majority in interest of
holders of the Partnership security issued pursuant to the terms of such
certificate of designations, together with the approval of the Managing General
Partner.
The Proposed Amendments also will decrease the requisite vote for removal
of the Managing General Partner if, after March 31, 1998, the Series B and
Series C Units have not become issuable by the Partnership pursuant to the terms
of the Bank Agreement. The Proposed Amendments also prohibit reimbursement of
the Managing General Partner by the Partnership for compensation paid by the
Managing General Partner to certain individuals who are also shareholders of the
Managing General Partner pursuant to employment agreements.
The principal conditions to the effectiveness of the Proposed Amendments
are (i) approval of the Proposed Amendments by the consent of holders of 66 2/3%
of each of the outstanding Preferred Units and Common Units, acting as separate
classes, and the approval of the Special General Partner and (ii) approval of
the single class of Units for listing on the NYSE.
Promptly after the adoption of the Proposed Amendments, the Managing
General Partner, the Special General Partner and the Managing General Partner on
behalf of the Limited Partners will execute the amended and restated partnership
agreement incorporating the Proposed Amendments, which will be effective in
accordance with its terms upon its execution. Thereafter, all current holders of
Preferred and Common Units, including non-consenting holders, and all subsequent
Unitholders will be bound by the Proposed Amendments and all Preferred and
Common Units will be converted into Units.
The Proposed Amendments also include a number of technical amendments to
the current Partnership Agreement, designed to facilitate the amendments
described above. Such technical amendments are set forth in full in Appendix A
hereof, which is a copy of the Partnership Agreement, as amended to reflect the
Proposed Amendments, and marked to show all changes from the Partnership
Agreement as currently in
34
<PAGE> 42
effect. All text of the current Partnership Agreement which will not be included
in the Partnership Agreement as amended is shown with a line through it. Any new
text has been underlined. Text which will not be changed by the Proposed
Amendments is unmarked.
MECHANICS OF PARTNERSHIP CAPITAL STRUCTURE CHANGES
CONTEMPLATED BY PROPOSED AMENDMENTS
If the Proposed Amendments are adopted and the other conditions to the
effectiveness of the Proposed Amendments are met, the changes contemplated by
the Proposed Amendments will be effected as follows:
- Immediately prior to the effectiveness of the changes to the Preferred
and Common Units, the currently outstanding Common Units shall be subject
to a 1 for 21 reverse unit split.
- Immediately after the reverse unit split, each Preferred Unit will change
into one Unit, and each Common Unit will change into one Unit. Therefore,
upon immediately following the effectiveness of the Proposed Amendments,
the former holders of Preferred Units will own in aggregate 4,700,000
Units or an approximate 93.1% limited partner interest in the
Partnership, and the Special General Partner's limited partner interest
will be reduced from 5,250,000 Common Units, an approximate 51.7% limited
partner interest, to 250,000 Units, an approximate 4.9% limited partner
interest.
- The Special General Partner's SPU will be eliminated. (The Special
General Partner will retain its 0.1% special general partner interest.)
- The Managing General Partner's Incentive Interest will be eliminated.
(The Managing General Partner will retain its 1.9% managing general
partner interest.)
Upon the effectiveness of the Amendment, Depositary Receipts evidencing
Preferred Units, certificates representing limited partner interests of holders
of Preferred Units, and the certificates representing limited partner interests
of the Special General Partner with respect to Common Units shall, without
further action on the part of the Partnership or the holder, evidence Units.
[ADD MECHANICS OF ISSUANCE OF SUBSTITUTE UNIT CERTIFICATES IF REQUIRED BY NYSE,
HOW CHANGES WILL BE HANDLED WITH DEPOSITARY]
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<PAGE> 43
MARKET FOR PARTNERSHIP'S PREFERRED UNITS AND STATUS OF
DISTRIBUTIONS TO HOLDERS OF PREFERRED AND COMMON UNITS
The Preferred Units of the Partnership are listed on the New York Stock
Exchange under the symbol "PRF." The following table sets forth, for the periods
indicated, the high and low closing prices of the Preferred Units as reported on
the New York Stock Exchange Composite Tape, and any arrearages with respect to
each quarter for the two most recent years.
<TABLE>
<CAPTION>
HIGH LOW ARREARAGES
---- --- ----------
<S> <C> <C> <C>
1994
First Quarter............................................ $8 3/8 $6 7/8 $ 0.65
Second Quarter........................................... 8 5/8 6 5/8 0.65
Third Quarter............................................ 7 4 3/4 0.65
Fourth Quarter........................................... 5 3/8 3 5/8 0.65
1995
First Quarter............................................ $5 5/8 $3 5/8 $ 0.65
Second Quarter........................................... 6 3 7/8 0.65
Third Quarter............................................ 4 1/4 3 1/2 0.65
Fourth Quarter........................................... 3 3/4 1 7/8 0.65
1996
First Quarter............................................ $3 1/2 $2 1/8 $ 0.65
Second Quarter........................................... 5 1/8 2 3/4 0.65
</TABLE>
Based on information received from its transfer agent, the Partnership
estimates the number of beneficial holders of Preferred Units of the Partnership
as of September 19, 1996 to be approximately 5,000.
Since the initial public offering on March 30, 1990, the Partnership has
declared and paid cash distributions of its Available Cash (as defined in the
Partnership Agreement, but generally cash derived from the Partnership's
operations) in an aggregate amount of $19,817,000 or $4.91 per Preferred Unit.
Beginning with the first quarter of 1992, Available Cash derived from operations
was insufficient to pay the Base Amount of $0.65 per Preferred Unit. As a
result, the Preferred Units have accumulated arrearages in an aggregate amount
of $53,345,000 or $11.35 per Preferred Unit through the quarter ended June 30,
1996.
The holders of the Common Units have received cash distributions from March
30, 1990 of $6,776,000 in the aggregate or approximately $1.29 per Common Unit.
No distributions were declared in respect of the Common Units for the years
ended December 31, 1991 through the date hereof. As a result, the Common Units
have accumulated arrearages in an aggregate amount of $68,250,000 or $13.00 per
Common Unit through the quarter ended June 30, 1996. Pursuant to the current
terms of the Partnership agreement, such arrearages would be paid only if there
were Available Cash in excess of the Base Amount in respect of the Preferred
Units (including all arrearages therein) and the Base Amount in respect of the
Common Units in any quarter ending prior to the Initial Conversion Date (as
defined below). No Common Unit arrearages would be paid after the Initial
Conversion Date and any accumulated common arrearages then existing would be
canceled. The Common Units were not entitled to and did not accumulate any
arrearages in cash distributions during the period from March 30, 1990 through
June 30, 1991.
The Base Amount is $0.65 per Unit quarterly or $2.60 per Unit on an
annualized basis. The Initial Conversion Date as defined in the Partnership
Agreement means the first day of the third calendar quarter following the later
to occur of December 31, 1994 and the last day of the calendar quarter in which
all arrearages in the Base Amount in respect of the Preferred Units have been
paid.
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<PAGE> 44
CONFLICTS OF INTEREST OF THE GENERAL PARTNERS
The Managing General Partner has certain potential conflicts of interest in
connection with the adoption of the Proposed Amendments. Certain conflicts of
interest could arise as a result of the General Partners' relationships with
their stockholders, on the one hand, and the Partnership, on the other hand. The
board of directors of each General Partner has a duty to manage such General
Partner in the best interests of its shareholders. As general partners of the
Partnership, the General Partners have a duty to manage the Partnership in the
best interests of its Unitholders and, consequently, are required to exercise
good faith and integrity in handling the assets and affairs of the Partnership
and other obligations assumed under the Partnership Agreement. As detailed in
"Certain Relationships and Related Transactions," the Managing General Partner
and the Special General Partner are owned to some extent by the same
individuals. A majority of the capital stock of the Special General Partner is
held by certain prior officers and directors of the General Partners and the
heirs of certain prior officers and directors of Pride SGP.
The Special General Partner is the sole holder of currently outstanding
Common Units, has certain contingent rights related to its SPU and owns a .1%
general partner interest. The Managing General Partner owns a 1.9% general
partner interest and owns Incentive Interests entitling it to certain contingent
distributions. By virtue of the ownership of the various interests by the
General Partners and the differences between their ownership interests and those
of the holders of Preferred Units, the Managing General Partner has a potential
conflict of interest in determining the terms of the Proposed Amendments as they
related to the capital restructuring of the Partnership. The Proposed Amendments
would eliminate both the Incentive Interests and the SPU.
The Partnership provides incentives for key executives and middle managers
employed by the Partnership through an Annual Incentive Plan. The Plan provides
for certain key executives to share in a bonus pool which varies in size with
the Partnership's operating income plus depreciation, calculated after bonus
accrual, after payments under the Partnership's unit appreciation plan, and
after proceeds of litigation, to the extent not otherwise included in operating
income ("Cash Flow"). Provided that Cash Flow exceeds $10 million, the key
executive bonus pool includes 8% of an amount equal to the Partnership's first
$2 million of Cash Flow in excess of $10 million, plus 12% of the next $4
million of Cash Flow, plus 15% of any Cash Flow in excess of $16 million. The
bonus pool for middle managers consists of up to 4% of Cash Flow, provided that
Cash Flow exceeds $8 million.
The Managing General Partner believes that these conflicts of interest are
mitigated by (i) the condition that the Proposed Amendments be approved by the
holders of 66 2/3% of the outstanding Common Units and holders of 66 2/3% of the
outstanding Preferred Units, voting as separate classes; (ii) the issuance of a
fairness opinion by an independent investment banking firm with respect to the
fairness from a financial viewpoint of the consideration to be received by the
disinterested holders of Preferred Units; and (iii) the review of certain
decisions of the Managing General Partner by the Conflicts and Audit Committee
of the Board of Directors of the Managing General Partner. The Managing General
Partner did not retain, and did not consider it necessary to retain, any person
to represent the holders of Preferred and Common Units or either class thereof
in negotiating the terms of the Proposed Amendments and resulting changes to the
Preferred and Common Units. The Managing General Partner believes the procedural
factors listed in clauses (i) through (iii) above are sufficient to ensure the
procedural fairness of the Transaction. The terms of the Proposed Amendments
might have been different had such a person or persons been retained.
The Conflicts and Audit Committee is a standing committee of the Board of
Directors of the Managing General Partner that is composed of persons who are
not officers, employees or owners of more than 5% of the voting securities of
the Managing General Partner, or its affiliates.
The Managing General Partner has also implemented a unit appreciation plan
under which certain key employees of the Partnership receive unit appreciation
rights, which entitle such key employees, upon exercise of such rights, to
receive cash equal to the difference in the market price of the Units on the
exercise date and the market price of the Units on the date on which such unit
appreciation rights were granted. It is anticipated that unit appreciation
rights aggregating approximately 10% of the total Units will be reserved for
issuance to key employees. However, no Units are expected to be issued under
this plan.
37
<PAGE> 45
UNIT OWNERSHIP
As of the date of this Consent Solicitation Statement, 5,250,000 Preferred
Units were issued and outstanding, and 4,700,000 Common Units were issued and
outstanding. Of these issued and outstanding units, affiliates of the General
Partners owned approximately 1.6% of the Preferred Units and the Special General
Partner owned 100% of the Common Units, in addition to their combined 2% general
partner interest.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF AUGUST 31, 1996.
The following table sets forth certain information with respect to each
person known by the Partnership to own beneficially 5% or more of the Preferred
Units and the Common Units as of August 31, 1996:
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS AMOUNT PERCENT OF CLASS
------------------------------------ ------------------------- --------- ----------------
<S> <C> <C> <C>
Preferred Units James B. Stovell 930,000 19.8%
Mountain Lake
Lake Wales, FL 33859
Common Units Pride SGP, Inc. 5,250,000 100%
1209 North Fourth Street
Abilene, Texas 79601
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of August 31, 1996,
concerning the beneficial ownership of Preferred Units by each director of the
Managing General Partner and by all directors and officers of the Managing
General Partner as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME PREFERRED UNITS(1) OF CLASS
--------------------------------------------------------- ------------------ ----------
<S> <C> <C>
E. Peter Corcoran........................................ 64,100 1.4%
Brad Stephens............................................ 1,100 (2)
D. Wayne Malone.......................................... 4,135 (2)
Douglas Y. Bech.......................................... 300 (2)
Clark Johnson............................................ -- --
Robert Rice.............................................. 3,000 (2)
Craig Sincock............................................ -- --
Dave Caddell............................................. 1,000 (2)
Robert Cagle............................................. -- --
George Percival.......................................... -- --
All directors and officers as a group (10 persons)....... 73,635 1.6%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the Preferred Units reported.
(2) Each of these directors of the Managing General Partners owned beneficially,
as of August 31, 1996, less than 1% of the Preferred Units outstanding on
such date.
38
<PAGE> 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership is managed by the Managing General Partner pursuant to the
Partnership Agreement. The Special General Partner, Pride SGP, is beneficially
owned approximately 18% by Mr. Schumacher (a past officer and director of the
Managing General Partner), 10% by Mr. W. E. Rector (a business partner of Mr.
Schumacher), 9% by Mr. Malone, 7% by Mr. Stephens, 5% by Mr. T. M. Broyles (a
past officer of the Managing General Partner), 4% by Mr. Corcoran, 2% by Mr.
Caddell, 21% by trusts established for the relatives of certain deceased members
of management, and 24% by relatives of certain deceased members of management.
The Managing General Partner is beneficially owned approximately 39% by Mr.
Malone, 39% by Mr. Stephens, 16% by Mr. Caddell, and 6% by Mr. Corcoran. Mr.
Schumacher retired as Chairman of the Managing General Partner as of March,
1994.
Effective March 30, 1990, the Partnership entered into an agreement with
Pride SGP to lease certain pipeline segments of the Crude Gathering System. As
consideration for this lease, the Partnership has agreed to perform all routine
and emergency maintenance and repair operations to the pipelines. The value of
such services is currently estimated to be approximately $200,000 annually. The
Partnership pays Pride SGP $0.20 per barrel rental on the Hearne to Comyn
segment of the pipeline which was activated in August 1992. For the six months
ended June 30, 1996 and for the year ended December 31, 1995, the Partnership
transported 16,222 BPD and 11,900 BPD, respectively, of high quality crude oil
to the Refinery. For the six months ended June 30, 1996 and for the years ended
December 31, 1995, 1994, and 1993, the Partnership paid, or accrued payments to,
Pride SGP of approximately $500,000, $873,000, $1.1 million and $1.1 million,
respectively, for the lease of the pipeline. Beginning in August 1995, payments
to Pride SGP were suspended pursuant to an amendment to the terms of the credit
agreement. Approximately $850,000, $351,000 and $88,000 are included in accounts
payable at June 30, 1996, December 31, 1995 and December 31, 1994 respectively,
for the lease of the pipeline. The lease agreement with Pride SGP was not
entered into on an arm's-length basis. The rent under the lease was determined
based on the revenue generated from an expected throughput of 20,000 BPD. While
management is not able to determine whether the terms of the agreement are
comparable to those which could have been obtained by unaffiliated parties,
management believes such terms are fair and reasonable given the importance to
the Partnership of the Hearne to Comyn pipeline segment which currently enables
the Partnership to gather and transport a greater supply of high quality crude
oil to the Refinery. In addition, management believes the value of the leased
segment of the Comyn pipeline system has increased with the development of the
Austin Chalk formation in South Central Texas and the increasing need for crude
oil transportation in that area.
The Partnership's right to use the leased segment of the pipeline
originally extended until 2000. During 1992, the lease was amended, whereby at
the Partnership's option, the lease may be extended through March 2013 as long
as certain minimum throughput levels are maintained. If such throughput levels
are not maintained during the extended term, the lease is cancelable by Pride
SGP with ninety days notice. The lease agreement was amended in early 1993 to
provide that any time during the lease, the Partnership may, upon 30 days'
notice to Pride SGP, purchase the Comyn pipeline for $10 million instead of the
original $15 million purchase price.
During the six months ended June 30, 1996 and the years ended December 31,
1995, 1994 and 1993, the Partnership sold approximately $3.4 million, $4.0
million, $2.8 million and $1.4 million, respectively, of refined product to
Dunigan Fuels. Mike Dunigan is a minority shareholder in Dunigan Fuels and is
also a beneficiary of two trusts that own stock in Pride SGP. The Partnership
had an accounts receivable balance from Dunigan Fuels of $370,000, $267,000,
$178,000, and $138,000 for the six months ended June 30, 1996 and the years
ended December 31, 1995, 1994, and 1993, respectively.
The Partnership leased an aircraft from the Managing General Partner for
$143,000 through June, 1993. In addition, the Partnership paid pilot salaries,
fuel, maintenance, and insurance on the plane and incurred costs of
approximately $207,000 associated with the lease cancellation. The Partnership
now utilizes a smaller plane from time to time, as needed, on a per hour market
rate basis from an entity controlled by Messrs. Malone and Stephens, officers of
the Managing General Partner. Payments to this entity totaled
39
<PAGE> 47
approximately $34,000, $72,000, $84,000 and $28,000 during the six months ended
June 30, 1996 and years ended 1995, 1994 and 1993, respectively.
Through November 1994, the Partnership leased truck tractors from a company
owned by the estate of Jimmy Morris, a stockholder of Pride SGP, for
approximately $6,000 to $8,000 per month. Lease payments related to this
property were approximately $36,000 in 1995, 1994, and 1993.
Law firms with which Mr. Bech, a current director of the Managing General
Partner, was or is a partner were paid $80,000, $155,000, $17,000 and $24,000
for legal services during the six months ended June 30, 1996 and years ended
1995, 1994 and 1993, respectively. Akin, Gump, Strauss, Hauer & Feld, L.L.P., of
which Mr. Bech is a partner, is representing the Partnership in connection with
the transactions described in this Consent Solicitation Statement.
At December 31, 1994, the Partnership had a $94,000 receivable from the
Managing General Partner and a $126,000 payable to Pride SGP. These amounts were
settled in January, 1995. The Managing General Partner has a 1.9% interest in
the income and cash distributions of the Partnership, subject to certain
adjustments. Certain members of the management of the Managing General Partner
are also members of the management of Pride SGP, which has a 0.1% general
partner interest and an approximate 51.7% limited partner interest in the
Partnership.
The Partnership also has outstanding two financing agreements with Pride
SGP entered into on March 26, 1993 and September 7, 1995. Pride SGP made
unsecured loans to the Partnership in the principal amount of $2.5 million, and
they require the Partnership to pay interest only during the term of such loans.
Such loans bear interest at prime plus 2%. The prime rate was 8.25% at June 30,
1996. The loans mature January 1, 1997 and were used to fund working capital.
Beginning in the latter part of 1995, the Partnership ceased making interest
payments on its notes payable to Pride SGP in accordance with an amendment to
the credit agreement. Accrued interest payable at June 30, 1996 and December 31,
1995 amounted to $194,000 and $68,000, respectively.
The Partnership previously purchased crude oil from Texland Petroleum,
Inc., a corporation owned 50% by each of Messrs. Schumacher and Rector. The
Partnership's purchases of crude oil were made pursuant to division orders which
did not require the Partnership to purchase or Texland to sell any specified
amounts of crude oil. Such crude oil purchases for the year ended December 31,
1993, which include amounts paid to Texland for the account of other parties,
amounted to approximately $4.5 million, which was less than 10% of the
Partnership's aggregate crude oil first purchases for each such period.
Because of the potential conflicts of interests involved with crude oil
purchased by the Partnership from Texland and, at the request of certain
affiliates of Pride SGP, Inc., the Audit and Conflicts Committee reviewed the
terms of these purchases. As a result of such review and although the prices
paid by the Partnership to Texland for both sour and sweet crude oil were
comparable to prices paid to Texland by unaffiliated third party crude oil
purchasers, the Committee believes that the Partnership paid higher prices for
sour crude oil to Texland than it may have paid if it had purchased sour crude
oil from unaffiliated third parties. All sweet crude oil purchased by the
Partnership from Texland was purchased at the posted price, which the
Partnership believes was no less favorable than could have been obtained from
third parties. During 1993, Texland refunded approximately $750,000 to the
Partnership. In addition, to minimize future conflicts of interest, the
Partnership discontinued the purchase of crude oil from Texland after April 1,
1993. The Partnership does not believe that the loss of Texland as a crude oil
supplier had any adverse effect on its ability to purchase crude oil necessary
for its operations.
In December, 1994, the General Partners and certain of Pride SGP's
shareholders settled litigation with respect to Pride SGP's Shareholders
Agreement between them and Mr. Robert J. Schumacher, the Managing General
Partner's former Chairman of the Board. In return for settling all claims
against him in such litigation, Mr. Schumacher was required to: (i) cancel
promissory notes receivable from the Managing General Partner and the
Partnership in the amounts of $106,000 and $300,000, respectively, and (ii)
honor certain agreements made with respect to Pride SGP's Shareholders Agreement
in 1993.
40
<PAGE> 48
The acquisition of a 50% interest in the Texas Plains Pipeline System from
Diamond Shamrock by the Partnership was effected by a newly formed limited
partnership, Pride Texas Plains, L.P. ("PTP") in which a wholly-owned subsidiary
of the Partnership, Pride Borger, Inc., owns a 98% limited partner interest. The
general partners of PTP, which have an aggregate 2% interest in PTP, are the
Partnership's Managing General Partner which will act as the managing general
partner of PTP and an affiliate of the Managing General Partner which will serve
as the special general partner. Pursuant to the Partnership's existing loan and
credit agreement, all distributions of net operating cash of PTP will be
distributed to the Partnership. On August 1, 1996, PTP was liquidated into Pride
Borger.
FEDERAL INCOME TAX CONSEQUENCES
The Managing General Partner does not believe that the adoption of the
Proposed Amendments will have any significant federal income tax impact on the
Partnership or its partners. Upon the change of a Preferred Unit into a Unit, a
holder of a Preferred Unit will recognize no gain or loss and will have a basis
and holding period in the Unit received which is equal to the basis and holding
period of the Preferred Unit so changed. In accordance with the Partnership
Agreement, in connection with the adoption of the Proposed Amendments, the
Partnership will obtain an opinion of Andrews & Kurth, L.L.P., special tax
counsel to the Partnership, to the effect that the adoption of the Proposed
Amendments will not cause the Partnership to be treated as an association
taxable as a corporation for federal income tax purposes.
41
<PAGE> 49
APPENDIX A
<PAGE> 50
PLEASE NOTE:
The Limited Partners of the Partnership will receive a copy of the
Second Amended and Restated Agreement of Limited Partnership marked with
traditional blacklining marks to show changes from the Amended and Restated
Agreement of Limited Partnership as Appendix A, instead of plain copies of both
the Second Amended and Restated Agreement of Limited Partnership and the
Amended and Restated Agreement of Limited Partnership which are contained in
this EDGAR filing.
The blacklining will show deleted text with a line through it and new
text underlined.
<PAGE> 51
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIDE COMPANIES, L.P.
A-i
<PAGE> 52
TABLE OF CONTENTS
ARTICLE I
<TABLE>
<S> <C>
ORGANIZATIONAL MATTERS.................................................................
1.1 Formation and Continuation.................................................
1.2 Name.......................................................................
1.3 Registered Office; Principal Office........................................
1.4 Power of Attorney..........................................................
1.5 Term.......................................................................
1.6 Possible Restrictions on Transfer..........................................
ARTICLE II
DEFINITIONS............................................................................
ARTICLE III
PURPOSE................................................................................
3.1 Purpose and Business.......................................................
3.2 Powers.....................................................................
ARTICLE IV
CAPITAL CONTRIBUTIONS..................................................................
4.1 Partnership Equity Securities..............................................
4.2 Issuances of Additional Units and Other Securities.........................
4.3 No Preemptive Rights.......................................................
4.4 Capital Accounts...........................................................
4.5 Interest...................................................................
4.6 No Withdrawal..............................................................
4.7 Loans from Partners........................................................
4.8 No Fractional Units........................................................
4.9 Splits and Combinations....................................................
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS..........................................................
5.1 Allocations for Capital Account Purposes...................................
5.2 Allocations for Tax Purposes...............................................
5.3 Requirement and Characterization of Distributions..........................
5.4 Distributions Prior to the Initial Conversion Date.........................
5.5 [placeholder section] Distributions After the Initial Conversion Date......
5.6 Distributions of Proceeds from Capital Transactions........................
5.7 Distributions Upon Liquidation.............................................
5.8 Adjustment of Base Amount, the Preferred Amount, Target Amounts and Capital
Target Amount............................................................
5.8 Other Capital Distributions................................................
5.9 Special Redeemable Partner Units...........................................
</TABLE>
2
<PAGE> 53
<TABLE>
<S> <C>
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS...................................................
6.1 Management.................................................................
6.2 Certificate of Limited Partnership.........................................
6.3 Restrictions on the General Partners' Authority............................
6.4 Reimbursement of the General Partners......................................
6.5 Outside Activities.........................................................
6.6 Contracts with Affiliates..................................................
6.7 Indemnification............................................................
6.8 Liability of Indemnitees...................................................
6.9 Resolution of Conflicts of Interest........................................
6.10 Other Matters Concerning General Partners..................................
6.11 Title to Partnership Assets................................................
6.12 Reliance by Third Parties..................................................
6.13 Covenants and Representations of General Partners..........................
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.............................................
7.1 Limitation of Liability....................................................
7.2 Management of Business.....................................................
7.3 Outside Activities.........................................................
7.4 Return of Capital..........................................................
7.5 Rights of Limited Partners Relating to the Partnership.....................
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS.................................................
8.1 Records and Accounting.....................................................
8.2 Fiscal Year................................................................
8.3 Reports....................................................................
ARTICLE IX
TAX MATTERS............................................................................
9.1 Preparation of Tax Returns.................................................
9.2 Tax Elections..............................................................
9.3 Tax Controversies..........................................................
9.4 Organizational Expenses....................................................
9.5 Withholding................................................................
9.6 Entity-Level Taxation [placeholder]........................................
9.7 Entity-Level Deficiency Collections........................................
9.8 Opinions of Counsel........................................................
ARTICLE X
CERTIFICATES AND DEPOSITARY RECEIPTS...................................................
10.1 Certificates and Depositary Receipts.......................................
10.2 Registration of Transfer and Exchange......................................
10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts...................
10.4 Registered Owner...........................................................
10.5 Withdrawal of Units from and Redeposit of Units in Depositary Account......
10.6 Amendment of Deposit Agreement.............................................
</TABLE>
3
<PAGE> 54
<TABLE>
<S> <C>
ARTICLE XI
TRANSFER OF INTERESTS..................................................................
11.1 Transfer...................................................................
11.2 Transfer of a General Partner's Partnership Interest.......................
11.3 Transfer of Units..........................................................
11.4 Restrictions on Transfers..................................................
11.5 Citizenship Certification; Non-citizen Assignees...........................
11.6 Redemption of Interests....................................................
11.7 Transfer of Common Units by the Special General Partner....................
11.8 Transfer of Incentive Distribution by the Managing General Partner.........
11.7 Registration Rights........................................................
ARTICLE XII
ADMISSION OF PARTNERS..................................................................
12.1 Admission of Initial Limited Partners and Underwriters [Placeholder].......
12.2 Admission of Substituted Limited Partners..................................
12.3 Admission of Successor Managing General Partner and Special General
Partner..................................................................
12.4 Admission of Additional Limited Partners...................................
12.5 Amendment of Agreement and Certificate of Limited Partnership..............
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS......................................................
13.1 Withdrawal of the Managing General Partner.................................
13.2 Removal of the Managing General Partner....................................
13.3 Interest of Departing Managing General Partner and Successor Managing
General Partner..........................................................
13.4 Withdrawal or Removal of Special General Partner...........................
13.5 Withdrawal of Limited Partners.............................................
13.6 Continuation of Partnership................................................
13.7 No Incentive Fees After Withdrawal or Removal..............................
ARTICLE XIV
DISSOLUTION AND LIQUIDATION............................................................
14.1 Dissolution................................................................
14.2 Continuation of the Business of the Partnership after Dissolution..........
14.3 Liquidation................................................................
14.4 Distributions in Kind......................................................
14.5 Cancellation of Certificate of Limited Partnership.........................
14.6 Reasonable Time for Winding-Up.............................................
14.7 Return of Capital..........................................................
14.8 No Capital Account Restoration.............................................
14.9 Waiver of Partition........................................................
</TABLE>
4
<PAGE> 55
<TABLE>
<S> <C>
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE..............................
15.1 Amendment to be Adopted Solely by Managing General Partner.................
15.2 Amendment Procedures.......................................................
15.3 Amendment Requirements.....................................................
15.4 Meetings...................................................................
15.5 Notice of a Meeting........................................................
15.6 Record Date................................................................
15.7 Adjournment................................................................
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.................
15.9 Quorum.....................................................................
15.10 Conduct of Meeting.........................................................
15.11 Action Without a Meeting...................................................
15.12 Voting and Other Rights....................................................
ARTICLE XVI
MERGER.................................................................................
16.1 Authority..................................................................
16.2 Procedure for Merger or Consolidation......................................
16.3 Approval by Limited Partners of Merger or Consolidation....................
16.4 Certificate of Merger......................................................
16.5 Effect of Merger...........................................................
16.6 Exempt Transaction.........................................................
ARTICLE XVII
RIGHT TO ACQUIRE COMMON UNITS..........................................................
17.1 Right to Acquire Common Units..............................................
ARTICLE XVIII
CHANGES TO PREVIOUS CAPITALIZATION OF THE PARTNERSHIP..................................
18.1 Changes in Capitalization Effective Upon the Effective Date................
18.2 Elimination of Cumulative Distribution Arrearages..........................
18.1 Conversion During Any Conversion Period....................................
18.2 Redemption at the Option of the Partnership................................
18.3 Conversion of Preferred Units Upon Notice of Redemption....................
18.4 Legal Holidays.............................................................
18.5 Fractional Units...........................................................
18.6 Taxes on Conversion........................................................
18.7 Adjustment for Change in Common Units......................................
18.8 Capital Account Adjustments................................................
18.9 Notice of Adjustment.......................................................
18.10 Partnership Determination Final............................................
18.11 Rights or Warrants to Acquire Common Units.................................
</TABLE>
5
<PAGE> 56
<TABLE>
<S> <C>
ARTICLE XIX
GENERAL PROVISIONS.....................................................................
19.1 Addresses and Notices......................................................
19.2 Titles and Captions........................................................
19.3 Pronouns and Plurals.......................................................
19.4 Further Action.............................................................
19.5 Binding Effect.............................................................
19.6 Integration................................................................
19.7 Creditors..................................................................
19.7 Waiver.....................................................................
19.8 Counterparts...............................................................
19.9 Applicable Law.............................................................
19.10 Invalidity of Provisions...................................................
</TABLE>
6
<PAGE> 57
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIDE COMPANIES, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP amends,
replaces and restates, as of the Effective Date, the Amended and Restated
Agreement of Limited Partnership, effective as of March 29, 1990, and as further
amended by the First Amendment to the Amended and Restated Agreement of Limited
Partnership, effective as of September 25, 1991 (as amended, the "Prior
Agreement"). This Agreement of Limited Partnership is entered into by and among
Pride Refining, Inc., a Texas corporation, as the Managing General Partner,
Pride SGP, Inc., a Texas corporation, as the Special General Partner and the
Initial Limited Partners, together with any other Persons who become Partners in
the Partnership as provided herein. In consideration of the covenants,
conditions and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Formation and Continuation. The Managing General Partner, the Special
General Partner, and the Organizational Limited Partner have previously formed
the Partnership Partnership has previously been formed and is currently in
existence as a limited partnership pursuant to the provisions of the Delaware
Act. Subject The Partnership is hereby expressly continued as a limited
partnership pursuant to the Delaware Act, subject to the provisions of this
Agreement, the Managing General Partner, the Special General Partner, and the
Organizational Limited Partner hereby continue the Partnership as a limited
partnership pursuant to the provisions of the Delaware Act which replaces,
amends, and restates the Prior Agreement. Except as expressly provided herein to
the contrary, the rights and obligations of the Partners and the administration
and termination of the Partnership shall be governed by the Delaware Act. The
Partnership Interest of each Partner shall be personal property for all
purposes.
1.2 Name. The name of the Partnership shall be "Pride Companies, L.P." The
Partnership's business may be conducted under any other name or names deemed
advisable by the Managing General Partner, including the name of the Managing
General Partner or any Affiliate thereof. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The Managing General Partner in its sole
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.
1.3 Registered Office; Principal Office. The address of the registered
office of the Partnership in the State of Delaware shall be located at The
Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington,
Delaware 19801, and the registered agent for service of process on the
Partnership in the State of Delaware at such registered office shall be The
Corporation Trust Company. The principal office of the Partnership shall be 500
Chestnut, Suite 1300 1209 North Fourth Street, Abilene, Texas 79602 79601or such
other place as the Managing General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other places within or outside the State of Delaware as the Managing General
Partner deems advisable.
1.4 Power of Attorney. (a) Each Limited Partner and each Assignee hereby
constitutes and appoints each of the Managing General Partner and, if a
Liquidator shall have been selected pursuant to Section 14.3 hereof, the
Liquidator severally (and any successor to either thereof by merger, transfer,
assignment, election or otherwise) and authorized officers and attorneys-in-fact
of each, with full power of substitution, as its true and lawful agent and
attorney-in-fact, with full power and authority in its 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, without limitation, this Agreement and the
A-1
<PAGE> 58
Certificate of Limited Partnership and all amendments or restatements
thereof) that the Managing General Partner or the Liquidator deems
appropriate or necessary 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 instruments that the Managing
General Partner or the Liquidator deems appropriate or necessary to reflect
any amendment, change, modification or restatement of this Agreement or the
Deposit Agreement in accordance with their respective terms; (C) all
conveyances and other instruments or documents that the Managing General
Partner or the Liquidator deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms of
this Agreement, including, without limitation, a certificate of
cancellation; (D) all instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to, or other events
described in, Article XI, XII, XIII or XIV hereof or the Capital
Contribution of any Partner; (E) all certificates, documents and other
instruments relating to the determination of the rights, preferences and
privileges of any class or series of Units or other securities issued
pursuant to Section 4.4 4.2 hereof; and (F) all agreements and other
instruments (including, without limitation, a certificate of merger)
relating to a merger or consolidation of the Partnership pursuant to
Article XVI hereof:
(ii) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, in the sole discretion of the Managing General Partner or the
Liquidator, to make, evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or appropriate
or necessary, in the sole discretion of the Managing General Partner or the
Liquidator, to effectuate the terms or intent of this Agreement; provided,
that when required by Section 15.3 hereof or any other provision of this
Agreement which establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any action, the
Managing General Partner or the Liquidator may exercise the power of
attorney made in this subsection (ii) only after the necessary vote,
consent or approval of the Limited Partners or of the Limited Partners of
such class or series; and
(iii) on behalf of the Limited Partners and the Assignees, enter into
the Deposit Agreement and to deposit Certificates in the Deposit Account
pursuant to the Deposit Agreement.
Nothing contained herein shall be construed as authorizing the Managing General
Partner to amend this Agreement except in accordance with Article XV hereof 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 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 Managing General
Partner or the Liquidator, acting in good faith pursuant to such power of
attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the Managing General Partner or the Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver to
the Managing General Partner or the Liquidator, within 15 days after receipt of
the Managing General Partner's or the Liquidator's request therefor, such
further designation, powers of attorney and other instruments as the Managing
General Partner or the Liquidator deems necessary to effectuate this Agreement
and the purposes of the Partnership.
1.5 Term. The Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act on January 17, 1990 and
shall continue in existence until the close of Partnership business on December
31, 2090, or until the earlier termination of the Partnership in accordance with
the provisions of Article XIV hereof.
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1.6 Possible Restrictions on Transfer. Notwithstanding anything to the
contrary contained herein, in the event of (i) the enactment (or imminent
enactment) of any legislation, (ii) the publication of any temporary or final
regulation by the Treasury Department, (iii) any ruling by the Internal Revenue
Service or (iv) any judicial decision, that, in any such case, in the Opinion of
Counsel, would result in the taxation of the Partnership for federal income tax
purposes as a corporation or as an association taxable as a corporation, then,
either (a) the Managing General Partner may impose such restrictions on the
transfer of Partnership Interests as may be required, in the Opinion of Counsel,
to prevent the taxation of the Partnership for federal income tax purposes as a
corporation or as an association taxable as a corporation, including making any
amendments to this Agreement as the Managing General Partner in its sole
discretion may determine to be necessary or appropriate in order to impose such
restrictions; provided, that any such amendment to this Agreement which would
result in the delisting or suspension of trading of any class of Units on any
National Securities Exchange on which such class of Units is then traded must be
approved by the holders of at least 66 2/3% of the outstanding Outstanding Units
of such class (excluding for purposes of such determination any Units of such
class owned by the General Partners and their Affiliates) or (b) upon the
recommendation of the Managing General Partner and the approval by the holders
of at least 66 2/3% of the outstanding Outstanding Units (excluding for purposes
of such determination any Units owned by the General Partners and their
Affiliates), the Partnership may be converted into and reconstituted as a trust
or any other type of legal entity (the "New Equity") Entity") in the manner and
on other terms so recommended and approved. In such event, the business of the
Partnership shall be continued by the New Entity and the Units shall be
converted into equity interests of the New Entity in the manner and on the terms
so recommended and approved.
ARTICLE II
DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 12.4 hereof.
"Adjusted Capital Account" shall mean the Capital Account maintained for
each Partner as of the end of each taxable year of the Partnership (a) increased
by any amounts which 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 taxable year, are reasonably expected to be allocated to such Partner in
subsequent years under Section 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 taxable 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 pursuant to a minimum gain chargeback pursuant to
Sections 5.1(e)(i) or 5.1(e)(ii) hereof). 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" in respect of a Preferred Unit, a Common Unit,
the SPU, or any other specified A Partner who has more than one interest in the
Partnership shall be the amount which such have a single " Adjusted Capital
Account would be if such Preferred Unit, Common Unit, SPU, or other interest in
the Partnership were the only interest in the Partnership held by a Limited
Partner." that reflects all such interests, regardless of the class of interests
and the time and manner in which such interests were acquired.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 4.6(d)(i) or 4.6(d)(ii) 4.4(d)(i) or 4.4(d)(ii)
hereof. Once an Adjusted Property is deemed distributed by, and recontributed
to, the Partnership for federal income tax purposes upon a termination thereof
pursuant to Section 708 of the Code, such property shall thereafter constitute a
Contributed Property
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until the Carrying Value of such property is further adjusted pursuant to
Section 4.6(d)(i) or 4.6(d)(ii) 4.4(d)(i) or 4.4(d)(ii) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, the Person in question. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agreed Allocation" shall mean allocation made pursuant to Section 5.1(a),
(b), (c) or (d) hereof.
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the Managing General Partner using such reasonable method of valuation as it
may adopt. The Managing General Partner shall, in its sole 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 such properties on a basis proportional to their
fair market values.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Units 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 become a Substituted Limited Partner.
"Available Cash" means, with respect to any calendar quarter, (i) the sum
of:
(A) the Partnership's net income for such quarter as determined in
accordance with generally accepted accounting principles (excluding gain
and loss on the sale of capital assets).
(B) depreciation, amortization and other noncash charges (less noncash
credits) of the Partnership for such quarter.
(C) at the option of the Managing General Partner, a cumulative amount
not to exceed $10 million in the aggregate for such quarter and all
previous quarters prior to the Initial Conversion Date, to the extent
Available Cash in such quarter is otherwise insufficient to distribute the
Base Amount in respect of the Preferred Units, and
(D)(C) the amount of any reduction in reserves of the Partnership of
the types referred to in (ii)(DD) below during such quarter:
(ii) less the sum of:
(AA) all principal debt payments, preference payments accrued on
Series B Preferred Units or Series C Preferred Units (if not already
included in the computation of net income), or redemptions of Series B or C
Preferred Units, if any, made during such quarter by the Partnership (other
than principal debt payments made with Proceeds from Capital Transactions),
(BB) capital expenditures made by the Partnership during such quarter
(excluding for such purpose capital expenditures financed or anticipated to
be refinanced with Proceeds from Capital Transactions),
(CC) investments for such quarter in any entity to the extent that
such investments are not otherwise included under clauses (ii)(AA) or (BB)
(excluding investments financed or anticipated to be refinanced with
Proceeds from Capital Transactions), and
(DD) the amount of Partnership reserves established by the Managing
General Partner during such quarter which are necessary or appropriate (1)
to provide funds for the future payment of items of the types specified in
clauses (ii) (AA) and (ii) (BB) above, (2) to provide for additional
working capital, (3) to provide funds for cash distributions with respect
to any one or more of the next four calendar quarters or (4) to provide
funds for the future payment of interest.
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Notwithstanding the foregoing, Available Cash shall not include any cash
receipts or reductions in reserves or take into account any disbursements made
or reserves established after commencement of the dissolution and liquidation of
the Partnership.
"Book-Tax Disparity" shall mean, 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 4.6 4.4 hereof and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained strictly in accordance with
federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
States of New York or Texas shall not be regarded as a Business Day.
"Capital Account" means the capital account maintained pursuant to Section
4.6 4.4 hereof.
"Capital Contribution" means any cash, cash equivalents, or the Net Agreed
Value of Contributed Property which a Partner contributes to the Partnership
pursuant to Section 4.1, 4.3, 4.4, 4.6(c) or 13.3(c) hereof. Sections 4.1, 4.2,
4.4(c) or 13.3(c) hereof, or the outstanding principal balance of debt, amount
of accrued interest, or amount of cumulative distribution arrearages cancelled
by a Limited Partner in exchange for a Series B Preferred Unit or Series C
Preferred Unit.
"Capital Transactions" means (a) borrowings and sales of debt securities
(other than working capital borrowings, borrowings representing items purchased
on open account in the ordinary course of business and borrowings made in order
to make distributions pursuant to clause (i)(C) of the definition of Available
Cash) by the Partnership, (b) sales of equity interests by the Partnership
(other than the Initial Offering, to the extent used to make distributions
pursuant to clause (i)(C) of the definition of Available Cash) conversion of
certain indebtedness of the Partnership into Common Units, Series B Preferred
Units, or Series C Preferred Units as described in Section 4.1 hereof) and (c)
sales or other voluntary or involuntary dispositions of any assets of the
Partnership (other than (x) sales or other dispositions of inventory in the
ordinary course of business, (y) sales or other dispositions of other current
assets including receivables and accounts and (z) sales or other dispositions of
assets as a part of normal retirements or replacements), in each case prior to
the commencement of the dissolution and liquidation of the Partnership.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' Capital
Accounts 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 4.6(d)(i) and 4.6(d)(ii) hereof, and to reflect
changes, additions or other adjustments to the Carrying Value for disposition
and acquisitions of Partnership properties, as deemed appropriate by the
Managing General Partner. 4.4(d)(i) and 4.4(d)(ii) hereof and shall thereafter
be reduced (but not below zero) by all depreciation, amortization, and cost
recovery deductions charged to the Partners' Capital Accounts.
"Certificate" means a certificate issued by the Partnership evidencing
ownership of one or more Partnership Interests.
"Certificate of Designations" means the Certificates of Designations
pursuant to which the Partnership issues Series B Preferred Units, Series C
Preferred Units, and any other certificate of designations pursuant to which the
Partnership issues Partnership Securities pursuant to Section 4.2.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.
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"Citizenship Certification" means a properly completed certificate in such
form as may be specified by the Managing General Partner by which an Assignee or
a Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.
"Closing Date" means the first date on which Preferred Units are sold by
the Partnership to the Underwriters pursuant to the provisions of the
Underwriting Agreement.
"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 to trading on the New York Stock Exchange or,
if the Units of a class are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal National Securities
Exchange on which the Units of such class are listed or admitted to trading or,
if the Units of a class are not listed or admitted to trading on any National
Securities Exchange, 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 National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, if on any such
day the Units of a 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 the Units of such class selected by the Board of
Directors of the Managing General Partner, or, if on any such day no market
maker is making a market in the Units of such class, the fair value of such
Units on such day as determined reasonably and in good faith by the Board of
Directors of the Managing General Partner using any reasonable method of
valuation.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Unit" means a Unit representing a fractional part of the
Partnership Interests of the Limited Partners and Assignees thereof and having
the rights and obligations specified with respect to Common Units in this
Agreement.
"Conflicts and Audit Committee" means a committee of the Board of Directors
of the Managing General Partner composed entirely of directors who are neither
officers or employees of, nor direct or indirect owners of more than 5% of the
voting securities of, the General Partners or their Affiliates.
"Consent Solicitation Statement" means the consent solicitation statement
dated [ ], 1996 sent to the Partners in connection with the
adoption of this Agreement and the approval of other matters described in the
Consent Solicitation Statement.
"Contributed Property" means each property or other asset, in such form as
may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.6(d) 4.4(d)
hereof, such property shall no longer constitute a Contributed Property for
purposes of Section 5.1 hereof, but shall be deemed an Adjusted Property for
such purposes.
"Contributing Partner" means each Partner contributing (or deemed to have
contributed on termination and reconstitution of the Partnership pursuant to
Section 708 of the Code or otherwise) a Contributed Property.
"Conveyance Agreement" means the Conveyance Agreement between the Special
General Partner and the Partnership whereby the Special General Partner conveys
to the Partnership the Assets (as defined in such Conveyance Agreement) in
exchange for (i) a 0.1% General Partner's Partnership Interest and (ii)
5,250,000 Common Units.
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"Conversion Date" means the date which the Managing General Partner
specifies in its notice to Preferred Unitholders as the effective date of the
conversion of Preferred Units to Common Units.
"Current Market Price" shall have the meaning assigned to such term in
Section 17.1(a) hereof.
"Debt" means, as to any Person, as of any date of determination, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (c) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (d) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del. C.17-101, et seq., as it may be amended from time to time, and any
successor to such statute.
"Deposit Account" means the account established by the Depositary pursuant
to the Deposit Agreement.
"Deposit Agreement" means the Deposit Agreement among the Managing General
Partner, in its capacity both as Managing General Partner and as
attorney-in-fact for the Limited Partners, the Partnership and the Depositary,
as it may be amended or restated from time to time.
"Depositary" means the bank or other institution appointed by the Managing
General Partner in its sole discretion to act as depositary for the Depositary
Units pursuant to the Deposit Agreement, or any successor to it as depositary.
"Depositary Receipt" means a depositary receipt, issued by the Depositary
or agents appointed by the Depositary in accordance with the Deposit Agreement,
evidencing ownership of one or more Depositary Units.
"Depositary Unit" means a depositary unit representing a Unit on deposit
with the Depositary pursuant to the Deposit Agreement.
"Discretionary Allocation" shall mean any allocation of an item of income,
gain, deduction, or loss pursuant to the provisions of Section 5.1(d)(iv)
5.1(d)(iii) hereof.
"Economic Risk of Loss" shall have the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Effective Date" means the later to occur of (i) the date upon which the
Partners have approved this Agreement as an amendment and restatement of the
Prior Agreement in accordance with the terms of the Prior Agreement, (ii) the
date all legal requirements related to the solicitation of consents have been
met, and (iii) the date that is the last day of the month immediately succeeding
the later of (i) or (ii); upon which date this Agreement shall become effective
as the Partnership Agreement of the Partnership.
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership 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 the Partnership to a substantial risk of
cancellation or forfeiture of any of their property or any interest therein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
any successor to such statute.
"Fundamental Change" shall be deemed to have occurred at such time after
the Initial Conversion Date as the Partnership (i) dissolves for the purpose of
liquidation, including a dissolution resulting from the sale, lease or transfer
of all or substantially all of the Partnership's assets, (ii) repurchases
(including repurchases by any Affiliate of the Partnership) Common Units at a
premium over the current market price or (iii) is a party to a merger,
consolidation, combination, reorganization or other transaction that results in
a reclassification, conversion, exchange, cancellation or other change (other
than the issuance of additional Common Units by the Partnership in an
acquisition) in its Common Units.
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"General Partner" means either the Managing General Partner or the Special
General Partner and "General Partners" means the Managing General Partner and
the Special General Partner.
"General Partner Equity Value" means, as of any date of determination, the
fair market value of a General Partner's Partnership Interest, as a General
Partner, as determined by the Managing General Partner using whatever reasonable
method of valuation it may adopt.
"Indemnitee" means any General Partner, any departing General Partner, any
Person who is or was an Affiliate of any General Partner or any departing
General Partner, any Person who is or was an officer, director, employee, agent
or trustee of any General Partner or any departing General Partner or any
Affiliate of any General Partner or departing General Partner, or any Person who
is or was serving at the request of any General Partner or any departing General
Partner or any Affiliate of any General Partner or any departing General Partner
as a director, officer, employee, agent or trustee of another Person.
"Initial Conversion Date" means the first day of the third calendar quarter
following the termination of the Initial Period.
"Initial Limited Partners" means the Organizational Limited Partner,
Special General Partner in its capacity as a limited partner pursuant to the
ownership of Units and the Underwriters upon being admitted to the Partnership
in accordance with Section 4.3 hereof.
"Initial Offering" means the initial offering of Depositary Units to the
public, as described in the Registration Statement.
"Initial Offering Date" means the date on which the Initial Offering
commences.
"Initial Partners" means the Managing General Partner, the Special General
Partner, in its capacity as such, and the Initial Limited Partners.
"Initial Period" means the period commencing upon the Closing Date and
ending on the later of (i) December 31, 1994, or (ii) the last day of the
calendar quarter in which, with respect to each Preferred Unit, the Cumulative
Base Distribution Deficiency has been paid.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, less any sales commission or underwriting discount charged to the
Partnership; provided that the Issue Price of Series B Preferred Units and
Series C Preferred Units shall equal the outstanding principal balance and any
accrued interest cancelled by a Partner in exchange for such Unit.
"Limited Partner" means each Initial Person who is a Limited Partner of the
Partnership upon the Effective Date, each Substituted Limited Partner, each
Additional Limited Partner and any departing General Partner upon the change of
its status from General Partner to Limited Partner pursuant to Article XIII
hereof and, solely for purposes of Articles IV, V and VI hereof and Sections
14.3 and 14.4 hereof, shall include an Assignee thereof.
"Limited Partner Equity Value" means, as of any date of determination, the
total value of all classes of Units, with the value of each class being an
amount equal to the product of (a) the total number of Outstanding Units
outstanding of such class (immediately prior to an issuance of Units or
distribution of cash or Partnership property), multiplied by (b) (i) in the case
of a valuation required by Section 4.6(d)(i) 4.4(d)(i) hereof (other than
valuations caused by sales of a de minimis quantity of Units) the Issue Price or
(ii) in the case of a valuation required by Section 4.6(d)(ii) 4.4(d)(ii) hereof
(or a valuation required by Section 4.6(d)(i) 4.4(d)(i) hereof caused by sales
of a de minimis quantity of Units) the Closing Price.
"Liquidator" means the Managing General Partner or other Person approved
pursuant to Section 14.3 hereof who performs the functions described therein.
"Managing General Partner" means Pride Refining Inc., a Texas corporation,
or any successor in its capacity as managing general partner of the Partnership.
"Merger Agreement" has the meaning assigned to such term in Section 16.1
hereof.
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"Minimum Gain Attributable to Partner Nonrecourse Debt" means that amount
determined in accordance with the principles of Treasury Regulation Section
1.704-2(i)(2).
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"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
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 as determined under Section 752
of the Code.
"Net Income" shall mean, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items attributable to
dispositions constituting Terminating Capital Transactions) for such taxable
period over the Partnership's items of loss and deduction (other than those
items attributable to dispositions constituting Terminating Capital
Transactions) for such taxable period. The items included in the calculation of
Net Income shall be determined in accordance with Section 4.6(b) 4.4(b) hereof
and shall not include any items specially allocated under Section 5.1(d) or
5.1(e) hereof. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to a Required
Allocation or a Discretionary Allocation, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" shall mean, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction (other than those items attributable
to dispositions constituting Terminating Capital Transactions) for such taxable
period over the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Terminating Capital Transactions) for
such taxable period. The items included in the calculation of Net Loss shall be
determined in accordance with Section 4.6(b) 4.4(b) hereof and shall not include
any items specially allocated under Section 5.1(d) or 5.1(e) hereof. Once an
item of income, gain, loss or deduction that has been included in the initial
computation of Net Loss is subjected to a Required Allocation or a Discretionary
Allocation, Net Loss or the resulting Net Income, whichever the case may be,
shall be recomputed without regard to such item.
"Net Termination Gain" means, for each Partnership Year or shorter period,
the sum, if positive, of all items of gain or loss recognized by the Partnership
from Terminating Capital Transactions and all items of income, gain, loss and
deduction (as determined in accordance with Section 4.6(b) 4.4(b) hereof)
recognized by the Partnership following the last day on which the holder of a
Preferred Unit may convert Preferred Units into Common Units pursuant to Section
18.1 hereof as a result of a dissolution of the Partnership for the purpose of
liquidation.
"Net Termination Loss" means, for each Partnership Year or shorter period,
the sum, if negative, of all items of gain or loss recognized by the Partnership
from Terminating Capital Transactions and all items of income, gain, loss and
deduction (as determined in accordance with Section 4.6(b) 4.4(b) hereof)
recognized by the Partnership following the last day on which the holder of a
Preferred Unit may convert Preferred Units into Common Units pursuant to Section
18.1 hereof as a result of a dissolution of the Partnership for the purpose of
liquidation.
"Non-citizen Assignee" means a Person who the Managing General Partner has
determined in its sole discretion does not meet the requirements of the
definition of an Eligible Citizen and as to whose Partnership Interest the
Managing General Partner has become the Substituted Limited Partner, pursuant to
Section 11.5 hereof.
"Nonrecourse Built-in Gain" shall mean, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or
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5.2(b)(iii) hereof if such properties were disposed of in a taxable transaction
in full satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" shall mean 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" shall have the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Note Agreement" means that certain Note Agreement dated as of August 13,
1996 among the Partnership, the Managing General Partner, the Special General
Partner and the purchasers of certain convertible notes, as such agreement may
be amended from time to time.
"Notice of Election to Purchase" has the meaning assigned to such term in
Section 17.1(b) hereof.
"Opinion to of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the Managing General Partner) in form and
substance acceptable to the Managing General Partner.
"Organizational Limited Partner" means Robert J. Schumacher as the
organizational limited partner of the Partnership pursuant to this Agreement.
"Outstanding" means all Units or other Partnership Securities that are
issued by the Partnership and reflected as outstanding on the Partnership's
books and records as of the date of determination.
"Partner" means a General Partner or a Limited Partner and Assignees
thereof, if applicable.
"Partner Nonrecourse Debt" shall have the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall mean any and all items of loss,
deduction or 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 and to a net increase in Minimum Gain
Attributable to Partner Nonrecourse Debt.
"Partnership" means the limited partnership heretofore formed and continued
pursuant to this Agreement, and any successor thereto.
"Partnership Debt Securities" has the meaning assigned to such term in
Section 4.4(a) 4.2(a) hereof.
"Partnership Equity Securities" has the meaning assigned to such term in
Section 4.4(a) 4.2(a) hereof.
"Partnership Interest" means the interest of a Partner in the Partnership
which, in the case of a Limited Partner or Assignee, shall include Units.
"Partnership Minimum Gain" shall mean that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Securities" has the meaning assigned to such term in Section
4.4(a) 4.2(a) hereof.
"Partnership Year" means the fiscal year of the Partnership, which shall be
the calendar year.
"Percentage Interest" means, as of the date of such determination, (a) as
to the Managing General Partner in its capacity as such, 1.9%, (b) as to the
Special General Partner in its capacity as such, 0.1%, (c) as to any Limited
Partner or Assignee holding Units, the product of (i) 98% multiplied by (ii) the
quotient of the number of Units held by such Limited Partner or Assignee divided
by the total number of all Units then outstanding (as determined by the number
of Common Units into which the Preferred Units are then convertible); provided,
however, that following any issuance of additional Units by the Partnership
pursuant to Section 4.4 4.2 hereof, proper adjustment shall be made to the
Percentage Interest represented by each Unit to reflect such issuance.
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"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Prior Agreement" shall have the meaning assigned to it in the preamble
hereof.
"Proceeds from Capital Transactions" means, at any date, such amounts of
cash, debt securities or other property as are determined by the Managing
General Partner to be made available to the Partnership from or by reason of a
Capital Transaction.
"Public Unitholder" means a Person other than the Initial Partners who hold
Units.
"Purchase Date" means the date determined by the Managing General Partner
as the date for purchase of all outstanding Outstanding Units (other than Units
owned by the Initial Partners) General Partners and their Affiliates) pursuant
to Section 17.1(b) hereof.
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Sections 734 or 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the Managing General Partner
for determining (a) the identify of Limited Partners (or Assignees, if
applicable) 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 other
lawful action of Limited Partners, or (b) the identify of Record Holders
entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Unit is registered on the
books of the Transfer Agent, as of the opening of business on a particular
Business Day.
"Redeemable Units" means any Units for which a redemption notice has been
given and has not been withdrawn, under Section 11.6 hereof.
"Refinery" means the refinery of the Partnership located near Abilene,
Texas.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 33-33099), as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the Securities and
Exchange Commission under the Securities Act to register the offering and sale
of the Units in the Initial Offering.
"Remaining Capital" means, at any time with respect to any Unit, the
Initial Unit Price less the sum of (i) any distributions of Proceeds from
Capital Transactions pursuant to paragraph "Fourth" of Section 5.7(a) hereof,
(ii) any distributions of cash (or the Net Agreed Value of any distributions in
kind) in connection with the dissolution and liquidation of the Partnership
theretofore made in respect of such Unit and (iii) any distributions pursuant to
Section 5.10 hereto with respect to such Unit.
"Required Allocation" shall mean any allocation (or limitation imposed on
any allocation) of an item of income, gain, deduction or loss pursuant to (a)
the proviso-clause of Section 5.1(b)(ii) hereof or (b) Section 5.1(e) hereof,
such allocations (or limitations thereon) being directly or indirectly required
by the Treasury Regulations promulgated under Section 704(b) of the Code.
"Residual Gain" or "Residual Loss" shall mean 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 Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Sections 5.2(b)(i) (b)(i)(A) or 5.2(b) (ii)(b)(ii)(A) hereof to
eliminate Book-Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor to such statute.
"Series B Preferred Units" means the Series B Cumulative Convertible
Preferred Units issued pursuant to the Certificate of Designations of Series B
Cumulative Convertible Preferred Units of the Partnership set forth in Annex One
to this Agreement.
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"Series C Preferred Units" means the Series C Cumulative Convertible
Preferred Units issued pursuant to the Certificate of Designations of Series C
Cumulative Convertible Preferred Units of the Partnership set forth in Annex Two
to this Agreement.
"Special Approval" means approval by (i) a majority of the members of the
Board of Directors of the Managing General Partner and (ii) a majority of the
members of the Conflicts and Audit Committee.
"Special General Partner" means Pride SGP, Inc., a Texas corporation, or
any successor in its capacity as special general partner of the Partnership.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 12.2 hereof 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.
"Sufficient Net Assets" means net assets of the Partnership having a market
value equal to at least 200% of the amount necessary to redeem all outstanding
Preferred Units at the Preferred Unit Redemption Amount.
"Surviving Business Entity" has the meaning assigned to such term in
Section 16.2(b) hereof.
"Terminating Capital Transactions" means any sales or other dispositions of
assets of the Partnership following the last day on which the holder of a
Preferred Unit may convert Preferred Units into Common Units pursuant to Section
18.1 hereof as a result of a dissolution of the Partnership for the purpose of
liquidation.
"Third Target Amount" means $.83 per Unit (or, with respect to the period
commencing on the Closing Date and ending on March 31, 1990, the product of $.83
multiplied by a fraction of which the numerator is the number of days in such
period and of which the denominator is 90), subject to adjustment in accordance
with Sections 5.9 or 9.6 hereof.
"Trading Day" has the meaning assigned to such term in Section 17.1(a)
hereof.
"Transfer Agent" means the Depositary or any bank, trust company or other
Person appointed by the Partnership to act as transfer agent for the Units.
"Transfer Application" means an application and agreement for transfer of
Depositary Units in the form set forth on the back of a Depositary Receipt or in
a form substantially to the same effect in a separate instrument.
"Underwriter" means each Person named as an underwriter in the Underwriting
Agreement who purchases Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement among the
Underwriters, the Partnership and the General Partners.
"Unit" means a Partnership Interest of a Limited Partner or Assignee in the
Partnership representing a fractional part of the Partnership Interests of all
Limited Partners and Assignees; provided, however, that in the event any class
or series of Units issued pursuant to Section 4.4 4.2 hereof shall have
designations, preferences or special rights such that a Unit of such class or
series shall represent a greater or lesser part of the Partnership Interests of
all Limited Partners or Assignees than a Unit of any other class or series of
Units, the Partnership Interest represented by such class or series of Units
shall be determined in accordance with such designations, preferences or special
rights. Unless otherwise specifically indicated to the contrary, Units includes
Depositary Units.
For the purpose of Articles IV, X and XI hereof, Units include the
Incentive Interest.
"Unit Register" has the meaning assigned to such term in Section 10.2(a)
hereof.
"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, over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made pursuant to Section
4.6(d) 4.4(d) hereof) as of such date. In determining such Unrealized Gain, the
aggregate cash amount and fair
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market value of all Partnership assets (including cash or cash equivalents)
shall be determined by the Managing General Partner using such reasonable method
of valuation as if it may adopt; provided, however, the Managing General
Partner, in arriving at such valuation, must take fully into account (to the
extent appropriate under the regulations promulgated under Section 704(b) of the
Code) the Limited Partner Equity Value and the General Partner Equity Value at
such time. The Managing General Partner shall allocate such aggregate value
among the assets of the Partnership (in such manner as it determines in its sole
discretion to be reasonable) to arrive at a fair market value for individual
properties.
"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 4.6(d) 4.4(d) hereof) as of such date, over (b) the fair market value of
such property as of such date. In determining such Unrealized Loss, the
aggregate cash amount and fair market value of all Partnership assets (including
cash or cash equivalents) shall be determined by the Managing General Partner
using such reasonable method of valuation as it may adopt: provided, however,
the Managing General Partner, in arriving at such valuation, must take fully
into account (to the extent appropriate under the regulations promulgated under
Section 704(b) of the Code) the Limited Partner Equity Value and the General
Partner Equity Value at such time. The Managing General Partner shall allocate
such aggregate value among the assets of the Partnership (in such manner as it
determines in its sole discretion to be reasonable) to arrive at a fair market
value for individual properties.
ARTICLE III
PURPOSE
3.1 Purpose and Business. The purpose and nature of the business to be
conducted by the Partnership shall be (i) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Delaware
Act, including, without limitation, the refining, transport, gathering and sale
of hydrocarbon-based products, (ii) to enter into any partnership, joint venture
or other similar arrangements arrangement to engage in any of the foregoing or
the ownership of interests in any entity engaged in any of the foregoing, and
(iii) to do anything necessary or incidental to the foregoing.
3.2 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
herein and for the protection and benefit of the Partnership.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Partnership Equity Securities. Upon the Effective Date, the Partnership
Equity Securities of the Partnership consist of 4,950,000 Common Units, and the
1.9% and .1% Percentage Interests held by the Managing General Partner and the
Special General Partner, respectively, which general partner interests are not
denominated in Units. The Partnership has established the terms of Series B
Preferred Units and Series C Preferred Units, none of which have been issued as
of the Effective Date. The Certificates of Designations of the Series B
Preferred Units and the Series C Preferred Units are attached hereto as Annex
One and Annex Two, which Annexes are incorporated herein and are made a part of
this Agreement. Notwithstanding the foregoing, the terms of any Certificate of
Designations attached hereto as an Annex and incorporated by reference herein
may be amended with the approval of a majority in interest of the holders of the
Partnership Securities issued pursuant to the terms of such Certificate of
Designations and the approval of the Managing General Partner. The Series B
Preferred Units and Series C Preferred Units shall automatically be issued,
without further action necessary on the part of the Managing General Partner or
of the Partnership in the number described in, and in accordance with, the terms
and conditions, of the Note Agreement. Notwithstanding anything to the contrary
in this Agreement, in the event that any conflict exists between this Agreement
on the one hand and a Certificate of Designations on the other, the terms of the
Certificate of Designations shall control.
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4.2 Issuances of Additional Units and Other Securities. (a) The Managing
General Partner is hereby authorized to cause the Partnership to issue such
additional Units, or classes or series thereof, or options, rights, warrants or
appreciation rights relating thereto, or any other type of equity security that
the Partnership may lawfully issue ("Partnership Equity Securities"), any
unsecured or secured debt obligations of the Partnership or debt obligations of
the Partnership convertible into any class or series of equity securities of the
Partnership ("Partnership Debt Securities") (collectively, "Partnership
Securities"), for any Partnership purpose at any time or from time to time, to
the Partners or to other Persons for such consideration and on such terms and
conditions as shall be established by the Managing General Partner in its sole
discretion, all without the approval of any Limited Partners. The Managing
General Partner shall have sole discretion, subject to the guidelines set forth
in this Section 4.1 4.2 and the requirements of the Delaware Act, in determining
the consideration and terms and conditions with respect to any future issuance
of Partnership Securities. The Managing General Partner may evidence terms and
conditions of any Partnership Securities to be issued by the Partnership by a
Certificate of Designations to be incorporated herein and made a part hereof by
attaching the Certificate of Designations as an annex to this Agreement.
(b) Additional Partnership Securities to be issued by the Partnership
pursuant to this Section 4.1 4.2 shall be issuable from time to time in one or
more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers and duties, including rights, powers and duties senior to
existing classes and series of Partnership Securities, unless any such senior
securities are otherwise prohibited by the terms of this Agreement, all as shall
be fixed by the Managing General Partner in the exercise of its sole and
complete discretion, subject to Delaware law, including, without limitation, (i)
the allocations of items of Partnership income, gain, loss, and deduction to
each such class or series of Partnership Securities; (ii) the right of each such
class or series of Partnership Securities to share in Partnership distributions;
(iii) the rights of each such class or series of Partnership Securities upon
dissolution and liquidation of the Partnership; (iv) whether such class or
series of additional Partnership Securities is redeemable by the Partnership
and, if so, the price at which, and the terms and conditions upon which, such
class or series of additional Partnership Securities may be redeemed by the
Partnership; (v) whether such class or series of additional Partnership
Securities is issued with the privilege of conversion and, if so, the rate at
which, and the terms and conditions upon which, such class or series of
Partnership Securities may be converted into any other class or series of
Partnership Securities; (vi) the terms and conditions upon which each such class
or series of Partnership Securities will be issued, deposited with the
Depositary, evidenced by Depositary Receipts and assigned or transferred; and
(vii) the right, if any, of each such class or series of Partnership Securities
to vote on Partnership matters, including matters relating to the relative
rights, preferences and privileges of each such class or series.
(c) Notwithstanding the terms of Sections 4.1(a) and 4.1(b) hereof, the
Partnership shall not issue (i) Partnership Equity Securities ranking senior to
the [Preferred Units] in priority of distributions prior to or upon liquidation
or other equity securities of the Partnership with a comparable value to and
ranking on a parity with the [Preferred Units] in priority of distributions
prior to or upon liquidation without, in either event, the prior approval of the
holders of at least [ ] of the [Outstanding Preferred Units].
(d) The Managing General Partner is hereby authorized and directed to take
all actions which it deems appropriate or necessary in connection with each
issuance of Units or other Partnership Securities pursuant to Section 4.1(a)
4.2(a) hereof and to amend this Agreement in any manner which it deems
appropriate or necessary to provide for each such issuance, to admit Additional
Limited Partners in connection therewith and to specify the relative rights,
powers and duties of the holders of the Partnership Securities being so issued.
Without limiting the foregoing, the Managing General Partner may prepare a
Certificate of Designations with respect to such Partnership Securities and
attach such Certificate of Designations as an additional annex to this
Agreement.
(e) (d) The Managing General Partner shall do all things necessary to
comply with the Delaware Act and is authorized and directed to do all things it
deems to be necessary or advisable in connection with any future issuance of
Partnership Securities, 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 Depositary Units or other Partnership
Securities are listed for trading.
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4.2 4.3 No Preemptive Rights. No Unless otherwise granted pursuant to a
Certificate of Designations, no Person shall have any preemptive, preferential
or other similar right with respect to (a) additional Capital Contributions; (b)
issuance or sale of any class or series of Units or other Partnership
Securities, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or accompanied
by any rights to receive, purchase or subscribe to, any such Units or
Partnership Securities; (d) issuance of any right of subscription to or right to
receive, or any warrant or option for the purchase of, any such Units or
Partnership Securities; or (e) issuance or sale of any other securities that may
be issued or sold by the Partnership.
4.3 4.4 Capital Accounts. (a) The Partnership shall maintain for each
Partner (or a beneficial owner of Units held by a nominee in any case in which
the nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031 (c) of the Code or any other method acceptable to
the Managing General Partner in its sole discretion) a separate Capital Account
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 by such Partner to the Partnership pursuant to this Agreement
and (ii) all items of Partnership income and gain (including income and gain
exempt from tax) computed in accordance with Section 4.3(b) 4.4(b) hereof and
allocated to such Partner pursuant to Article V hereof, and decreased by (x) the
amount of cash or Net Agreed Value of all distributions of cash or property made
to such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 4.3(b) 4.4(b) hereof and
allocated to such Partner pursuant to Article V hereof.
(b) For purposes of computing the amount of any item of income, gain,
deduction or loss 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 any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) All fees and other expenses incurred by the Partnership to promote
the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred.
(ii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss
and deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(iii) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(iv) In accordance with the requirements of Section 704(b) of the
Code, any deductions for depreciation, cost recovery, or amortization
attributable to any, Contributed Property shall be determined as if the
adjusted basis of such property as of the date it was acquired by the
Partnership was equal to the Agreed Value of such property. Upon an
adjustment pursuant to Section 4.3(d) 4.4(d) hereof to the Carrying Value
of any Partnership property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying Value of
such property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided, however, that, if the
asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost recovery, or amortization deductions shall be determined
using any reasonable method that the Managing General Partner may adopt.
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(v) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Sections 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 5.1 hereof.
Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall be allocated in the year of such restoration as an item of income
pursuant to Article V hereof.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating attributable to the
Partnership Interest so transferred: provided, however, that, if the transfer
causes a termination of the Partnership under Section 708(b)(1)(B) of the Code,
the Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including the transferee of a
Partnership Interest) pursuant to Sections 14.3 and 14.4 hereof and
recontributed by such Partners in reconstitution of the Partnership. Any such
deemed distribution shall be treated as an actual distribution for purposes of
this Section 4.3 4.4. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed distribution
pursuant to Section 4.6(d)(ii) 4.4(d)(ii) hereof and such adjusted Carrying
Values shall then constitute the Agreed Values of such properties upon such
deemed contribution to the reconstituted Partnership. The Capital Accounts of
such reconstituted Partnership shall be maintained in accordance with the
principles of this Section 4.3. 4.4. In the case of a transferor who holds both
Common Units and Series B Preferred Units or Series C Preferred Units, the
Capital Account attributable to a Common Unit transferred shall be deemed to
equal the Capital Account attributable to each other Common Unit then
outstanding so as to preserve the uniformity of the Common Units outstanding
from time to time.
(d) (d) (i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv) (f), on an issuance of additional Units for cash or
Contributed Property (including the cancellation of debt, accrued interest, or
distribution arrearages by a Partner in exchange for a Unit or the conversion of
Series B Preferred Units or Series C Preferred Units to Common Units), the
Capital Accounts of all Partners and the Carrying Value of each Partnership
property immediately prior to such issuance shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property immediately prior to such
issuance and had been allocated to the Partners at such time as provided in
Section 5.1(c).
(ii) In accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f),
immediately prior to any 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 each Partnership property shall, immediately prior to any such
distribution, be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such Unrealized
Gain or Unrealized Loss had been recognized in a sale of each such property
immediately prior to such distribution for an amount equal to its fair market
value. Any Unrealized Gain or Unrealized Loss attributable to such property
shall be allocated to the Partners as provided in Section 5.1(c).
(iii) The adjustments provided for in this Section 4.4(d) shall be made in
such a manner as shall be required to establish and preserve the uniformity of
the Common Units outstanding from time to time.
4.5 4.4 Interest. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts, except as otherwise
provided in a Certificate of Designations.
4.5 4.6 No Withdrawal. No Partner shall be entitled to withdraw any part of
his Capital Contribution or his Capital Account or to receive any, distribution
from the Partnership, except as provided in Articles V, XIII and XIV hereof or
in a Certificate of Designations.
4.6 4.7 Loans from Partners. Loans by a Partner to the Partnership shall
not constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by it
to the capital of the Partnership, the making of such excess advances shall not
result in any increase in the amount of the Capital Account for such Partner.
The amount of any such excess advances shall be a debt obligation of the
Partnership to such Partner and shall be payable or collectible
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only out of the Partnership assets in accordance with the terms and conditions
upon which such advances are made.
4.7 4.8 No Fractional Units. No fractional Units shall be issued by the
Partnership.
4.8 4.9 Splits and Combinations. (a) Subject to Sections 4.8(f) 4.9(f) and
5.10 5.8 hereof, the Managing General Partner may make a pro rata distribution
of Units or Partnership Securities to all Record Holders or may effect a
subdivision or combination of Units or other Partnership Securities: ; provided,
however, that after any such distribution, subdivision or combination, each
Partner shall have the same Percentage Interest in the Partnership as before
such distribution, subdivision or combination: and provided, however, that
nothing in this Section 4.8 4.9 shall be deemed to authorize the Managing
General Partner to combine Units or Partnership Securities of any class or
series with those of any other class or series.
(b) If Partnership Debt Securities are distributed pursuant to Sections
4.8(a) Section 4.9(a), such distribution shall be treated as a distribution of
property for purposes of this Agreement.
(c) If Partnership Equity Securities are distributed pursuant to Section
4.8(a), the Managing General Partner shall be authorized to allocate the Capital
Account attributable to any Partner among the Partnership Equity Securities held
by such Partner using such reasonable method of allocation as it may adopt.
(d)(c) Whenever such a distribution, subdivision or combination of Units or
Partnership Securities is declared, the Managing General Partner shall select a
Record Date as of which the distribution, subdivision or combination shall be
effective and shall send notice of the distribution, subdivision or combination
at least 20 days prior to such Record Date, to each Record Holder as of the date
not less than 10 days prior to the date of such notice. The Managing General
Partner also may cause a firm of independent public accountants selected by it
to calculate the number of Units to be held by each Record Holder after giving
effect to such distribution, subdivision or combination. The Managing General
Partner shall be entitled to rely on any certificate provided by such firm as
conclusive evidence of the accuracy of such calculation.
(e)(d) Promptly following any such distribution, subdivision or
combination, the Managing General Partner may cause Depositary Receipts to be
issued to the Record Holders of Units as of the applicable Record Date
representing the new number of Units held by such Record Holders, or the
Managing General Partner may adopt such other procedures as it may deem
appropriate to reflect such distribution, subdivision or combination; provided,
however, that in the event any such distribution, subdivision or combination
results in a smaller total number of Units outstanding, the Managing General
Partner shall require, as a condition to the delivery to a Record Holder of such
new Depositary Receipt, the surrender of any Depositary Receipt held by such
Record Holder immediately prior to such Record Date.
(f)(e) The Partnership shall not issue fractional Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of fractional
Units but for the provisions of Section 4.7 4.8 hereof and this Section 4.8(f)
4.9(f), each fractional Unit shall be rounded to the nearest whole Unit (and a
0.5 Unit shall be rounded to the next higher Unit).
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ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations For 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 4.6(b) 4.4(b) hereof) shall be allocated
among the Partners in each taxable year (or portion thereof) as provided herein
below. Amounts paid on the Series B Preferred Units and Series C Preferred Units
shall be treated as guaranteed payments for the use of capital pursuant to
Section 707(c) of the Code and therefore shall not be treated as the allocation
of income affecting the respective capital accounts of the recipients pursuant
to the provisions of this Article V.
(a) Net Income. All items of income, gain, loss and deduction taken
into account in computing Net Income for such taxable period shall be
allocated in the same manner as such Net Income is allocated hereunder
which Net Income shall be allocated as follows:
(i) First, 100% to the General Partners, in the proportion that
their respective Percentage Interest bears to 2%, until the aggregate
Net Income allocated to the General Partners pursuant to this Section
5.1(a)(ii) 5.1(a)(i) for the current taxable year and all previous
taxable years is equal to the aggregate Net Losses allocated to the
General Partners pursuant to Section 5.1(b)(iii) hereof for all previous
taxable years;
(ii) Second, 100% to the Limited Partners holding Common Units in
the proportion that the respective number of Common Units held by them
bears to the total number of Common Units then outstanding until the
aggregate Net Income allocated to the holder of a Common Unit pursuant
to this Section 5.1(a)(ii) for the current taxable year and all previous
taxable years is equal to the aggregate Net Losses allocated to the
holder of such Common Unit pursuant to Section 5.1(b)(ii) hereof for all
previous taxable years: and
(iii) Third, the balance, if any, 100% to the General Partners and
the Limited Partners holding Common Units in accordance with proportion
to their respective Percentage Interests.
(b) Net Losses. All items of income, gain, loss and deduction taken
into account in computing Net Losses for such taxable period shall be
allocated in the same manner as such Net Losses are allocated hereunder
which Net Losses shall be allocated as follows:
(i) First, 100% to the General Partners and the Limited Partners
holding Common Units in accordance with their respective Percentage
Interests, until the aggregate Net Losses allocated to the holder of a
Common Unit pursuant to this Section 5.1(b)(i) for the current taxable
year and all previous taxable years is equal to the aggregate Net Income
allocated to the holder of such Common Unit pursuant to Section
5.1(a)(iii) hereof for all previous taxable years;
(ii) Second, 100% to the Limited Partners holding Common Units, in
the proportion that the respective number of Common Units held by them
bears to the total number of Common Units then outstanding; provided,
that Net Losses shall not be allocated pursuant to this Section
5.1(b)(ii) to the extent that such allocation would cause any Limited
Partner to have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit balance in
its Adjusted Capital Account); and
(iii) Third, the balance, if any, 100% to the General Partners, in
the proportion that their respective Percentage Interests bears to 2%.
(c) Net Termination Gain and Losses. 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 5.1(c) shall be made after
Capital Account balances have been adjusted by all other allocations
provided under this Section 5.1 and after all distributions of
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Available Cash provided under Section 5.4 or 5.5 hereof have been made with
respect to such taxable period.
(i) If a Net Termination Gain is recognized, such Net Termination Gain
shall be allocated between the General Partners and the Limited 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 Adjusted
Capital Account, in the proportion of such deficit balance to the
deficit balances in the Adjusted Capital Accounts of all Partners, until
each such Partner has been allocated Net Termination Gain equal to any
such deficit balance in its Adjusted Capital Account; and
(B) Second, 98% to Limited Partners holding Common Units in the
proportion that the respective number of Common Units held by them bears
to the total number of Common Units outstanding, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner.
(ii) If a Net Termination Loss is recognized, such Net Termination
Loss shall be allocated to the Partners in the following manner:
(A) First, 98% to Limited Partners holding Common Units in
proportion to, and to the extent of, the positive balances in their
respective Adjusted Capital Accounts, 1.9% to the Managing General
Partner and 0.1% to the Special General Partner until such Limited
Partner's Adjusted Capital Accounts are reduced to zero;
(B) Second, 98% to the Limited Partners holding Preferred Units,
1.9% to the Managing General Partner and 0.1% to the Special General
Partner until such Limited Partners' Adjusted Capital Accounts are
reduced to zero; and
(C) Finally (B) Second, the balance, if any, 100% to the General
Partners in the proportion that their respective Percentage Interest
bears to 2%.
(d) Agreed Allocations. Notwithstanding any other provisions of this
Section 5.1 (other than Section 5.1(e) hereof), the following special
allocations shall be made for such taxable period:
(i) 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 14.3 or 14.4 hereof) to any Limited Partner holding Common
Units during a taxable year is greater (on a per Common Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Limited Partners holding Common Units (on a
per Common Unit basis), then (1) each such Limited Partner receiving
such greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (x) the amount by which
the distribution (on a per Common Unit basis) to such Limited Partner
exceeds the distribution (on a per Common Unit basis) to the Limited
Partners receiving the smallest distribution and (y) the number of
Common Units owned by the Limited Partner receiving the greater
distribution; and (2) the General Partners shall be allocated gross
income (95% to the Managing General Partner and 5% to the Special
General Partner) in an amount equal to 2.0408% of the sum of the
amounts allocated in clause (1) above.
(B) If the amount of cash and the Net Agreed Value of any
property distributed (except cash or property distributed pursuant to
Section 14.3 or 14.4 hereof) to the Limited Partners holding Common
Units or the General Partners during a taxable year exceeds that
which would have been distributed to either class of partners had
such distributions been made in the ratio of 98% and 2% (as between
the Limited Partners holding Common Units and the General Partners,
respectively), such class receiving the excess distribution will be
allocated gross
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income in an amount equal to such excess. Gross income allocated to
the Limited Partners holding Common Units pursuant to this Section
5.1(d)(ii)(B) 5.1(d)(i)(B) shall be allocated among such Limited
Partners holding Common Units in the proportion that the respective
number of Common Units held by them bears to the total number of
Common Units. Gross income allocated to the General Partners pursuant
to this Section 5.1(d)(ii)(B) 5.1(d)(i)(B) shall be allocated among
such General Partners in the ratio that their respective Percentage
Interests bear to 2%.
(ii) 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.
(iii) Discretionary Allocation. (A) Notwithstanding any other
provisions of Section 5.1(a), (b) or (c) hereof, the Agreed Allocations
shall be adjusted 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
there been no Required Allocations; provided, however, that for purposes
of applying this Section 5.1(d)(iv)(A) 5.1(d)(iii)(A), it shall be
assumed that all chargebacks pursuant to Section 5.1(e)(i) and (ii)
hereof have occurred.
(B) The Managing General Partner shall have reasonable
discretion, with respect to each taxable year, to (1) apply the
provisions of Section 5.1(d)(iv)(A) 5.1(d)(iii)(A) hereof in whatever
fashion as is most likely to minimize the economic distortions that
might otherwise result from the Required Allocations, and (2) divide
all allocations pursuant to Section 5.1(d)(iv)(A) 5.1(d)(iii)(A)
hereof among the Partners in a manner that is likely to minimize such
economic distortions.
(e) Required Allocations. Notwithstanding any other provision of this
Section 5.1, the following special allocations shall be made for such
taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding the other
provisions of this Section 5.1, 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 successory successor provision. For
purposes of this Section 5.1(e), 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 5.1 with respect to such
taxable period (other than an allocation pursuant to Sections 5.1(e)(v)
and 5,1(e)(vi) 5.1(e)(vi)). This Section 5.1(e)(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 Minimum Gain Attributable to Partner Nonrecourse
Debt. Notwithstanding the other provisions of this Section 5.1 (other
than 5.1(e)(i) hereof), except as provided in Treasury Regulation
Section 1.704-2(i)(4), if there is a net decrease in Minimum Gain
Attributable to Partner Nonrecourse Debt during any Partnership taxable
period, any Partner with a share of Minimum Gain Attributable to Partner
Nonrecourse Debt 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 5.1(e), 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
5.1(e), other than Section 5.1(e)(i) hereof and other than and an
allocation pursuant
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to Sections 5.1(e)(v) and 5.1(e)(vi), with respect to such taxable
period. This Section 5.1(e)(ii) is intended to comply with the
chargeback of items of income and gain required in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives 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 specifically allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury regulations promulgated under Section 704(b) of
the Code, the deficit balance, if any, in its Adjusted Capital Account
created by such adjustments, allocations or distributions as quickly as
possible unless such deficit balance is otherwise eliminated pursuant to
Section 5.1(e)(i) or 5.1(e)(ii) hereof.
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Adjusted Capital Account at the end of any
Partnership taxable period that is in excess of the sum of (A) the
amount such Partner is obligated to restore and (B) the amount such
Partner is deemed to be obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g)(1) 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 5.1(e)(iv) shall be made only if and
to the extent that such Partner would have a deficit balance in its
Adjusted Capital Account after all other allocations provided in this
Section 5.1 have been tentatively made as if this Section 5.1(e)(iv) was
not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the Managing General Partner
determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to satisfy
the safe harbor requirements of the Treasury regulations promulgated
under Section 704(b) of the Code, the Managing General Partner is
authorized, upon notice to the Limited Partners, to revise the
prescribed ratio to the numerically closest ratio which does satisfy
such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that bears
the Economic Risk of Loss for such Partnership 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.
5.2 Allocations for Tax Purposes. (a) Except as otherwise provided herein,
for Federal federal income tax purposes, each item of income, gain, loss and
deduction which is recognized by the Partnership, for federal income tax
purposes, 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 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, each item of income, gain, loss,
depreciation, depletion and cost recovery deduction which is recognized by the
Partnership, for federal income tax purposes, 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) except as otherwise provided in Section 5.2(b)(iii)
hereof, 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 5.1 hereof.
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(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 7.04(c) 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 4.6(d)(i) 4.4(d)(i) or (ii) hereof,
and (2) second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 5.2(b)(i)(A) hereof; and (B) except as otherwise provided in
Section 5.2(b)(iii) hereof, 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 5.1 hereof.
(iii) Any items of income, gain, loss or deduction otherwise allocable
under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B) hereof shall be subject to
allocation by the Managing General Partner in a manner designed to
eliminate, to the maximum extent possible, Book-Tax Disparities in a
Contributed Property or Adjusted Property otherwise resulting from the
application of the "ceiling" limitation (under Section 704(c) of the Code
on or Section 704(c) principles) to the allocations provided under Section
5.2(b)(i)(A) or 5.2(b)(ii)(A) hereof.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units (or any class or classes thereof), the
Managing General Partner shall have the 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 gross income) or deductions;
and (iii) amend the provisions of this Agreement as appropriate (x) to reflect
the proposal or promulgation of Treasury regulations under Section 704(b) of the
Code or (y) otherwise to preserve or achieve uniformity of the Units (or any
class or classes thereof). The Managing General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement as
provided in this Section 5.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the holders
of any class or classes of Units issued and outstanding or the Partnership, and
if such allocations are consistent with the principles of Section 704 of the
Code.
(d) The Managing General Partner in its sole discretion may determine to
depreciate 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 method and useful life applied to the Partnership's common
basis of such property, despite the inconsistency of such approach with Proposed
Treasury Regulation Section 1.168-2(n), Treasury Regulation Section
1.167(c)-1(a)(6) or the legislative history of Section 197 of the Code. If the
Managing General Partner later determines that such reporting position cannot
reasonably be taken, the Managing General Partner may adopt a depreciation
convention under which all purchasers acquiring Units in the same month would
receive depreciation based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If the Managing
General Partner chooses not to utilize such aggregate method, the Managing
General Partner may use any other reasonable depreciation convention to preserve
the uniformity of the intrinsic tax characteristics of any Units that would not
have a material adverse effect on the Limited Partners or the Record Holders of
any class or classes of Units.
(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 5.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners 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.
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(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest of the General Partners or to transferred
Units 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) except as otherwise provided in clause (ii), such
items for the period beginning on the Closing Date and ending on the last day of
the month in which the Closing Date occurs gain or loss on a sale or other
disposition of any assets of the Partnership other than in the ordinary course
of businessshall 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 or (ii) if
the Underwriters' over-allotment option is exercised, such items for the period
beginning on the Closing Date and ending on the last day of the month in which
the Second Time of Delivery (as defined in the Underwriting Agreement) occurs
shall be allocated to the Partners as of the opening of the New York Stock
Exchange on the first Business Day of the next succeeding month; and provided,
further, that gain or loss on a sale or other disposition of any assets of the
Partnership other than in the ordinary course of business shall be allocated to
the Partners as of the opening of the New York Stock Exchange on the first
Business Day of the month in which such gain or loss is recognized for federal
income tax purposes. The Managing General Partner may revise, alter or otherwise
modify such methods of allocation as it determines necessary, to the extent
permitted or required by Section 706 of the Code and the regulations or rulings
promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article V shall instead be made to the beneficial owner of
Units held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Partnership in accordance with Section 6031(c) of
the Code or any other method acceptable to the Managing General Partner in its
sole discretion.
5.3 Requirement and Characterization of Distributions. Within 60 days
following the end of each calendar quarter (or by August 31, 1990 with respect
to the period from the Closing Date to March 31, 1990) an amount equal to 100%
of Available Cash with respect to such quarter (or period) shall be distributed
in accordance with this Article V by the Partnership to the Partners, as of the
Record Date selected by the Managing General Partner in its reasonable
discretion, unless such distribution shall be prohibited by a Certificate of
Designations, a loan agreement or other instrument then in effect to which the
Partnership is a party or by which its properties are bound, or unless a
Certificate of Designation requires a different distribution. The Managing
General Partner shall have the right to determine in its sole discretion the
amount of Available Cash for each quarter except to the extent it is established
that such determination is contrary to any express requirement of this
Agreement.
The foregoing shall not modify in any respect the provisions of Section 4.2
hereof regarding the distribution of any interest or other profit on the initial
contributions referred to therein.
5.4 Distributions After the Initial Conversion Date. (a). Available Cash
with respect to any a calendar quarter ending after the Initial Conversion Date
shall be distributed as follows:
First, 100% to Limited Partners holding Preferred Units pursuant to
the terms of the Certificates of Designations of ; and
Second, 98% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them bears to
the total number of Common Units outstanding, 1.9% to the Managing General
Partner and 0.1% to the Special General Partner, unless such distribution
shall be prohibited by a .
5.5 Conversion of Units. The Preferred Units may be converted into Common
Units, subject to the terms and conditions set forth in Article [ ] of the
Certificate of Designations, a loan agreement or other instrument then in effect
to which the Partnership is a party or by which its properties are bound, or
unless a Certificate of Designation requires a different distribution.
5.5 [placeholder section]
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5.6 Distributions of Proceeds from Capital Transactions. (a) Proceeds from
Capital Transactions which the Managing General Partner determines to distribute
shall be distributed, first as provided in Section 5.7(c) 5.6(b) hereof and
second as follows:
First, 100% to Limited Partners holding Preferred Units, and [ ] of
the Partnership pursuant to the Certificate of Designations; and
Second 98% to the Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them bears to
the total number of Common Units, 1.9% to the Managing General Partner and
0.1% to the Special General Partner.
(b) If one or more Capital Transactions shall occur in any taxable year,
then before any distribution is made pursuant to Section 5.7(a) 5.6(a) hereof
(except as otherwise provided below in this Section 5.7(b)) 5.6(b)) the Managing
General Partner shall be required to make a distribution of Proceeds from
Capital Transactions on or before the April 1st next following the end of the
taxable year in which such Capital Transactions occur in accordance with the
following procedure:
(i) The Managing General Partner shall determine the net capital gain
and net ordinary income recognized by the Partnership (without taking
account of any Code Section 743 adjustments) for federal income tax
purposes from all Capital Transactions during such year, and shall then
determine the portion of such net capital gain and net ordinary income
allocable to any then outstanding Preferred Units and Common Units.
(ii) The Managing General Partner shall then cause the Partnership
(except as provided in paragraph (iii) immediately below) to distribute
cash to the Partners, in accordance with the provisions of this Section
5.7(b) 5.6(b) until an amount has been distributed pursuant hereto with
respect to every Preferred Unit and Common Unit outstanding on the Record
Date established by the Managing General Partner with respect to such
distribution equal to 125% of the federal income tax liability that would
be due with respect to the "net capital gain" and "net ordinary income"
attributed to any outstanding Preferred Unit or Common Unit on the Record
Date (assuming for such purpose (x) that the maximum marginal federal
income tax rates for individuals, relating to either long-term capital gain
or ordinary income, whichever the case may be, would apply at the time of
such recognition without regard to any elimination of the benefit of lower
rates, any surtaxes or any alternative minimum taxes and (y) that all
outstanding Units would be allocated the same amount of net capital gain or
net ordinary income as a Preferred Unit). ).
(iii) No distribution of Proceeds from Capital Transactions shall be
required by this Section 5.7(c) 5.6(c) with respect to any tax year if the
amount or value otherwise distributable for such taxable year under this
Section 5.7(c) 5.6(c) does not exceed $.10 per Preferred Common Unit, or if
such distribution shall be prohibited by a Certificate of Designations, a
loan agreement or other instrument then in effect to which the Partnership
is a party or by which its properties are bound.
5.7 Distributions Upon Liquidation. In the event of the liquidation of the
Partnership, distribution of the assets of the Partnership shall be in
accordance with Section 14.3 hereof, subject to the terms of any applicable
Certificates of Designations.
5.8 Other Capital Distributions.
Subject to the Certificate Certificates of Designations, distributions of
equity securities of the Partnership (other than distributions of securities on
a parity with or senior to the Preferred Units in priority of distribution prior
to or upon liquidation (or rights or warrants to subscribe for, or securities
convertible into or exchangeable for such securities) or securities in respect
of a liquidation of the Partnership) , including without limitation,
distributions of Common Units, distributions of interests in the Partnership
other than Common Units, distributions of rights or warrants entitling the
holders thereof to subscribe for the Common Units or any securities entitling
the holders thereof to convert such securities into, or exchange such securities
for, Common Units, or distributions of rights or warrants to purchase debt
securities or assets of the Partnership, if distributed by the Partnership,
shall be distributed 98% to the holders of Common Units, in the proportion that
the respective number of Common Units held by them bears to the total number of
Common Units, and 1.9% to the Managing General Partner and 0.1% to the Special
General Partner.
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ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management. (a) The Managing General Partner shall conduct, direct and
exercise full control over all activities of the Partnership. Except as
otherwise expressly provided in this Agreement, all management powers over the
business and affairs of the Partnership shall be exclusively vested in the
Managing General Partner, and neither Limited Partners nor (except as expressly
set forth herein) the Special General Partner shall have any right of control or
management power over the business and affairs of the Partnership. In addition
to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the Managing General
Partner under any other provision of this Agreement, the Managing General
Partner, subject to Section 6.3 hereof, shall have full power and authority to
do all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof including, without
limitation, (i) the making of any expenditures, the borrowing of money, the
guaranteeing of indebtedness and other liabilities, the issuance of evidences of
indebtedness and the incurring of any obligations it deems necessary for the
conduct of the activities of the Partnership; (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 assets of the Partnership or the merger or
other combination of the Partnership with or into another entity (all of the
foregoing subject to any prior approval which may be required by Section 6.3
hereof); (iv) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the Partnership or any of its
Subsidiaries, the lending of funds to other persons (including its Subsidiaries)
and the repayment of obligations of the Partnership and its Subsidiaries and the
making of capital contributions to its Subsidiaries; (v) the negotiation and
execution on any terms deemed desirable in its sole discretion and the
performance of any contracts, conveyances or other instruments that it considers
useful or necessary to the conduct of the Partnership operations or the
implementation of its powers under this Agreement; (vi) the distribution of
Partnership cash or other Partnership assets; (vii) the selection and dismissal
of employees and agents (including, without limitation, 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 and
the Partners as it deems necessary or appropriate; (ix) the formation of, or
acquisition of an interest in, and the contribution of property to, any further
limited or general partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the acquisition of interests in,
and the contributions of property to its Subsidiaries from time to time); (x)
the control of any matters affecting the rights and obligations of the
Partnership, including the conduct of litigation and the incurring of legal
expense and the settlement of claims and litigation; (xi) 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
and the securing of same by mortgage, deed of trust or other lien or
encumbrance, the bringing and defending of actions at law or in equity and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law; (xii) the entering into listing agreements with the New
York Stock Exchange and any other securities exchange and delisting some or all
of the Units from, or requesting that trading be suspended on, any such exchange
(subject to any prior approval which may be required under Section 6.1 1.6
hereof); (xiii) the undertaking of any action in connection with the
Partnership's investment in its Subsidiaries (including, without limitation, the
contribution or loan by the Partnership to its Subsidiaries of funds); (xiv) the
undertaking of any action in connection with the Partnership's direct or
indirect investment in its Subsidiaries; and (xv) determine the fair market
value of any Partnership property distributed in kind using such reasonable
method of valuation as it may adopt.
(b) The Special General Partner shall have power and authority coextensive
with that of the Managing General Partner to represent the Partnership in
dealings with third parties (for the purposes of this Section 6.1, "third
parties" shall be deemed to be persons other than the Partners and the Assignees
thereof),
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and accordingly may bind the Partnership. However, in the absence of notice
given to the Partnership by either of the Managing General Partner or the
Special General Partner to the contrary, the Special General Partner's power and
authority to manage the Partnership shall be presumed to have been delegated to
the Managing General Partner. In the absence of such delegation of the Special
General Partner's power and authority, the Special General Partner shall have
voting power in all matters of management of the Partnership proportionate with
its general partner Partnership Interest.
(c) Each of the Partners and each other Person who may acquire an interest
in Units hereby approves, ratifies and confirms the execution, delivery and
performance by the parties thereto of the Deposit Agreement, the Underwriting
Agreement, and the other agreements described in the Registration Statement, and
agrees that the Managing General Partner is authorized to execute, deliver and
perform the above-mentioned agreements and transactions and such other
agreements described in the Registration Statement on behalf of the Partnership
without any further act, approval or vote of the Partners or the other Persons
who may acquire an interest in Units, notwithstanding any other provisions of
this Agreement, the Delaware Act or any applicable law, rule or regulation. None
of the execution, delivery or performance by the Managing General Partner, the
Partnership or any Affiliate of any of them of any agreement authorized or
permitted under this Agreement shall constitute a breach by the Managing General
Partner of any duty that the Managing General Partner may owe the Partnership or
the Limited Partners or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
(d) If the Managing General Partner determines such action to be necessary
or appropriate in connection with the proposed qualification or formation and
operation of the Partnership in any state other than the State of Delaware in
which the Partnership is transacting or may transact business, the Managing
General Partner may cause the Partnership to form one or more operating
partnerships pursuant to and in conformity with the laws of such jurisdiction or
jurisdictions as the Managing General Partner may determine ("Operating
Partnership"). An Operating Partnership may have conveyed to it and may acquire,
hold, operate and dispose of all or part of the Partnership assets located in a
state. Each Operating Partnership shall be composed of the Managing General
Partner as managing general partner thereof, having a 1.9% interest in the
Operating Partnership, the Special General Partner as special general partner
thereof, have a 0.1% general partner interest in the Operating Partnership,
which shall in turn reduce the interests of the Managing General Partner and the
Special General Partner in the Partnership so that the economic interest of the
Managing General Partner as managing general partner and the Special General
Partner as special general partner in the Partnership and the Operating
Partnership or Operating Partnerships remains 1.9% and 0.1%, respectively, and
the Partnership as the sole limited partner thereof having a 98% interest in the
Operating Partnership. Each Operating Partnership shall be formed pursuant to an
agreement of limited partnership in substantially the form of this Agreement,
provided that the Operating Partnership agreement may contain (i) a provision
providing for a name of the Operating Partnership different from the name of the
Partnership, (ii) such provisions as the Managing General Partner determines are
reasonable and necessary or appropriate to comply with the laws of the
jurisdiction in which the Operating Partnership is being formed or to reflect
the manner in which the Operating Partnership will be or is required to conduct
the activities of the Operating Partnership with respect to the properties
located in a state, (iii) such provisions as the Managing General Partner would
be permitted to adopt as amendments to this Agreement (provided that the
Managing General Partner complies with any applicable requirements of such
sections) and (iv) any other provision that the Managing General Partner has
determined is necessary or appropriate and is fair and reasonable to all parties
concerned. The Managing General Partner is hereby authorized on behalf of the
Partnership to execute the agreement of limited partnership of each Operating
Partnership and any other certificates, instruments and documents necessary to
form the Operating Partnership, and the Partners hereby approve, ratify and
confirm the execution, delivery and performance thereof.
(e) At all times from and after the date hereof, the Managing General
Partner shall cause the Partnership and any Operating Partnership to obtain and
maintain to the extent available on a commercially reasonable basis (i) casualty
and liability insurance on the properties of the Partnership and (ii) liability
insurance for the General Partners and the Indemnitees hereunder.
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(f) At all times from and after the date hereof, the Managing General
Partner shall cause the Partnership to maintain working capital reserves in such
amounts as the Managing General Partner deems appropriate and reasonable from
time to time.
6.2 Certificate of Limited Partnership. The Managing General Partner has
filed the Certificate of Limited Partnership 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
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware or any
other state in which the Partnership may elect to do business or own property.
To the extent that such action is determined by the Managing General Partner to
be reasonable and necessary or appropriate, the Managing General Partner shall
file amendments to and restatements of the Certificate of Limited Partnership
and do all the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware or any other state in which the Partnership may elect
to do business or own property. Subject to the terms of Section 7.5(a) hereof,
the Managing General Partner shall not be required, before or after filing, to
deliver or mail a copy of the Certificate of Limited Partnership or any
amendment thereto to any Limited Partner.
6.3 Restrictions on the General Partners' Authority. (a) No General Partner
may, without the written approval of the specific act by all of the Limited
Partners or by other written instrument executed and delivered by all of the
Limited Partners subsequent to the date of this Agreement, take any action in
contravention of this Agreement, including, without limitation, (i) take any act
that would make it impossible to carry on the ordinary business of the
Partnership, except as otherwise provided in this Agreement, (ii) possess
Partnership property, or assign any rights in specific Partnership property, for
other than a Partnership purpose; (iii) admit a person as a Partner, except as
otherwise provided in this Agreement; (iv) amend this Agreement in any manner,
except as otherwise provided in this Agreement; or (v) transfer its interest as
a General Partner of the Partnership, except as otherwise provided in this
Agreement.
(b) Except as provided in Article XIV hereof, no General Partner may 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 with any other Person) without
the approval of the holders of at least 66 2/3% of each class of the Outstanding
Units prior to the Initial Conversion Date and thereafter without the approval
of holders of at least a majority of the Outstanding Units, voting together as a
single class unless the holders of a particular class or series of Outstanding
Partnership Securities have the right to approve such transaction or series of
transactions pursuant to the Certificate of Designations creating such
Partnership Securities; provided, however, that this provision shall not
preclude or limit the mortgage, pledge, hypothecation or grant of a security
interest in all or substantially all of the Partnership's assets (unless
otherwise prohibited in a Certificate of Designations) and shall not apply to
any forced sale of any or all of the Partnership's assets pursuant to the
foreclosure of, or other realization upon, any such encumbrance.
(c) Unless approved prior to the Initial Conversion Date by the affirmative
vote of the holders of at least 66 2/3% of each class of the Outstanding Units
and, thereafter by the affirmative vote of the holders of at least a majority of
the Outstanding Units, no General Partner shall take any action or refuse to
take any reasonable action the effect of which, if taken or not taken, as the
case may be, would cause the Partnership to be treated as a corporation or as an
association taxable as a corporation for federal income tax purposes.
(d) At all times while serving as a general partner of the Partnership, the
General Partners will not make any dividend or distribution on, or repurchase
any stock or take any other action if the effect of such dividend or
distribution, repurchase or other action would be to reduce its net worth below
an amount necessary to receive an Opinion of Counsel that the Partnership will
be treated as a partnership for federal income tax purposes.
6.4 Reimbursement of the General Partners. (a) Except as provided in this
Section 6.4 and elsewhere in this Agreement, none of the General Partners shall
be compensated for its services as a General Partner general partner of the
Partnership.
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(b) The General Partners shall be reimbursed on a monthly basis, or such
other basis as the Managing General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including amounts paid to any Person to
perform services to or for the Partnership) and (ii) except as provided in (d)
below, that portion of the General Partners' or their Affiliates' legal,
accounting, investor communications, utilities, telephone, secretarial, travel,
entertainment, bookkeeping, reporting, data processing, office rent and other
office expenses (including overhead charges), salaries, fees and other
compensation and benefit expenses of employees, officers and directors, other
administrative or overhead expenses and all other expenses, in each such case,
necessary or appropriate to the conduct of the Partnership's business and
allocable to the Partnership or otherwise incurred by the General Partners in
connection with operating the Partnership's business (including, without
limitation, expenses allocated to the General Partners by their Affiliates). The
Managing General Partner shall determine the fees and expenses that are
allocable to the Partnership in any reasonable manner determined by the Managing
General Partner in its sole discretion. Such reimbursement shall be in addition
to any reimbursement to the General Partners as a result of indemnification
pursuant to Section 6.7 hereof.
(c) Subject to Section 4.4(c) hereof, the The Managing General Partner in
its sole discretion and without the approval of the Limited Partners may propose
and adopt on behalf of the Partnership, employee benefit plans (including,
without limitation, plans involving the issuance of Units), for the benefit of
employees of the General Partners, the Partnership, its Subsidiaries or any
Affiliate of any of them in respect of services performed, directly or
indirectly, for the benefit of the Partnership or any of its Subsidiaries.
(d) The [Managing General Partner ] [General Partners] shall not be
reimbursed for any salaries, fees and other compensation and benefit expenses of
employees, officers and directors of the Managing General Partners or their
Affiliates Partner which are paid to individuals who also serve as a director of
either of the Managing General Partners Partner or who are shareholders of
either of the General Partners. Notwithstanding the foregoing, the General
Partners shall be reimbursed the Managing General Partner to the extent that
such payments are made pursuant to an employment agreement. The reimbursement to
the Managing General Partner pursuant to the terms of 6.4(b) for any
compensation or benefits paid, directly or indirectly, to its shareholders or
directors in their capacity as such, shall be limited to the amount of
reasonable directors' fees and expenses and costs of directors' and officers'
liability insurance plus $[ ] [per year].
6.5 Outside Activities. (a) After the Closing Date, no No General Partner
shall, for so long as it is a general partner of the Partnership, enter into or
conduct any business or incur any debts or liabilities which adversely affect or
are in direct competition with the Partnership.
(b) Except as described in the Registration Statement or as provided in
Section 6.5(a) hereof, no Indemnitee shall be expressly or implicitly restricted
or proscribed pursuant to this Agreement or the partnership relationship
established hereby from engaging in other activities for profit, whether in the
businesses engaged in by the Partnership or anticipated to be engaged in by the
Partnership or otherwise, including, without limitation, those businesses
described in or contemplated by the Registration Statement. None of the
Partnership, any Limited Partner or any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby or
thereby in any business ventures of any Indemnitee, and , except as set forth in
the Registration Statement, such Indemnitees shall have no obligation to offer
any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person. The General Partners and any other Persons
affiliated with the General Partners may acquire Units or Partnership Securities
, in addition to those acquired by any of such Persons on the Closing Date, and
shall be entitled to exercise all rights of an Assignee or Limited Partner, as
applicable, relating to such Units or Partnership Securities, as the case may
be.
6.6 Contracts with Affiliates. (a) The Partnership may lend or contribute
to its Subsidiaries, and its Subsidiaries may borrow funds, on terms and
conditions established in the sole discretion of the Managing General Partner.
The foregoing authority shall be exercised by the Managing General Partner in
its reasonable discretion and shall not create any right or benefit in favor of
any Subsidiary or any other Person. The Partnership may not lend funds to the
General Partners or any of their Affiliates.
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(b) Each General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to the Partnership. Any services
rendered to the Partnership by a General Partner or any Affiliate thereof shall
be on terms that are fair and reasonable to the Partnership. The provisions of
Section 6.4 hereof shall apply to the rendering of services described in this
Section 6.6(b).
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law.
(d) Neither a General Partner nor any Affiliate thereof 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 6.6(d) shall be deemed to be satisfied as to any transactions
described in or contemplated by the Registration Statement and the Consent
Solicitation Statement.
6.7 Indemnification. (a) To the fullest extent permitted by law but subject
to the limitations expressly provided in this Agreement, each Indemnitee 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, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, 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 (x) a General Partner, a departing General Partner or any of their
Affiliates, (y) an officer, director, employee, partner, agent or trustee of a
General Partner, any departing General Partner or any of their Affiliates or (z)
a Person serving at the request of the Partnership in another entity in a
similar capacity, provided that in each case the Indemnitee acted in good faith
and in the manner which such Indemnitee believed to be in, or not opposed to,
the best interests of the Partnership and, with respect to any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that the Indemnitee acted in a manner contrary to
that specified above. Any indemnification pursuant to this Section 6.7 shall be
made only out of the assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee 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 an 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 6.7.
(c) The indemnification provided by this Section 6.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the Partners, as a matter of law or otherwise, and shall
continue as to an Indemnitee who has ceased to serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of a
General Partner and such other Persons as the Managing General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities,
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 6.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 6.7(a); and action taken or omitted by it with
respect to an 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.
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(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 6.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction were
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
6.8 Liability of Indemnitees. (a) Notwithstanding anything to the contrary
set forth in this Agreement or as otherwise prohibited by law, no Indemnitee
shall be liable for monetary damages to the Partnership, Limited Partners or to
any Persons who have acquired interests in the Units for losses sustained or
liabilities incurred as a result of errors of judgment or of any act or omission
if such Indemnitee acted in good faith and in the manner which such Indemnitee
believed to be in, or not opposed to, the best Interests interests of the
Partnership.
(b) Subject to its obligations and duties as Managing General Partner set
forth in Section 6.1(a) hereof, the Managing General Partner may exercise any of
the powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents and the Managing
General Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by it in good faith.
(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations or the liability to the Partnership and the Limited Partners of a
General Partner, its directors, officers, partners and employees under this
Section 6.8 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.
6.9 Resolution of Conflicts of Interest. (a) Unless otherwise expressly
provided in this Agreement, whenever a potential conflict of interest exists or
arises between a General Partner or any Affiliate thereof, on the one hand, and
the Partnership, any Subsidiary or any Partner, on the other hand, any
resolution or course of action 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 agreement contemplated herein, or of any duty stated
or implied by law or equity, if the resolution or course of action is, or by
operation of this Agreement is deemed to be, fair and reasonable to the
Partnership. The Managing General Partner shall be authorized but not required
in connection with its resolution of such conflict of interest to seek Special
Approval of a resolution of such conflict or course of action. Any conflict of
interest and any resolution of such conflict of interest shall be deemed fair
and reasonable to the Partnership upon Special Approval of such conflict of
interest or resolution. The Managing General Partner may also adopt a resolution
or course of action that has not received Special Approval. Any such resolution
or course of action in respect of any conflict of interest shall not constitute
a breach of this Agreement, of any other agreement contemplated herein, or of
any duty stated or implied by law or equity, if such resolution or course of
action is fair and reasonable to the Partnership. The Managing General Partner
(including the Conflicts and Audit Committee in connection with Special
Approval) shall be authorized in connection with its resolution of any conflict
of interest to consider (i) the relative interests of any party to such
conflict, agreement, transaction or situation and the benefits and burdens
relating to such interest; (ii) any customary or accepted industry practices;
(iii) any applicable generally accepted accounting practices or principles; and
(iv) such additional factors as the Managing General Partner (including the
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Conflicts and Audit Committee in connection with Special Approval) determines in
its sole discretion to be relevant, reasonable or appropriate under the
circumstances. Nothing contained in this Agreement, however, is intended to nor
shall it be construed to require the Managing General Partner (including the
Conflicts and Audit Committee in connection with Special Approval) to consider
the interests of any Person other than the Partnership and the Limited Partners
as a group. So long as the Managing General Partner acted in good faith and in a
manner that it believed to be in, or not opposed to, the best interests of the
Partnership and had no reasonable grounds to believe its conduct was unlawful,
the resolution, action or terms so made, taken or provided by the Managing
General Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or under the Delaware Act or
any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the Managing General Partner or any of its Affiliates is permitted
or required to make a decision (i) in its "discretion" or under a grant of
similar authority or latitude, the Managing General Partner or such Affiliate
shall be entitled to consider only such interests and factors as it desires and
shall have no duty or obligation to give any consideration to any interest of or
factors affecting, the Partnership or any Limited Partner, or (ii) in "good
faith" or under another express standard, the Managing General Partner or such
Affiliate shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement or any other agreement
contemplated hereby.
(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.
6.10 Other Matters Concerning General Partners. (a) A General Partner may
rely and shall be protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) A General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected in good faith 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 which such General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
(c) A General Partner shall have the right, in respect of any of its powers
or obligations hereunder, to act through any of its duly authorized officers and
a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the
extent provided by such General Partner in the power of attorney, have full
power and authority to do and perform all and every act and duty which is
permitted or required to be done by such General Partner hereunder.
(d) A General Partner shall have the right, but not the obligation, to make
loans to the Partnership, including, without limitation, loans for the purpose
of making distributions on the Preferred Units; provided, that in no event shall
such loans be on terms and conditions less favorable than those that the
Partnership could obtain from unaffiliated third parties or banks for the same
purpose.
6.11 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, 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 Managing General Partner or one or more
nominees, as the Managing General Partner may determine, including Affiliates of
the Managing General Partner. The Managing General Partner hereby declares and
warrants that any Partnership assets for which legal title is held in the name
of the Managing General Partner or any nominee or Affiliate of the Managing
General Partner shall be held by the Managing General Partner for the use and
benefit of the Partnership in accordance with the provisions of this Agreement;
provided, however, that the Managing
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General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
6.12 Reliance by Third Parties. Notwithstanding anything to the contrary in
this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the Managing General Partner 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 contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the Managing General Partner as if it
were the Partnership's sole party in interest, both legally and beneficially.
The Special General Partner, each Limited Partner and each Assignee hereby
waives any and all defenses or other remedies which may be available against
such Person to contest, negate or disaffirm any action of the Managing General
Partner in connection with any such dealing. In no event shall any Person
dealing with the Managing General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the Managing General
Partner or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the Managing General Partner
or its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
6.13 Covenants and Representations of General Partners. (a) The General
Partners hereby covenant and represent that (i) at all times while acting as
general partners of the Partnership, they will collectively maintain assets
(excluding any interest in, or receivables due from, the Partnership) the fair
market value of which exceeds their liabilities by the amount of at least $10
million; (ii) the Partnership will be operated in accordance with applicable
state partnership statutes, and with this Partnership Agreement and the
representations made in the Registration Statement; (iii) at least ninety
percent (90%) of the Partnership's gross income for each taxable year will
consist of (w) income or gain derived from the exploration, development,
production, processing, refining, transportation or marketing of crude oil and
refined petroleum products, (x) gains from the sale of real property, (y) real
property rents or (z) gains from the sale or other disposition of a capital
asset held for the production of income or gain of the character described in
clauses (w), (x) and (y) above; and (iv) the General Partners will act
independently of the Limited Partners.
(b) The Managing General Partner hereby covenants and agrees that it will
not permit the Partnership to exercise its purchase option to acquire the
Company Comyn pipeline (as described in the Registration Statement) unless the
Partnership has first received an opinion from a nationally recognized
investment banking firm which is independent of the General Partners to the
effect that the exercise of the option is fair from a financial point of view to
the holders of the Units in their capacity as such.
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ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability. The Limited Partners shall have no liability
under this Agreement except as expressly provided in this Agreement or the
Delaware Act.
7.2 Management of Business. No Limited Partner or Assignee (in his capacity
as such) shall take part 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. The transaction of any such business by a
General Partner, any Affiliate thereof or any officer, director, employee,
partner, agent or trustee of such General Partner or any Affiliate thereof, in
its capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
7.3 Outside Activities. Subject to the provisions of Section 6.5 hereof
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 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. Neither the Partnership nor any Partners shall have any rights by
virtue of this Agreement in any business ventures of any Limited Partner or
Assignee.
7.4 Return of Capital. No Limited Partner shall be entitled to the
withdrawal or return of his Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided by Article V
hereof, or as set forth in a Certificate of Designations, or as otherwise
expressly provided in this Agreement, no Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee either as to the return of
Capital Contributions or as to profits, losses or distributions.
7.5 Rights of Limited Partners Relating to the Partnership. (a) In addition
to other rights provided by this Agreement or by applicable law, and except as
limited by Section 7.5(b) hereof, 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 demand and at such Limited Partner's
own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him, upon notification to the Managing
General Partner, a current list of the name and last known business,
residence or mailing address of each Partner;
(iv) to have furnished to him, upon notification to the Managing
General Partner, a copy of this Agreement and the Certificate of Limited
Partnership and all amendments thereto, together with 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 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) Notwithstanding any other provision of this Section 7.5, the Managing
General Partner may keep confidential from the Limited Partners for such period
of time as the Managing General Partner determines in its sole discretion to be
reasonable, any information that the Managing General Partner reasonably
believes to be in the nature of trade secrets or other information the
disclosure of which the Managing General Partner in
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good faith believes is not in the best interests of the Partnership or which the
Partnership is required by law or by agreements with unaffiliated third parties
to maintain confidentiality.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The Managing General Partner shall keep or
cause to be kept at the principal office of the Partnership appropriate books
and records with respect to the Partnership's business including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 7.5(a) hereof. Any records maintained by or on behalf of the
Partnership in the regular course of business, including the record of the
Record Holders and Assignees of Units, Depository Depositary Units or
Partnership Securities, books of account and records of Partnership proceedings,
may be kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the 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 and tax reporting purposes, on an accrual basis in accordance with
generally accepted accounting principles.
8.2 Fiscal Year. The fiscal year of the Partnership shall be the calendar
year.
8.3 Reports. (a) As soon as practicable, but in no event later than 120
days after the close of each Partnership Year, the Managing General Partner
shall cause to be mailed to each Record Holder of a Unit as of a date selected
by the Managing General Partner in its sole discretion, an annual report
containing financial statements of the Partnership for such Partnership Year,
presented in accordance with generally accepted accounting principles, including
a balance sheet and statements of operations, Partners' equity and changes in
financial position, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the Managing General Partner.
(b) As soon as practicable, but in no event later than 90 days after the
close of each calendar quarter except the last calendar quarter of each year,
the Managing General Partner shall cause to be mailed to each Record Holder of a
Unit, as of a date selected by the Managing General Partner in its sole
discretion, a report containing unaudited financial statements of the
Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which the Units are
listed for trading, or as the Managing General Partner determines to be
appropriate.
ARTICLE IX
TAX MATTERS
9.1 Preparation of Tax Returns. The Managing General Partner shall arrange
for the preparation and timely filing of all returns of Partnership income,
gains, deductions, losses and other items required of the Partnership for
federal and state income tax purposes and shall use all reasonable efforts to
furnish, within 90 days of the close of each taxable year, the tax information
reasonably required by Unitholders for federal and state income tax reporting
purposes. The classification, realization and recognition of income, gains,
losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes. The taxable year of the Partnership
shall be the calendar year.
9.2 Tax Elections. Except as otherwise provided herein, the Managing
General Partner shall, in its sole discretion, determine whether to make any
available election pursuant to the Code; provided, however, that the Managing
General Partner shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder. The Managing General Partner
shall have the right to seek to revoke any such election (including, without
limitation, the election under Section 754 of the Code) upon the Managing
General Partner's determination in its sole discretion that such revocation is
in the best interests of the Limited Partners and Assignees. For purposes of
computing the adjustments under Section 743(b) of the Code, the Managing General
Partner shall be authorized (but not required) to adopt a convention whereby
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the price paid by a transferee of Units will be deemed to be the lowest quoted
trading price of the Units on any National Securities Exchange on which such
Units are traded during the calendar month in which such transfer is deemed to
occur pursuant to Section 5.1(d) hereof without regard to the actual price paid
by such transferee.
9.3 Tax Controversies. Subject to the provisions hereof, the Managing
General Partner is designated the Tax Matters Partners (as defined in Section
6231 of 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 or Assignee agrees to cooperate
with the Managing General Partner and to do or refrain from doing any or all
things reasonably required by the Managing General Partner to conduct such
proceedings.
9.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
9.5 Withholding. Notwithstanding any other provision of this Agreement, the
Managing General Partner is authorized to take any action that it determines in
its sole discretion to be necessary or appropriate to cause the Partnership to
comply with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Section
1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is
required 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 by reason of Section 1446 of the Code), the amount withheld shall be
treated as a distribution of cash pursuant to Section 5.3 hereof in the amount
of such withholding from such Partner.
9.6 Entity-Level Taxation. If legislation is enacted which causes the
Partnership to become treated as an association taxable as a corporation for
federal income tax purposes, then with respect to any calendar quarter
thereafter, but in no event prior to the end of the Initial Period, the Base
Amount, the Preferred Amount, First Target Amount, Second Target Amount, Third
Target Amount and Capital Target Amount, as the case may be, shall be equal to
the product of (i) each such distribution amount multiplied by (ii) 1 minus the
sum of (x) the effective federal income tax rate applicable to the Partnership
(expressed as a percentage) plus (y) the effective overall state and local
income tax rate applicable to the Partnership (expressed as a percentage), in
each case, for the taxable year in which such quarter occurs (after taking into
account the benefit of any deduction allowable for federal income tax purposes
with respect to the payment of state and local income taxes). [placeholder]
9.7 Entity-Level Deficiency Collections. If the Partnership is required by
applicable law to pay any federal, state or local income tax on behalf of any
Partner or Assignee or any former Partner or Assignee, (i) the Managing General
Partner shall pay such tax on behalf of such Partner or Assignee or former
Partner or Assignee from the funds of the Partnership; (ii) any amount so paid
on behalf of any Partner or Assignee shall constitute a distribution of
Available Cash to such Partner or Assignee pursuant to Section 5.3 hereof or
14.3 hereof; and (iii) to the extent any such Partner or Assignee (but not a
former Partner or Assignee) is not then entitled to such distribution under this
Agreement, the Managing General Partner shall be authorized, without the
approval of any Partner or Assignee, to amend this Agreement insofar as is
necessary to maintain the uniformity of intrinsic tax characteristics as to all
each class or series of Units and to make subsequent adjustments to
distributions in a manner which, in the reasonable judgment of the Managing
General Partner, will make as little alteration in the priority and amount of
distributions otherwise applicable under this Agreement, and will not otherwise
alter the distributions to which Partners and Assignees are entitled under this
Agreement. If the Partnership is permitted (but not required) by applicable law
to pay any such tax on behalf of any Partner or Assignee or former Partner or
Assignee, the Managing General Partner shall be authorized (but not required) to
pay such tax from the funds of the Partnership and to take any action consistent
with this Section 9.7. The Managing General Partner shall be authorized (but not
required) to take all necessary or appropriate actions to collect all or any
portion of a deficiency in the payment of any such tax which relates to prior
periods which is attributable to Persons who were Limited Partners or Assignees
when such deficiencies arose from such Persons.
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9.8 Opinions of Counsel. Notwithstanding any other provision of this
Agreement, if the Partnership is taxable for federal income tax purposes as a
corporation or an association taxable as a corporation at any time and, pursuant
to the provisions hereof, an Opinion of Counsel would otherwise be required at
that time to the effect that an action will not cause the Partnership to become
so taxable as a corporation or to be treated as an association taxable as a
corporation, such requirement for an Opinion of Counsel shall be deemed
automatically waived.
ARTICLE X
CERTIFICATES AND DEPOSITARY RECEIPTS
10.1 Certificates and Depositary Receipts. (a) Upon the issuance of Units
by the Partnership to the Initial a Limited Partners Partner or any other
Person, the Partnership shall issue one or more Certificates in the name of the
Initial Limited Partners or such other Person evidencing the number and class,
if applicable, of Units being so issued. Certificates shall be executed on
behalf of the Partnership by the Managing General Partner.
(b) The Managing General Partner (i) may cause the deposit of some or all
of the Certificates in the Deposit Account pursuant to the Deposit Agreement;
(ii) with respect to those Certificates deposited in the Deposit Account, shall
receive Depository Depositary Receipts registered in the name of the Person(s)
to whom such Units have been issued, evidencing the same number of Depositary
Units, as the case may be, as the number of Units represented by the
Certificates so deposited; and (iii) shall cause the distribution of such
Depositary Receipts to such Person(s).
10.2 Registration of Transfer and Exchange. (a) The Managing General
Partner shall cause to be kept on behalf of the Partnership a register (the
"Unit Register") in which, subject to such reasonable regulations as it may
prescribe and subject to the provisions of Section 10.2(b) hereof, the Managing
General Partner will provide for the registration of Units and the transfer of
such Units. The Depositary is hereby appointed Transfer Agent and registrar for
the purpose of registering Units and transfers of such Units as herein provided.
The Partnership shall not recognize transfers of Certificates representing Units
which have been deposited pursuant to Section 10.1(a) hereof and not withdrawn
or interests therein except by transfers of Depositary Units in the manner
described in this Section 10.2 and in the Deposit Agreement. Upon surrender for
registration of transfer of any Depositary Units evidenced by a Depositary
Receipt and, subject to the provisions of Section 10.2(b) hereof, the Managing
General Partner on behalf of the Partnership will execute, and the Transfer
Agent will 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 Depositary Receipts evidencing the same aggregate number of
Depositary Units as was evidenced by the Depositary Receipt so surrendered.
(b) The Partnership shall not recognize any transfer of Depositary Units
until the Depositary Receipts evidencing such Depositary Units are surrendered
for registration of transfer and such Depositary Receipts 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 Depositary Receipt under this Section 10.2, the Managing General Partner
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed with respect thereto.
10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts. (a) If any
mutilated Depositary Receipt is surrendered to the Transfer Agent, the
Depositary shall execute, and the Transfer Agent shall countersign and deliver
in exchange therefor, a new Depositary Receipt evidencing the same number of
Depositary Units, as the case may be, as the Depositary Receipt so surrendered.
(b) If there shall be delivered to the Managing General Partner and the
Transfer Agent (i) evidence (including, without limitation, proof by affidavit
if requested by the Managing General Partner in form and substance satisfactory
to the Managing General Partner) to their satisfaction of the destruction, loss
or theft of any Depositary Receipt and (ii) such security or indemnity as may be
required by them to indemnify and hold each of them and any of their agents
harmless, then, in the absence of notice to the Managing General Partner
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or the Transfer Agent that such Depositary Receipt has been acquired by a bona
fide purchaser, the Managing General Partner on behalf of the Partnership shall
execute and, upon its request, the Transfer Agent shall countersign and deliver,
in exchange for and in lieu of any such destroyed, lost or stolen Depositary
Receipt, a new Depositary Receipt evidencing the same number of Depositary
Units, as the Depositary Receipt so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Depositary Receipt under this
Section 10.3, the Managing General Partner may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Transfer Agent) connected therewith.
10.4 Registered Owner. In accordance with Section 10.2(b) hereof, the
Partnership shall be entitled to recognize the Record Holder as the Limited
Partner or Assignee with respect to any Units and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such Units on
the part of any other Person, whether or not 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 the Units 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
Units, as between the Partnership on the one hand and such other Persons on the
other hand, such representative Person (a) shall be the Limited 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 Limited Partner or Assignee (as the
case may be) hereunder and as provided for herein.
10.5 Withdrawal of Units from and Redeposit of Units in Depositary Account.
Any Units may be withdrawn from the Depositary Account by surrender of the
Depositary Receipts evidencing the corresponding Depositary Units duly executed
by the Record Holder thereof (or his attorney-in-fact duly authorized in
writing), provided that such Record Holder is then reflected on the books and
records of the Partnership as the Limited Partner in respect of the Units for
which such withdrawal is requested. Upon any such withdrawal, the Managing
General Partner shall cause the Partnership to issue a Certificate evidencing
such Units. Any such withdrawn Units, or Units which have not previously been so
deposited, may be redeposited or deposited (as the case may be) in the Deposit
Account by the surrender of the Certificate evidencing such withdrawn Units or
non-deposited Units to the Depositary and payment to the Depositary of such fee
and upon such terms as may be required therefor pursuant to the Deposit
Agreement. Upon any such redeposit or deposit, the Depositary shall issue a
Depositary Receipt evidencing the same number of Units as was evidenced by the
Certificate so redeposited or deposited.
10.6 Amendment of Deposit Agreement. Subject to its fiduciary obligations,
the Managing General Partner may amend or modify any provision of the Deposit
Agreement in any respect it reasonably determines to be necessary or
appropriate, provided, however, that the Managing General Partner shall not
amend or modify the Deposit Agreement if the effect of any such amendment or
modification would materially adversely affect the Limited Partners or would
impair the right of Limited Partners to withdraw their Units from deposit
thereunder.
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ARTICLE XI
TRANSFER OF INTERESTS
11.1 Transfer. (a) The term "transfer," when used in this Article XI with
respect to a Partnership Interest, shall be deemed to refer to an appropriate
transaction by which a General Partner assigns its general partner Partnership
Interest to another Person or by which the holder of a Unit assigns such Unit to
another Person who is or becomes 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 XI.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article XI shall be null and void.
11.2 Transfer of a General Partner's Partnership Interest. (a) Each of the
General Partners may transfer all, but not less than all, of its general partner
Partnership Interest (unless to an Affiliate, in which case less than all of
such interest may be transferred) to a single transferee if, but only if, (i)
the transferee agrees to assume and be bound by the rights and duties of such
general partner under the provisions of this 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 the taxation of the Partnership
as a corporation or as an association taxable as a corporation for federal
income tax purposes and (iii) the transfer is made to an Affiliate or upon such
General Partner's merger, consolidation or other combination into any other
entity or the transfer by it of all or substantially all of its assets to
another entity.
(b) Notwithstanding Section 11.2(a) hereof, the Managing Special General
Partner may not transfer any or all of its general partner Partnership Interest
during the Initial Period without the approval of at least a majority of the
Outstanding Units (excluding for purposes of such determination any Units owned
by the General Partners and their Affiliates), and the Special General Partner
may not transfer its general partner Partnership Interest without the consent of
the Managing General Partner.
(c) Any transferee of the Managing General Partner's general partner
interest pursuant to Section 11.2(a) hereof shall be admitted to the Partnership
as successor Managing General Partner hereunder and shall continue the business
of the Partnership and the transferor of such general partner interest shall
cease to be a General Partner following the admission of such transferee.
(d) Any transferee of the Special General Partner's general partner
interest pursuant to Section 11.2(a) hereof shall be admitted to the Partnership
as successor Special General Partner hereunder and the Managing General Partner
shall continue the business of the Partnership notwithstanding such transfer by
the Special General Partner and the transferor of such general partner interest
shall cease to be a General Partner following the admission of such transferee.
(e) any Any successor General Partner pursuant to this Section 11.2 shall
become a General Partner effective, to the extent permitted by the Delaware Act,
as of the date immediately prior to the date of the transfer of the general
partner interest. This Agreement and the Certificate of Limited Partnership
shall be amended as appropriate to reflect the cessation of the former General
Partner and the substitution of the successor General Partner.
11.3 Transfer of Units. (a) Any Units which have been deposited in the
Deposit Account may be transferred, but only in the manner described in Section
10.2 hereof. Units with respect to which no such deposit has been made or which
have been withdrawn from the Deposit Account and not redeposited are not
transferable except upon death or by operation of law, by transfer to the
Managing General Partner for the account of the Partnership, pursuant to Section
11.7 or otherwise in accordance with this Agreement. The transfer of any Units
and the admission of any new Partner shall not constitute an amendment to this
Agreement.
(b) Until admitted as a Substituted Limited Partner pursuant to Article XII
hereof, the Record Holder of a Depositary Unit shall constitute an Assignee in
respect of such Unit.
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(c) Each distribution in respect of Units shall be paid by the Partnership,
directly or through the Transfer Agent or through any other Person or agent,
only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of the
Partnership's liability with 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.
11.4 Restrictions on Transfers. Notwithstanding the other provisions of
this Article XI, no transfer of any Unit or interest therein of any Limited
Partner in the Partnership shall be made if such transfer (i) would violate the
then applicable federal or state securities laws or rules and regulations of the
Securities and Exchange Commission, any state securities commission or any other
governmental authorities with jurisdiction over such transfer, (ii) would result
in the taxation of the Partnership as a corporation or as an association taxable
as a corporation for federal income tax purposes or (iii) would affect the
Partnership's existence or qualification as a limited partnership under the
Delaware Act.
11.5 Citizenship Certification; Non-citizen Assignees. (a) In the event
that, because of the nationality (or any other status) of a Limited Partner or
Assignee, the Partnership is or becomes subject to federal, state or local laws
or regulations the effect of which would, in the reasonable determination of the
Managing General Partner, cause cancellation or forfeiture of any property in
which the Partnership has an interest, the Managing General Partner may request
any such Limited Partner or Assignee to furnish to the Managing General Partner
or, with respect to Depositary Units, to the Depositary within 30 days after
receipt of such request an executed Citizenship Certification or such other
information concerning his nationality, citizenship or other status (or, if the
Limited Partner or Assignee is a nominee holding for the account of another
Person, the nationality, citizenship or other status of such Person) as the
Managing General Partner may request. If a Limited Partner or Assignee fails to
furnish such Citizenship Certification or other information as may be requested,
or if upon receipt of such Citizenship Certification or other information the
Managing General Partner determines, with the advice of counsel, that a Limited
Partner or an Assignee is not an Eligible Citizen, the Units owned by such
Limited Partner or Assignee shall be subject to redemption in accordance with
the provisions of Section 11.6 hereof. In addition to becoming subject to
redemption, the Managing General Partner may require that the status of any such
Limited Partner or Assignee be changed to that of a Non-citizen Assignee, and,
thereupon, the Managing General Partner shall be substituted for such Non-
citizen Assignee as the Limited Partner in respect of his Units.
(b) The Managing General Partner shall, in exercising voting rights in
respect of Units held by it on behalf of Non-citizen Assignees, distribute the
votes in the same ratios as the votes of the Limited Partners in respect of
Units 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 14.4 hereof but
shall be entitled to the cash equivalent thereof, and the Managing General
Partner 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 Managing General
Partner from the Non-citizen Assignee of his Partnership Interest (representing
his right to receive his share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the Managing
General Partner, request admission as a Substituted Limited Partner with respect
to any Partnership Interest of such Non-citizen Assignee not redeemed pursuant
to Section 11.6 hereof and upon his admission pursuant to Section 12.2 hereof
the Managing General Partner shall cease to be deemed to be the Limited Partner
in respect of the Non-citizen Assignee's Units.
11.6 Redemption of Interests. (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 11.5(a) hereof, or if
upon receipt of such Citizenship Certification or other information the Managing
General Partner determines, with the advice of counsel, that a Limited Partner
or Assignee is not an Eligible Citizen, the Partnership may, unless the Limited
Partner or Assignee , establishes to the satisfaction of the Managing General
Partner that such Limited Partner or Assignee is an Eligible Citizen or has
transferred his
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Units to a Person who furnishes a Citizenship Certification to the Managing
General Partner prior to the date fixed for redemption as provided below, redeem
the Partnership Interest of such Limited Partner or Assignee as follows:
(i) The Managing General Partner shall, not later than the 30th day
before the date fixed for redemption, give notice of redemption to the
Limited Partner or Assignee, at his last address designated on the records
of the Partnership or the Depositary, 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 Units, the date fixed for
redemption, the place of payment, that payment of the redemption price will
be made upon surrender of the Depositary Receipt or the Certificate
evidencing the Redeemable Units 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 Units will accrue or be made.
(ii) The aggregate redemption price for Redeemable Units shall be an
amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Units of the class to be
so redeemed multiplied by the number of Units of each such class included
among the Redeemable Units. The redemption price shall be paid, in the sole
discretion of the Managing General Partner, in cash or by delivery of a
promissory note of the Partnership in the principal amount of the
redemption price, bearing interest at the rate of 10% annually and payable
in three equal annual installments of principal, together with accrued
interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the
Depositary Receipt or the Certificate evidencing the Redeemable Units, 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 Units shall no longer
constitute issued and outstanding Outstanding Units.
(b) The provisions of this Section 11.6 shall be applicable to Units 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 11.6 shall prevent the recipient of a notice of
redemption from transferring his Units before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon receipt of notice of
such a transfer, the Managing General Partner shall withdraw the notice of
redemption; provided, the transferee of such Units or Depositary Units certifies
in 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.
(d) Notwithstanding the provisions of Article XVIII hereof, if the Units
subject to redemption are Preferred Units, the holder of such Preferred Units
may not convert them into Common Units. [placeholder]
(e) If the Partnership or the Managing General Partner determines that
because of the nationality (or other status) of a General Partner, whether or
not in its capacity as such, the Partnership is or becomes subject to federal,
state or local regulations the effect of which would, in the reasonable
determination of the Managing General Partner, cause cancellation or forfeiture
of any property in which the Partnership has an interest, the Partnership may,
unless such General Partner has furnished a Citizenship Certification or
transferred his Partnership Interest or Units to a Person who furnishes a
Citizenship Certification prior to the date fixed for redemption, redeem the
Partnership Interest or Interests of such General Partner in the Partnership as
provided in Section 11.6(a) hereof. The redemption price shall be paid in cash.
11.7 Registration Rights. From and after the Initial Conversion Date, the
TheSpecial General Partner or any of its shareholders or their relatives who may
acquire Common Units from the Special General Partner have the right to cause
the Partnership, upon request, to register an offering and sale of their Common
Units with the Securities and Exchange Commission subject to the terms set forth
in an agreement dated of even date herewith March 29, 1990 by and among the
Special General Partner and the Partnership.
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ARTICLE XII
ADMISSION OF PARTNERS
12.1 Admission of Initial Limited Partners and Underwriters. Upon the
issuance of Units by the Partnership to the Initial Limited Partners (as
described in Section 4.3 hereof), the Managing General Partner shall admit to
the Partnership the Initial Limited Partners as Limited Partners in respect of
the Units. Each such party shall execute a Transfer Application and thereby
agree to be bound by the terms hereof as a Limited Partner. [Placeholder]
12.2 Admission of Substituted Limited Partners. By transfer of a Depositary
Unit in accordance with Article XI hereof, 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 Depositary Receipt shall, however, only have the
authority to convey to a purchaser or other transferee who does not execute and
deliver a Transfer Application (i) the right to negotiate such Unit to a
purchaser or other transferee and (ii) 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 Depositary Units. Each transferee of a
Depositary Unit (including any nominee holder or an agent acquiring such
Depositary Unit for the account of another Person) who executes a Transfer
Application shall be an Assignee and shall be deemed to have applied to become a
Substituted Limited Partner with respect to the Depositary Units so transferred
to such Person by virtue of executing and delivering such Transfer Application.
Such Assignee shall become a Substituted Limited Partner at such time as the
Managing General Partner consents thereto, which consent may be given or
withheld in the Managing General Partner's sole discretion, and 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 Units that are held
by Assignees, the Managing General Partner shall be deemed to be the Limited
Partner with respect thereto and shall, in exercising the voting rights in
respect of such Units on any matter, vote such Units at the written direction of
the Assignee who is the Record Holder of such Units. If no such written
direction is received, such Units will not be voted. An Assignee shall have no
other rights of a Limited Partner.
12.3 Admission of Successor Managing General Partner and Special General
Partner. (a) A successor Managing General Partner approved pursuant to Section
Sections 13.1 or 13.2 hereof or the transferee of or successor to all of the
Managing General Partner's Partnership interest Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor Managing General
Partner shall be admitted to the Partnership as the Managing General Partner,
effective immediately prior to the withdrawal or removal of the Managing General
Partner pursuant to Section Sections 13.1 or 13.2 hereof or the transfer
pursuant to Section 11.2 hereof; provided, however, that no such successor shall
be admitted to the Partnership until the terms of Section 11.2 hereof have been
complied with. Any such successor shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor Managing General Partner executing and delivering to the Partnership
an acceptance of all of the terms and conditions of this Agreement and such
other documents or instruments as may be required to effect the admission.
(b) A successor Special General Partner approved pursuant to Section 13.2
hereof or the transferee of hereof or successor to all of the Special General
Partner's Partnership Interest pursuant to Section 11.2 hereof who is proposed
to be admitted to the Partnership as a successor Special General Partner shall
be admitted to the Partnership as the Special General Partner effective
immediately prior to the withdrawal or removal of the Special General Partner
pursuant to Section 13.2 hereof or the transfer pursuant to Section 11.2 hereof;
provided, however, that no such successor , shall be admitted to the Partnership
until the terms of Section 11.2 hereof have been complied with. In each case,
the admission shall be subject to the successor Special General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission.
12.4 Admission of Additional Limited Partners. (a) A Person (other than an
Initial Limited Partner, an Underwriter or a Substituted Limited Partner) who
makes a Capital Contribution to the Partnership in
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accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the Managing General Partner
(i) evidence of acceptance in form satisfactory to the Managing General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 1.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
Managing General Partner in order to effect such Person's admission as an
Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 12.4(a), no
Person shall be admitted as an Additional Limited Partner without the consent of
the Managing General Partner, which consent may be given or withheld in the
Managing General Partner's sole 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 on the books and records of the Partnership,
following the consent of the Managing General Partner to such admission.
(c) Notwithstanding anything to the contrary in this Section 12.4, the
holder of any Series B Preferred Units or Series C Preferred Units shall be
automatically admitted to the Partnership as an Additional Limited Partner upon
furnishing to the Managing General Partner evidence of acceptance in form
reasonably satisfactory to the Managing General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 1.4 hereof.
12.5 Amendment of Agreement and Certificate of Limited Partnership. For the
admission to the Partnership of any Partner, the Managing General Partner shall
take all steps necessary and appropriate under the Delaware Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate of Limited Partnership and may for this purpose
exercise the power of attorney granted pursuant to Section 1.4 hereof.
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 Withdrawal of the Managing General Partner. (a) The Managing General
Partner covenants and agrees that it will not withdraw as Managing General
Partner before December 31, 2000, subject to its right to transfer its
Partnership Interest pursuant to Section 11.2 hereof.
(b) The Managing General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal"):
(i) the Managing General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners;
(ii) the Managing General Partner transfers all of its rights as
Managing General Partner pursuant to Section 11.2 hereof;
(iii) the Managing General Partner is removed pursuant to Section 13.2
hereof;
(iv) the Managing General Partner
(A) makes a general assignment for the benefit of creditors;
(B) files a voluntary bankruptcy petition;
(C) files a petition or answer seeking for itself a reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any law;
(D) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the
Managing General Partner in a proceeding of the type described in
paragraphs (A)-(C) of this subsection; or
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(E) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the Managing General Partner or of
all or any substantial part of its properties;
(v) a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the Managing General Partner is
bankrupt or insolvent, or a final and non-appealable order for relief is
entered by a court with appropriate jurisdiction against the Managing
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect; or
(vi) a certificate of dissolution or its equivalent is filed for the
Managing General Partner, or 90 days expire after the date of notice to the
Managing General Partner of revocation of its charter without a
reinstatement of its charter, under the laws of its state of incorporation.
If an Event of Withdrawal specified in paragraphs (iv), (v) or (vi) occurs, the
withdrawing Managing General Partner shall given give written 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 13.1 shall result
in withdrawal of the Managing General Partner from the Partnership.
(c) Withdrawal of the Managing General Partner from the Partnership
(including withdrawal upon the occurrence of an Event of Withdrawal) will
constitute a breach of this Agreement if such withdrawal occurs; (i) at any time
prior to December 31, 2000, unless the Managing General Partner gives at least
90 days' advance written notice of its intention to withdraw to the Limited
Partners and prior to the effective date of such withdrawal, the Limited
Partners approve such withdrawal by the vote of at least a majority of the
Outstanding Units (excluding for purposes of such determination any Units owned
by the General Partners and their Affiliates); or (ii) at any time after
December 31, 2000, unless the Managing General Partner gives at least 90 days'
advance written notice to the Limited Partners and the Partnership receives an
Opinion of Counsel that such withdrawal (following the selection of the
successor Managing General Partner) would not result in the loss of the limited
liability of holders of Units or cause the Partnership to be taxable as a
corporation or to be treated as an association taxable as a corporation for
federal income tax purposes, such withdrawal to take effect on the date
specified in such notice.
(d) Withdrawal of the Managing General Partner from the Partnership upon
the occurrence of an Event of Withdrawal will not constitute a breach of this
Agreement under the following circumstances: (i) at any time that the Managing
General Partner ceases to be a Managing General Partner pursuant to Section
13.1(b)(ii) hereof or is removed pursuant to Section 13.2 hereof; or (ii)
notwithstanding Section 13.1(c) above, at any time that the Managing General
Partner voluntarily withdraws by giving at least 90 days' advance written 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
more than 50% of the Outstanding Units held by Persons other than the
withdrawing Managing General Partner and its Affiliates are owned beneficially
or of record or controlled at any time by one Person or its Affiliates. If the
Managing General Partner gives a notice of withdrawal pursuant to Section
13.1(b)(i) hereof or if the Managing General Partner is removed pursuant to
Section 13.2 hereof, holders of at least a majority in interest of the
outstanding Outstanding Units (including (excluding for purposes of such
determination Units owned by the Managing General Partners Partner and their its
Affiliates) may, prior to the effective date of such withdrawal, elect a
successor Managing General Partner and agree to continue the business of the
Partnership, provided that such majority in interest satisfies the provisions of
Section 4 of Internal Revenue Service Revenue Procedure 94-46. If prior to the
effective date of the Managing General Partner's withdrawal, a successor is not
selected by the Limited Partners as provided herein or the Partnership does not
receive an Opinion of Counsel that such withdrawal (following the selection of
the successor Managing General Partner) would not result in the loss of the
limited liability of the holders of Units or cause the Partnership to be taxable
as a corporation or to be treated as an association taxable as a corporation for
federal income tax purposes, the Partnership shall be dissolved in accordance
with Section 14.1 hereof. If a successor Managing General Partner is elected and
the Opinion of Counsel rendered as provided herein, such successor shall be
admitted (subject to Section 12.3 hereof) immediately prior to the effective
time of the withdrawal of the departing Managing General Partner and shall
continue the business of the Partnership without dissolution.
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13.2 Removal of the Managing General Partner. The Managing General Partner
may be removed only if such removal is approved by the written consent or
affirmative vote of Limited Partners holding not less than 66 2/3% 66 2/3% of
the Outstanding Units; provided, however, that after March 31, 1998, if the
Series B Preferred Units and the Series C Preferred Units have not, on or before
such date, become issuable by the Partnership in exchange for the convertible
senior notes pursuant to the terms of the Note Agreement, the Managing General
Partner may be removed if such removal is approved by the written consent or
affirmative vote of Limited Partners holding not less than 51% of the
Outstanding Units. Any such action by the Limited Partners for removal of the
Managing General Partner must also provide for the election and succession of a
new Managing General Partner. Such removal shall be effective immediately
following the admission of the successor Managing General Partner pursuant to
Section 12.3 hereof. The right of the Limited Partners to remove the Managing
General Partner shall not exist or be exercised unless the Partnership has
received an Opinion of Counsel that the removal of the Managing General Partner
and the selection of a successor Managing General Partner will not result in (i)
the loss of limited liability of any Limited Partner in the Partnership or (ii)
the taxation of the Partnership as a corporation or the treatment of the
Partnership as an association taxable as a corporation for federal income tax
purposes.
13.3 Interest of Departing Managing General Partner and Successor Managing
General Partner. (a) In the event of (i) withdrawal of the Managing General
Partner under circumstances where such withdrawal does not violate this
Agreement or (ii) removal of the Managing General Partner by the Limited
Partners, the departing Managing General Partner shall, at its option
exercisable prior to the effective date of the departure of such departing
Managing General Partner, promptly receive from its successor in exchange for
its Partnership Interest as Managing General Partner an amount in cash equal to
the fair market value of the departing Managing General Partner's Partnership
Interest as Managing General Partner, such amount to be determined and payable
as of the effective date of its departure. If the Managing General Partner
withdraws under circumstances where such withdrawal violates this Agreement, its
successor shall have the option described in the immediately preceding sentence,
and the departing Managing General Partner shall not have such option. In either
event, the departing Managing General Partner shall be entitled to receive all
reimbursements due such departing Managing General Partner pursuant to Section
6.4 hereof, including any employee-related liabilities (including severance
liabilities only in the event of (i) withdrawal of the Managing General Partner
under circumstances where such withdrawal does not violate this Agreement or
(ii) removal of the Managing General Partner by the Limited Partners), incurred
in connection with the termination of any employees employed by the departing
Managing General Partner for the benefit of the Partnership. Subject to Section
13.3(b) hereof, the departing Managing General Partner shall, as of the
effective date of its departure, cease to share in any allocations or
distributions with respect to its Partnership Interest as the Managing General
Partner and Partnership income, gain, loss, deduction and credit will be
prorated and allocated as set forth in Section 5.1(d) hereof.
For purposes of this Section 13.3(a), the fair market value of the
departing Managing General Partner's Partnership Interest as Managing General
Partner herein shall be determined by agreement between the departing Managing
General Partner and its successor or, failing agreement within 30 days after the
effective date of such departing Managing General Partner's departure, by an
independent investment banking firm or other independent expert selected by the
departing Managing General 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 such firm shall be designated by the independent investment
banking firms or other independent experts selected by each of the departing
Managing General Partner and its successor. In making its determination, such
independent investment banking firm or other independent expert shall 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 Managing General Partner and other factors it may deem
relevant.
(b) If its Partnership Interest is not acquired in the manner set forth in
Section 13.3(a) hereof, the departing Managing General Partner shall become a
Limited Partner and its Partnership Interest in the Partnership shall be
converted into Common Units equal to the fair market value of such interest
pursuant to a
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valuation made by an investment banking firm or other independent expert
selected pursuant to Section 13.3(a) hereof, without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). In the event that upon withdrawal more than one
class or series of Units shall be outstanding, the Managing General Partner
shall receive Units of each such class or series in such ratios as shall be
equal to the rates of the total outstanding Units of such class or series. The
Partnership shall indemnify the departing Managing General Partner as to all
debts and liabilities of the Partnership arising on or after the date on which
the departing Managing General Partner becomes a Limited Partner, including
employee related liabilities, including severance liabilities, incurred in
connection with the termination of the employees employed by the departing
Managing General Partner for the benefit of the Partnership. For purposes of
this Agreement, the departing Managing General Partner's conversion of its
Partnership Interest to Common Units will be characterized as if the departing
Managing General Partner contributed its Partnership Interest to the Partnership
in exchange for the newly-issued Common Units.
(c) If the option described in Section 13.3(a) hereof is not exercised by
the party entitled to do so, the successor Managing General Partner shall, at
the effective date of its admission to the Partnership, contribute to the
capital of the Partnership cash in an amount such that its Capital Account,
after giving effect to such contribution and any adjustments made to the Capital
Accounts of all Partners pursuant to Section 4.6(d)(i) 4.4(d)(i) hereof, shall
be equal to that percentage of the Capital Accounts of all Partners that is
equal to its Percentage Interest as the Managing General Partner. In such event,
each successor Managing General Partner shall, subject to the following
sentence, be entitled to such Percentage Interest of all Partnership allocations
and distributions and any other allocations and distributions to which the
departing Managing General Partner was entitled. In addition, such successor
Managing General Partner shall cause this Agreement to be amended to reflect
that, from and after the date of such successor Managing General Partner's
admission, the successor Managing General Partner's interest in all Partnership
distributions and allocations shall be 1.9%, and that of the Special General
Partner and the Limited Partner Partners shall be 0.1% and 98%, respectively.
13.4 Withdrawal or Removal of Special General Partner. (a) The Special
General Partner may withdraw from the Partnership in the capacity of Special
General Partner (i) upon 30 days' advance written notice to the Managing General
Partner or (ii) by transferring its general partner interest in the Partnership
pursuant to Section 11.2 hereof. Such withdrawal shall take effect on the date
specified in such notice. Upon receiving such notice, the Managing General
Partner shall select a successor Special General Partner within such 30-day
period. Any withdrawal of the Special General Partner shall not become effective
unless the Partnership has received by the end of such 30-day period an Opinion
of Counsel that such withdrawal will not result in the loss of limited liability
of any Limited Partner or cause the Partnership to be treated as a corporation
or as an association taxable as a corporation for federal income tax purposes.
Following any withdrawal of the Special General Partner, the business and
operations of the Partnership shall be continued by the Managing General
Partner.
(b) In addition to the voluntary withdrawal described above, the Special
General Partner shall be deemed to have withdrawn (i) when and if, the Special
General Partner (A) makes a general assignment for the benefit of creditors, (B)
files a voluntary bankruptcy petition, (C) files a petition or answer seeking
for itself a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any law, (D) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against the Special General Partner in a proceeding of the type
described in clauses (A)-(C) of this subsection, or (E) seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator of the
Special General Partner or of all or any substantial part of its properties; or,
(ii), when a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the Special General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the Special General Partner, in each case
under any federal or state bankruptcy or insolvency laws as now or hereinafter
in effect; or (iii) when a certificate of dissolution or its equivalent is filed
for the Special General Partner, or 90 days expire after the date of notice to
the Special General Partner of revocation of its charter without a reinstatement
of its charter, under the laws of its state of incorporation.
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(c) The Special General Partner may be removed only if such removal is
approved by the written consent or affirmative vote of Limited Partners holding
not less than 66 2/3% 66 2/3% of the Outstanding Units. Any such action by the
Limited Partners for removal of the Special General Partner must also provide
for the approval of the successor Special General Partner. Such removal shall be
effective immediately following the admission of the successor Special General
Partner pursuant to Article XII hereof. The right of the Limited Partners to
remove the Special General Partner shall not exist or be exercised unless the
Partnership has received an Opinion of Counsel that the removal of the Special
General Partner and the selection of a successor Special General Partner will
not result in (i) the loss of limited liability of any Limited Partner or (ii)
the taxation of the Partnership as a corporation or the treatment of the
Partnership as an association taxable as a corporation for federal income tax
purposes unless already so taxed.
(d) Upon the withdrawal or removal of the Special General Partner under
this Section 13.4 (except by reason of a transfer of the interest made pursuant
to Section 11.2 hereof), the Partnership shall distribute to the Special General
Partner an amount of cash equal to the positive balance in its Capital Account
(following the adjustment of its Capital Account in accordance with Section 4.6
4.4 hereof).
(e) Notwithstanding the other provisions of this Section 13.4, a successor
Special General Partner or a successor special general partner of any Operating
Partnership need not be selected if the Partnership has received an Opinion of
Counsel that the failure to select a successor would not cause the Partnership
or any Operating Partnership to be treated as a corporation or as an association
taxable as a corporation for federal income tax purposes.
13.5 Withdrawal of Limited Partners. Except as provided in Section 13.5
hereof, no Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of a Limited Partner's
Units becomes a Record Holder, such transferring Limited Partner shall cease to
be a Limited Partner with respect to the Units so transferred.
13.6 Continuation of Partnership. Upon the withdrawal or removal of any
General Partner, any successor General Partner or any remaining General Partner
is authorized to and shall carry on the business of the Partnership.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1 Dissolution. The Partnership shall not be dissolved by the admission
of Substituted Limited Partners or Additional Limited Partners, the admission of
successor General Partners in accordance with the terms of this Agreement or the
withdrawal of the Special General Partner pursuant to Section 13.4 hereof. Upon
the removal or withdrawal of the Managing General Partner, any successor
Managing General Partner shall continue the business of the Partnership. The
Partnership shall dissolve, and its affairs shall be wound up, upon:
(a) the expiration of its terms as provided in Section 1.5 hereof;
(b) an Event of Withdrawal of the Managing General Partner as provided
in Section 13.1(b) hereof, unless a successor is named as provided in
13.1(c) 13.1(d) hereof;
(c) an election to dissolve the Partnership by the Managing General
Partner that is approved by the written consent or the affirmative vote of
holders of at least 66 2/3% of the Outstanding Units prior to the Initial
Conversion Date and, thereafter, by the written consent or affirmative vote
of holders of at least a majority of the Outstanding Units.
(d) 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.
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14.2 Continuation of the Business of the Partnership after Dissolution.
Upon (i) dissolution of the Partnership following an Event of Withdrawal caused
by the withdrawal or removal of the Managing General Partner and a failure of
the requisite number of Partners to agree to continue the business of the
Partnership and appoint a successor Managing General Partner as provided in
Sections 13.1 and 13.2 hereof, then within an additional 90 days or (ii)
dissolution of the Partnership upon an event constituting an Event of Withdrawal
as defined in Section 13.2(b)(iv) 13.1(b)(iv) hereof, then within 180 days
thereafter, at least a majority in interest of the outstanding Outstanding Units
may elect to reconstitute the Partnership and continue its business on the same
terms and conditions set forth in this Agreement by forming a new limited
partnership on terms identical to those set forth in this Agreement and having
as a managing general partner a Person approved by the holders of at least a
majority of the outstanding Units Outstanding Units, provided that such majority
in interest satisfies the provisions of Section 4 of Internal Revenue Service
Revenue Procedure 94-46. Upon any such election by the holders of at least a
majority of the outstanding Outstanding Units, all Partners shall be bound
thereby and shall be deemed to have approved thereof. Unless such an election is
made within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:
(a) the reconstituted Partnership shall continue until the end of the
term set forth in Section 1.5 hereof unless earlier dissolved in accordance
with this Article XIV;
(b) if the successor Managing General Partner is not the former
Managing General Partner, then the interest of the former Managing General
Partner shall be treated thenceforth as the interests of a Limited Partner
and converted into Common Units in the manner provided in Section 13.3(b)
hereof; and
(c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary,
to file a new partnership agreement and certificate of limited partnership,
and the successor Managing General Partner may for this purpose exercise
the powers of attorney granted the Managing General Partner pursuant to
Section 1.4 hereof; provided, that the right of the holders of at least a
majority of outstanding Outstanding Units to approve a successor managing
general partner and to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (x) the exercise of the right would
not result in the loss of limited liability of any Limited Partner and (y)
neither the Partnership nor the reconstituted limited partnership would
become taxable as a corporation or treated as an association taxable as a
corporation for federal income tax purposes upon the exercise of such right
to continue.
14.3 Liquidation. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2 hereof, the Managing General Partner, or in
the event the Managing General Partner has been dissolved or removed, become
bankrupt as set forth in Section 13.1 hereof or withdrawn from the Partnership,
a liquidator or liquidating committee approved by the holders of at least a
majority of the outstanding Outstanding Units, shall be the Liquidator. The
Liquidator (if other than the Managing General Partner) shall be entitled to
receive such compensation for its services as may be approved by the holders of
at least a majority of the outstanding Outstanding Units. The Liquidator shall
agree not to resign at any time without 15 days' prior written notice and (if
other than the Managing General Partner) may be removed at any time, with or
without cause by notice of removal approved by at least a majority of the
outstanding Outstanding Units. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to
all rights, power and duties of the original Liquidator) shall within 30 days
thereafter be approved by the holders of at least a majority of the outstanding
Outstanding Units. The right to approve a successor or substitute Liquidator in
the manner provided herein shall be deemed to refer also to any such successor
or substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XIV, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
Managing General Partner under the terms of this Agreement (but subject to all
of the applicable limitations, contractual and otherwise, upon the exercise of
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such powers, other than the limitation on sale set forth in Section 6.3(b)
hereof) 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. The Liquidator shall liquidate the assets of
the Partnership, and apply and distribute the proceeds of such liquidation in
the following order of priority, unless otherwise required by mandatory
provisions of applicable law:
(a) the payment to creditors of the Partnership, including Partners
who are creditors, in order of priority provided by law; and the creation
of a reserve of cash or other assets of the Partnership for contingent
liabilities in an amount, if any, determined by the Liquidator to be
appropriate for such purposes;
(b) to holders of Series B Preferred Units and Series C Preferred
Units, if any, in accordance with the terms of the Certificate of
Designation Designations of such Units;
(c) to holders of other classes of Partnership Securities, if any, in
accordance with the terms of their respective Certificates of Designations;
and
(c) (d) to all Partners in accordance with and to the extent of the
positive balances in their respective Capital Accounts after taking into
account adjustments to such Capital Accounts pursuant to Article V hereof.
14.4 Distributions in Kind. Notwithstanding the provisions of Section 14.3
hereof which require the liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if the Liquidator
determines that an immediate sale of part or all of the Partnership's assets
would be impractical or would cause undue loss to the Partners, the Liquidator
may, in its absolute discretion, defer for a reasonable time the liquidation of
any assets except those necessary to satisfy liabilities of the Partnership
(including those to Partners as creditors) and/or distribute to the Partners or
to specific classes of Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 14.3 hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Limited Partners, and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator deems reasonable
and equitable and to any agreements governing the operation of such properties
at such time. The Liquidator shall determine the fair market value of any
property distributed in kind using such reasonable method of valuation as it may
adopt, and the Partners' Capital Accounts shall be adjusted to reflect the
manner in which the unrealized income, gain, loss, and deduction interest in
that property that has not previously been reflected in the Capital Accounts
would be allocated among the Partners if there were a taxable disposition of
that property for fair market value on the date of distribution.
14.5 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 14.3 and 14.4 hereof, 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 cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
14.6 Reasonable Time for Winding-Up. A reasonable time shall be allowed for
the orderly winding-up of the business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 14.3 hereof, in order to minimize
any losses otherwise attendant upon such winding-up and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
14.7 Return of Capital. No General Partner shall be personally liable for
the return of the Capital Contribution of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
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14.8 No Capital Account Restoration. No Partner shall have any obligation
to restore any negative balance in its Capital Account upon liquidation of the
Partnership.
14.9 Waiver of Partition. Each Partner hereby waives any right to partition
of the Partnership property.
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
15.1 Amendment to be Adopted Solely by Managing General Partner. Each
Limited Partner agrees that the Managing General Partner (pursuant to its powers
of attorney from the Limited Partners and Assignees), without the approval of
any Limited 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 or the
registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Limited or
Initial General Partners in accordance with this Agreement:
(c) a change that, in the sole discretion of the Managing General
Partner, is reasonable and necessary or appropriate 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, subject to the provisions of Section 1.6 hereof, that
is necessary or advisable in the opinion of the Managing General Partner to
ensure that the Partnership will not be taxable as a corporation or treated
as an association taxable as a corporation for federal income tax purposes.
(d) a change (i) that does not adversely affect the Limited Partners
in any material respect, (ii) that is necessary or desirable to satisfy any
requirements, conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or judicial
authority or contained in any federal or state statute (including, without
limitation, the Delaware Act) or that is necessary or desirable to
facilitate the trading of the Depositary Units (including, without
limitation, the division of outstanding Outstanding Units into different
classes in order to facilitate uniformity of tax consequences within such
classes of Units) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the Depositary
Units are or will be listed for trading, compliance with any of which the
Managing General Partner determines to be in the best interests of the
Partnership and the Limited Partners or (iii) that is required to effect
the intent of the provisions of this Agreement or is otherwise contemplated
by this Agreement;
(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or any General Partner or its directors or officers
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, whether or not substantially
similar to plan asset regulations currently applied or proposed by the
United States Department of Labor;
(f) subject to the terms of Section 4.4 4.2 hereof, an amendment that
the Managing General Partner determines in its sole discretion to be
necessary or desirable in connection with the authorization for issuance of
any class or series of Units pursuant to Section 4.4 hereof; 4.2 hereof,
including the creation of any Certificate of Designations;
(g) any amendment expressly permitted in this Agreement to be made by
the Managing General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 16.3 hereof; or
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(i) any other amendments similar to the foregoing.
15.2 Amendment Procedures. Except as provided in Sections 15.1 and 15.3
hereof, all amendments to this Agreement shall be made in accordance with the
following requirements: If an amendment is proposed, the Managing General
Partner shall seek the written approval of the requisite Percentage Interests or
call a meeting of the Limited Partners to consider and vote on such proposed
amendment. Each such proposal to the Limited Partners shall contain the text of
the proposed amendment. A proposed amendment shall be effective upon its
approval by the holders of at least 66 2/3% of the Outstanding Units prior to
the Initial Conversion Date and after the Initial Conversion Date upon approval
by holders of at least a majority of the Outstanding Units unless a greater or
different percentage is required under this Agreement. The Managing General
Partner shall notify all Record Holders upon final adoption of any proposed
amendment. Amendments to Certificates of Designations shall be made in
accordance with Section 4.1.
15.3 Amendment Requirements. (a) Amendments to this Agreement may be
proposed solely by the Managing General Partner. Notwithstanding the provisions
of Sections 15.1 and 15.2 hereof, no provision of this Agreement which
establishes a Percentage Interest required to take any action shall be amended,
altered, changed, repealed or rescinded in any respect which would have the
effect of reducing such voting requirement unless such amendment is approved by
the written consent or the affirmative vote of Partners whose aggregate
Percentage Interests constitute not less than the voting requirement sought to
be reduced.
(b) Notwithstanding the provisions of Sections 15.1 and 15.2 hereof, (i)
the approval of the Special General Partner shall be required for any amendment,
if such amendment would change the Special General Partner's Percentage Interest
or increase the Special General Partner's duties or liabilities or if the
Partnership has received an Opinion of Counsel that such amendment would have a
materially adverse consequence to the Special General Partner and (ii) the
approval of the Special General Partner shall be required for any amendment if
such amendment would change the provisions altering the timing of subordination
in respect of distributions affecting the Common Units.
(c) Notwithstanding the provisions of Sections 15.1 and 15.2 hereof, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner, (ii) modify the compensation payable to the Managing General Partner or
any Affiliates of the Managing General Partner by the Partnership, (iii) change
Section 14.1(a) or (c) hereof, (iv) restrict in any way any action by or rights
of the Managing General Partner as set forth in this Agreement or (v) except as
set forth in Section 14.1(c) hereof, give any person the right to dissolve the
Partnership.
(d) In the event at any time there exists any class or series of
outstanding Outstanding Units having any rights or preferences different from
the rights or preferences of any other class or series of outstanding
Outstanding Units, no amendment shall be effective which the Managing General
Partner determines would have a material adverse effect on the rights and
preferences of any such class or series of outstanding Outstanding Units
without, in addition to any other required approval, the approval by written
consent or affirmative vote of 66 2/3% in interest of the holders of the
Outstanding Units of such class or series.
(e) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 15.1 hereof, no amendment shall become effective
without the approval of the Record Holders of all Units unless the Partnership
obtains an Opinion of Counsel to the effect that (i) such amendment would not
cause the Partnership to become taxable as a corporation or treated as an
association taxable as a corporation for federal income tax purposes and (ii)
such amendment will not affect the limited liability of any Limited Partner in
the Partnership under applicable law.
(f) This Section 15.3 shall only be amended with the approval by written
consent or affirmative vote of the holders of not less than 90% of the
Outstanding Units.
15.4 Meetings. All acts of Limited Partners to be taken hereunder shall be
taken in the manner provided in this Article XV. Meetings of the Limited
Partners may be called by the Managing General Partner or by Limited Partners
owning 20% or more of the outstanding Outstanding Units of the class for which a
meeting is proposed. Limited Partners shall call a meeting by delivering to the
Managing General Partner one or more
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requests in writing stating that the signing Limited Partners wish to call a
meeting and indicating the general or specific purposes for which the meeting is
to be called. Within 60 days after receipt of such a call from Limited Partners
or within such greater time as may be reasonably necessary for the Partnership
to comply with any statutes, rules, regulations, listing agreements or similar
requirements governing the holding of a meeting or the solicitation of proxies
for use at such a meeting, the Managing General Partner shall send a notice of
the meeting to the Limited Partners either directly or indirectly through the
Transfer Agent. A meeting shall be held at a time and place determined by the
Managing General Partner on a date not 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 laws of any
other state in which the Partnership is qualified to do business.
15.5 Notice of a Meeting. Notice of a meeting called pursuant to Section
15.4 hereof shall be given to the Record Holders in writing by mail or other
means of written communication in accordance with Section 17.1 19.1 hereof. 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.
15.6 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 15.11 hereof, the Managing
General Partner may set a Record Date, which shall not be less than 10 nor more
than 60 days before (a) the date of the meeting (unless such requirement
conflicts with any rule, regulation, guideline or requirement of any National
Securities Exchange on which the Units 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 on which
Limited Partners are requested in writing by the Managing General Partner to
give such approvals.
15.7 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
XV.
15.8 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 had 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, each of the Limited Partners entitled to
vote, present in person or by proxy, signs 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.
15.9 Quorum. 66 2/3% of the Outstanding Units of the class for which a
meeting has been called represented in person or by proxy shall constitute a
quorum at a meeting of Limited Partners of such class unless any such action by
the Limited Partners requires approval by holders of a smaller percentage of
Outstanding Units, in which case, the quorum shall be the percentage of
Outstanding Units required for approval. 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 whose Percentage Interests represent at
least a majority of the Percentage 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 different percentage is required with respect to such
action under the provisions of this Agreement, in which case the act of the
Limited Partners owning such different percentage shall be required. The Limited
Partners present at a duly called or held meeting at
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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 Interests of the Limited Partners specified in this Agreement. In the
absence of a quorum, any meeting of Limited Partners may be adjourned from time
to time by the affirmative vote of a majority of the Percentage Interests
represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 15.7 hereof.
15.10 Conduct of Meeting. The Managing General Partner shall have full
power and authority concerning the manner of conducting any meeting of the
Limited Partners or solicitation of approvals in writing, including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 15.4 hereof, the conduct
of voting, the validity and effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or during the
meeting or voting. The Managing General Partner shall designate a Person to
serve as chairman of any meeting and shall further designate a Person to take
the minutes of any meeting, in either case including, without limitation, a
Partner or a director or officer of the Managing General Partner. All minutes
shall be kept with the records of the Partnership maintained by the Managing
General Partner. The Managing General Partner may make such other regulations
consistent with applicable law and this Agreement as it may deem advisable
concerning the conduct of any meeting of the Limited Partners or solicitation of
approvals in writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and approvals, the
submission and examination of proxies and other evidence of the right to vote,
and the revocation of approvals in writing.
15.11 Action Without a Meeting. 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 Interests that would be necessary to authorize or
take such action at a meeting at which all the Limited Partners were present and
voted. Prompt notice of the taking of action without a meeting shall be given to
the Limited Partners who have not approved in writing. The Managing General
Partner may specify that any written ballot submitted to Limited Partners for
the purpose of taking any action without a meeting shall be returned to the
Partnership within the time period, which shall not be less than 20 days,
specified by the Managing General Partner. If a ballot returned to the
Partnership does not vote all of the Units held by the Limited Partner, the
Partnership shall be deemed to have failed to receive a ballot for the Units
which were not voted. If approval of the taking of any action by the Limited
Partners is solicited by any Person other than by or on behalf of the Managing
General Partner, the written approvals shall have no force and effect unless and
until (a) they are deposited with the Partnership in care of the Managing
General Partner, (b) approvals sufficient to take the action proposed are dated
as of a date not more than 90 days prior to the date sufficient approvals are
deposited with the Partnership and (c) an Opinion of Counsel is delivered to the
Managing General Partner as to whether the exercise of such right and the action
proposed to be taken with respect to any particular matter (i) 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, (ii) would jeopardize the status of the Partnership
as a partnership under applicable tax laws and regulations and (iii) is
otherwise permissible under the state statutes then governing the rights, duties
and liabilities of the Partnership and the Partners.
15.12 Voting and Other Rights. (a) Only those Record Holders of Units on
the Record Date set pursuant to Section 15.6 hereof 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 approvals are solicited.
(b) With respect to Units 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 Units are registered,
such broker, dealer or other agent shall, in exercising the voting rights in
respect of such Units on any matter, and unless the arrangement between such
Persons provides otherwise, vote such Units in favor of, and at the direction
of, the Person who is the beneficial owner, and the Partnership shall be
entitled to assume it is so acting without further inquiry. The provisions of
this Section 15.12(b) (as well as all other provisions of this Agreement) are
subject to the provisions of Section 10.4 hereof.
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ARTICLE XVI
MERGER
16.1 Authority. The Partnership may merger merge or consolidate with one or
more corporations, business trusts or associations, real estate investment
trusts, common law trusts or unincorporated businesses, including, without
limitation, 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 XVI.
16.2 Procedure for Merger or Consolidation. Merger or consolidation of the
Partnership pursuant to this Article requires the prior approval of the Managing
General Partner. If the Managing General Partner shall determine, in the
exercise of its sole discretion, to consent to the merger or consolidation, the
Managing General Partner shall approve the Merger Agreement, which shall set
forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated as 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 partnership interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if any general or
limited partnership 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 partnership interests, rights,
securities or obligations of the Surviving Business Entity, the cash,
property, or general or limited partnership interests, rights, securities
or obligations of any limited partnership, corporation, trust on or other
entity (other than the Surviving Business Entity) which the holders of such
general or limited partnership interests are to receive in exchange for, or
upon conversion of, their 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 partnership
interests, rights, securities or obligations of the Surviving Business
Entity or any 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 (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 16.4 hereof 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, it 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 desirable.
16.3 Approval by Limited Partners of Merger or Consolidation. (a) The
Managing General Partner of the Partnership, upon its approval of the Merger
Agreement, shall direct that the Merger Agreement be submitted to a vote of
Limited Partners whether at a meeting or by written consent, in either case in
accordance with the requirements of Article XV hereof. A copy or a summary of
the Merger Agreement shall be included in or enclosed with the notice of a
meeting or the written consent.
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(b) During the Initial Period, the The Merger Agreement shall be approved
upon receiving the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding Units of each class, and thereafter, by the
affirmative vote or consent of the holders of a majority of the Outstanding
Units, unless the Merger Agreement contains any provision which, if contained in
an amendment to the Agreement, the provisions of this Agreement or the Delaware
Act would require the vote or consent of a greater percentage of the Percentage
Interests of the Limited Partners 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) 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
16.4 hereof, the merger or consolidation may be abandoned pursuant to provisions
therefor, if any, set forth in the Merger Agreement.
16.4 Certificate of Merger. Upon the required approval by the Managing
General Partner and Limited Partners of a Merger Agreement, a certificate of
merger shall be executed and filed with the Secretary of State of the State of
Delaware in conformity with the requirements of the Delaware Act.
16.5 Effect of Merger. (a) Upon the effective date 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 having occurred.
16.6 Exempt Transaction. Notwithstanding any other provisions of this
Article XVI, the merger of Pride Pipeline Limited Partnership, an Oklahoma
limited partnership, with and into the Partnership as described in the
Registration Statement shall be subject to the approval of the Merger Agreement
therefor by the Managing General Partner in its sole discretion and shall not be
subject to approval by the Limited Partners as referenced in Section 16.3
hereof.
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ARTICLE XVII
RIGHT TO ACQUIRE COMMON UNITS
17.1 Right to Acquire Common Units. (a) Notwithstanding the provisions of
Section 13.1(a) hereof or any other provision of this Agreement, in the event
that at any time after the Initial Conversion Date less than 10% of the total
Common Units outstanding are held by Persons other than the General Partners and
any Affiliate of the General Partners, the Managing General Partner shall then
have the right, which right it may assign and transfer to the Partnership or any
Affiliates of the Managing General Partner, exercisable in its sole discretion,
to purchase all, but not less than all, of the Common Units outstanding held by
Persons other than the General Partners and any Affiliates of the General
Partners, at the greater of (y) the Current Market Price as of the date the
notice described in Section 17.1(b) hereof is mailed or (z) the highest cash
price paid by either of the General Partners or any of their Affiliates for any
Unit purchased during the 90-day period preceding the date that the notice
described in Section 17.1(b) hereof is mailed. As used herein, (i) "Current
Market Price" of any class of Units listed or admitted to trading on any
National Securities Exchange means the average of the daily Closing Prices per
Unit of such class for the 30 consecutive Trading Days (as hereinafter defined)
immediately prior to such date and (ii) "Trading Day" means a day on which the
principal National Securities Exchange on which the Units of any class are
listed or admitted to trading is open for the transaction of business or, if
Units of a class are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.
(b) If the Managing General Partner, any Affiliate of the Managing General
Partner or the Partnership elects to exercise either right to purchase Common
Units granted pursuant to Section 17.1(a) hereof, the Managing General Partner
shall deliver to the Transfer Agent written notice of such election to purchase
(hereinafter in this Section 17.1 called 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 Common Units (as of a Record Date selected by
the Managing General Partner) at least 10, but not more than 60, days prior to
the Purchase Date. Such Notice of Election to Purchase shall also be published
in 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 17.1(a) hereof) at which Common Units will be purchased and state
that the Managing General Partner, any Affiliate of the Managing General Partner
or the Partnership, as the case may be, elects to purchase such Common Units,
upon surrender of Depositary Receipts with respect to such Common Units 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 the Common Units are listed or admitted to trading. Any such
Notice of Election to Purchase mailed to a Record Holder of Common Units at his
address as reflected in the records of the Transfer Agent shall be conclusively
presumed to have been given whether or not the owner receives such notice. On or
prior to the Purchase Date, the Managing General Partner, any Affiliate of the
Managing General Partner 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 the Common Units to be purchased in accordance with
this Section 17.1. 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 Common Units subject to purchase as
provided herein, then from and after the Purchase Date, notwithstanding that any
Depositary Receipt shall not have been surrendered for purchase, all rights of
the holders of such Common Units (including, without limitation, any rights
pursuant to Articles IV, V and XIV hereof) shall thereupon cease, except the
right to receive the purchase price (determined in accordance with Section
17.1(a) hereof) for Common Units therefor, without interest, upon surrender to
the Transfer Agent of the Depositary Receipts representing such Common Units,
and such Common Units shall thereupon be deemed to be transferred to the
Managing General Partner, any Affiliate of the Managing General Partner or the
Partnership, as the case may be, on the record books of the Transfer Agent and
the Partnership, and the Managing General Partner or any Affiliate of the
Managing General Partner, or the Partnership, as the case may be, shall be
deemed to be the owner of all such Common Units from and after the Purchase Date
and shall have all rights as the owner
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of such Common Units (including, without limitation, all rights as owner of such
Common Units pursuant to Articles IV, V and XIV hereof).
(c) At any time from and after the Purchase Date, a holder of an
outstanding Outstanding Unit subject to purchase as provided in this Section
17.1 may surrender his Depositary Receipt or Certificate, as the case may be,
evidencing such Unit to the Transfer Agent in exchange for payment of the amount
described in Section 17.1(a) therefor without interest thereon.
ARTICLE XVIII
CHANGES TO PREVIOUS CAPITALIZATION
OF THE PARTNERSHIP
18.1 Changes in Capitalization Effective Upon the Effective Date. Upon the
Effective Date:
(a) Each Outstanding common unit of the Partnership shall become, and
shall become one-twenty first of one Common Unit, and
(b) Each Outstanding convertible preferred unit of the Partnership
shall become one Common Unit.
18.2 Elimination of Cumulative Distribution Arrearages. Upon the Effective
Date, all cumulative distribution arrearages with respect to the Partnership's
common units and convertible preferred units Outstanding immediately prior to
the Effective Date shall be eliminated in accordance with the terms of the
Consent Solicitation.
ARTICLE XIX
GENERAL PROVISIONS
18.1 19.1 Addresses and Notices. Any notice, demand, request or report
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 Unit 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 Unit or the Partnership Interest of a General Partner by reason of an
assignment or otherwise. An affidavit or certificate of making of any notice,
payment or report in accordance with the provisions of this Section 19.1
executed by the Managing General Partner, the Transfer Agent or the mailing
organization shall be prima facie evidence of the giving or making of such
notice, payment or report. If any notice, payment or report addressed to a
Record Holder at the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by the United
States Post Office marked to indicate that the United States Postal Service is
unable to deliver it, such notice, payment or report and any subsequent notices,
payments and reports shall be deemed to have been duly given or made without
further mailing (until such time as such Record Holder or another Person
notifies the Transfer Agent or the Partnership of a change in his address ) if
they are available for the Partner or Assignee at the principal office of the
Partnership for a period of one year from the date of the giving or making of
such notice, payment or report to the other Partners and Assignees. Any notice
to the Partnership shall be deemed given if received by the Managing General
Partner at the principal office of the Partnership designated pursuant to
Section 1.3 hereof. The Partnership and the Managing General Partner may rely
and shall be protected in relying on any notice or other document from a Partner
or other Person if believed by them to be genuine.
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18.2 19.2 Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
18.3 19.3 Pronouns and Plurals. Whenever the context may require, 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.
18.4 19.4 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.
18.5 19.5 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.
18.6 19.6 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.
18.7 Creditors. None of the provisions of this Agreement (other than
Section 6.12 hereof) shall be for the benefit of, or shall be enforceable by,
any creditor of the Partnership.
18.8 19.7 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 or any other covenant, duty, agreement or
condition.
18.9 19.8 Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one 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 executing and delivering a Transfer Application as
herein described, independently of the signature of any other party.
18.10 19.9 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.
18.11 19.10 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.
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIDE COMPANIES, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP effective
as of March 29, 1990 is entered into by and among Pride Refining, Inc., a Texas
corporation, as the Managing General Partner, Pride SGP, Inc., a Texas
corporation, as the Special General Partner and the Initial Limited Partners,
together with any other Persons who become Partners in the Partnership as
provided herein. In consideration of the covenants, conditions and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
Organizational Matters
1.1 Formation and Continuation. The Managing General Partner, the
Special General Partner, and the Organizational Limited Partner have previously
formed the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act. Subject to the provisions of this Agreement, the Managing
General Partner, the Special General Partner, and the Organizational Limited
Partner hereby continue the Partnership as a limited partnership pursuant to
the provisions of the Delaware Act. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Delaware Act. The
Partnership Interest of each Partner shall be personal property for all
purposes.
1.2 Name. The name of the Partnership shall be "Pride Companies,
L.P." The Partnership's business may be conducted under any other name or
names deemed advisable by the Managing General Partner, including the name of
the Managing General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The Managing General Partner in its
sole 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.
1.3 Registered Office; Principal Office. The address of the
registered office of the Partnership in the State of Delaware shall be located
at The Corporation Trust Center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801, and the registered agent for service of process on
the Partnership in the State of Delaware at such registered office shall be The
Corporation Trust Company. The principal office of the Partnership shall be
500 Chestnut, Suite 1300, Abilene, Texas 79602 or such other place as the
Managing General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain
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offices at such other places within or outside the State of Delaware as the
Managing General Partner deems advisable.
1.4 Power of Attorney. (a) Each Limited Partner and each
Assignee hereby constitutes and appoints each of the Managing General Partner
and, if a Liquidator shall have been selected pursuant to Section 14.3 hereof,
the Liquidator severally (and any successor to either thereof by merger,
transfer, assignment, election or otherwise) and authorized officers and
attorneys-in-fact of each, with full power of substitution, as its true and
lawful agent and attorney-in-fact, with full power and authority in its 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, without limitation, this
Agreement and the Certificate of Limited Partnership and all
amendments or restatements thereof) that the Managing General Partner
or the Liquidator deems appropriate or necessary 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 instruments that the Managing General Partner or the
Liquidator deems appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement or the Deposit
Agreement in accordance with their respective terms; (C) all
conveyances and other instruments or documents that the Managing
General Partner or the Liquidator deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership pursuant to
the terms of this Agreement, including, without limitation, a
certificate of cancellation; (D) all instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article XI, XII, XIII or XIV hereof
or the Capital Contribution of any Partner; (E) all certificates,
documents and other instruments relating to the determination of the
rights, preferences and privileges of any class or series of Units or
other securities issued pursuant to Section 4.4 hereof; and (F) all
agreements and other instruments (including, without limitation, a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XVI hereof:
(ii) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole discretion of the Managing
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary, in the sole
discretion of the Managing General Partner or the Liquidator, to
effectuate the terms or intent of this Agreement; provided, that when
required by Section 15.3 hereof or any other provision of this
Agreement which establishes a percentage of the Limited Partners or of
the Limited Partners of any class or series required to take any
action, the Managing General Partner or the Liquidator may exercise
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the power of attorney made in this subsection (ii) only after the
necessary vote, consent or approval of the Limited Partners or of the
Limited Partners of such class or series; and
(iii) on behalf of the Limited Partners and the Assignees,
enter into the Deposit Agreement and to deposit Certificates in the
Deposit Account pursuant to the Deposit Agreement.
Nothing contained herein shall be construed as authorizing the Managing General
Partner to amend this Agreement except in accordance with Article XV hereof 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 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
Managing General Partner or the Liquidator, acting in good faith pursuant to
such power of attorney; and each such Limited Partner or Assignee hereby waives
any and all defenses which may be available to contest, negate or disaffirm the
action of the Managing General Partner or the Liquidator, taken in good faith
under such power of attorney. Each Limited Partner or Assignee shall execute
and deliver to the Managing General Partner or the Liquidator within 15 days
after receipt of the Managing General Partner's or the Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the Managing General Partner or the Liquidator deems necessary to effectuate
this Agreement and the purposes of the Partnership.
1.5 Term. The Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the Delaware Act on
January 17, 1990 and shall continue in existence until the close of Partnership
business on December 31, 2090, or until the earlier termination of the
Partnership in accordance with the provisions of Article XIV hereof.
1.6 Possible Restrictions on Transfer. Notwithstanding anything
to the contrary contained herein, in the event of (i) the enactment (or
imminent enactment) of any legislation, (ii) the publication of any temporary
or final regulation by the Treasury Department, (iii) any ruling by the
Internal Revenue Service or (iv) any judicial decision, that, in any such case,
in the Opinion of Counsel, would result in the taxation of the Partnership for
federal income tax purposes as a corporation or as an association taxable as a
corporation, then, either (a) the Managing General Partner may impose such
restrictions on the transfer of Partnership Interests as may be required, in
the Opinion of Counsel, to prevent the taxation of the Partnership for federal
income tax purposes as a corporation or as an association taxable as a
corporation, including making any amendments to this Agreement as the Managing
General Partner in its sole
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discretion may determine to be necessary or appropriate in order to impose such
restrictions; provided, that any such amendment to this Agreement which would
result in the delisting or suspension of trading of any class of Units on any
National Securities Exchange on which such class of Units is then traded must
be approved by the holders of at least 66- 2/3% of the outstanding Units of
such class (excluding for purposes of such determination any Units of such
class owned by the General Partners and their Affiliates) or (b) upon the
recommendation of the Managing General Partner and the approval by the holders
of at least 66-2/3% of the outstanding Units (excluding for purposes of such
determination any Units owned by the General Partners and their Affiliates),
the Partnership may be converted into and reconstituted as a trust or any other
type of legal entity (the "New Equity") in the manner and on other terms so
recommended and approved. In such event, the business of the Partnership shall
be continued by the New Entity and the Units shall be converted into equity
interests of the New Entity in the manner and on the terms so recommended and
approved.
ARTICLE II
Definitions
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.4 hereof.
"Adjusted Capital Account" shall mean the Capital Account maintained
for each Partner as of the end of each taxable year of the Partnership (a)
increased by any amounts which 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 1.704-1(b)(4)(iv)(f)
and 1.704-1T(b)(4)(iv)(h)(5)) and (b) decreased by (i) the amount of all losses
and deductions that, as of the end of such taxable year, are reasonably
expected to be allocated to such Partner in subsequent years under Section
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 taxable 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
pursuant to a minimum gain chargeback pursuant to Sections 5.1(e)(i) or
5.1(e)(ii) hereof). 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" in respect of a Preferred Unit, a Common Unit, the
SPU, or any other specified interest in the Partnership shall be the amount
which such Adjusted Capital Account would be if such Preferred Unit, Common
Unit, SPU, or
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other interest in the Partnership were the only interest in the Partnership
held by a Limited Partner.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.6(d)(i) or 4.6(d)(ii) hereof. Once an
Adjusted Property is deemed distributed by, and recontributed to, the
Partnership for federal income tax purposes upon a termination thereof pursuant
to Section 708 of the Code, such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is further
adjusted pursuant to Section 4.6(d)(i) or 4.6(d)(ii) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, the Person in question. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agreed Allocation" shall mean allocation made pursuant to Section
5.1(a), (b), (c) or (d) hereof.
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the Managing General Partner using such reasonable method of
valuation as it may adopt. The Managing General Partner shall, in its sole
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 such properties on a
basis proportional to their fair market values.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or
more Units 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 become a Substituted Limited Partner.
"Available Cash" means, with respect to any calendar quarter, (i) the
sum of:
(A) the Partnership's net income for such quarter as
determined in accordance with generally accepted accounting principles
(excluding gain and loss on the sale of capital assets).
(B) depreciation, amortization and other noncash charges
(less noncash credits) of the Partnership for such quarter.
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(C) at the option of the Managing General Partner, a
cumulative amount not to exceed $10 million in the aggregate for such
quarter and all previous quarters prior to the Initial Conversion
Date, to the extent Available Cash in such quarter is otherwise
insufficient to distribute the Base Amount in respect of the Preferred
Units, and
(D) the amount of any reduction in reserves of the
Partnership of the types referred to in (ii)(DD) below during such
quarter:
(ii) less the sum of:
(AA) all principal debt payments made during such quarter
by the Partnership (other than principal debt payments made with
Proceeds from Capital Transactions),
(BB) capital expenditures made by the Partnership during
such quarter (excluding for such purpose capital expenditures financed
or anticipated to be refinanced with Proceeds from Capital
Transactions),
(CC) investments for such quarter in any entity to the
extent that such investments are not otherwise included under clauses
(ii) (AA) or (BB) (excluding investments financed or anticipated to be
refinanced with Proceeds from Capital Transactions), and
(DD) the amount of Partnership reserves established by the
Managing General Partner during such quarter which are necessary or
appropriate (1) to provide funds for the future payment of items of
the types specified in clauses (ii) (AA) and (ii) (BB) above, (2) to
provide for additional working capital, (3) to provide funds for cash
distributions with respect to any one or more of the next four
calendar quarters or (4) to provide funds for the future payment of
interest.
Notwithstanding the foregoing, Available Cash shall not include any
cash receipts or reductions in reserves or take into account any disbursements
made or reserves established after commencement of the dissolution and
liquidation of the Partnership.
"Base Amount" means $.65 per Unit per calendar quarter (or, with
respect to the period commencing on the Closing Date and ending on March 31,
1990, the product of $.65 multiplied by a fraction, of which the numerator is
the number of days in such period and of which the denominator is 90), subject
to adjustment in accordance with Sections 5.9 and 9.6 hereof.
"Base Distribution Deficiency" means with respect to any Preferred
Unit and as to any calendar quarter prior to the Initial Conversion Date, the
excess of (a) the Base Amount over (b) the sum of all amounts of Available Cash
distributed for such calendar quarter with respect to such Preferred Unit
pursuant to paragraph "First" of Section 5.4(a) hereof.
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"Book-Tax Disparity" shall mean, 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 4.6 hereof and the hypothetical balance of such
Partner's Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
States of New York or Texas shall not be regarded as a Business Day.
"Capital Account" means the capital account maintained pursuant to
Section 4.6 hereof.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property which a Partner contributes to the
Partnership pursuant to Section 4.1, 4.3, 4.4, 4.6(c) or 13.3(c) hereof.
"Capital Target Amount" means the product obtained by multiplying (i)
the Initial Unit Price by (ii) 115%.
"Capital Transactions" means (a) borrowings and sales of debt
securities (other than working capital borrowings, borrowings representing
items purchased on open account in the ordinary course of business and
borrowings made in order to make distributions pursuant to clause (i)(C) of the
definition of Available Cash) by the Partnership, (b) sales of equity interests
by the Partnership (other than the Initial Offering, to the extent used to make
distributions pursuant to clause (i)(C) of the definition of Available Cash)
and (c) sales or other voluntary or involuntary dispositions of any assets of
the Partnership (other than (x) sales or other dispositions of inventory in the
ordinary course of business, (y) sales or other dispositions of other current
assets including receivables and accounts and (z) sales or other dispositions
of assets as a part of normal retirements or replacements), in each case prior
to the commencement of the dissolution and liquidation of the Partnership.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' Capital
Accounts 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 4.6(d)(i) and 4.6(d)(ii) hereof, and to
reflect changes, additions or other adjustments to the Carrying Value for
disposition and acquisitions of Partnership properties, as deemed appropriate
by the Managing General Partner.
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"Certificate" means a certificate issued by the Partnership evidencing
ownership of one or more Partnership Interests.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the Managing General Partner by which an
Assignee or a Limited Partner certifies that he (and if he is a nominee holding
for the account of another Person, that to the best of his knowledge such other
Person) is an Eligible Citizen.
"Closing Date" means the first date on which Preferred Units are sold
by the Partnership to the Underwriters pursuant to the provisions of the
Underwriting Agreement.
"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 to trading on the New York Stock
Exchange or, if the Units of a class are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
National Securities Exchange on which the Units of such class are listed or
admitted to trading or, if the Units of a class are not listed or admitted to
trading on any National Securities Exchange, 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 National Association of
Securities Dealers, Inc. Automated Quotation System or such other system then
in use, or, if on any such day the Units of a 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 the Units of such
class selected by the Board of Directors of the Managing General Partner, or,
if on any such day no market maker is making a market in the Units of such
class, the fair value of such Units on such day as determined reasonably and in
good faith by the Board of Directors of the Managing General Partner using any
reasonable method of valuation.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Common Unit" means a Unit representing a fractional part of the
Partnership Interests of the Limited Partners and Assignees thereof and having
the rights and obligations specified with respect to Common Units in this
Agreement.
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"Common Unit Deficiency" means, with respect to any Common Unit and as
to any calendar quarter (i) beginning at any time prior to the Completion Date,
zero and (ii) beginning on and after the Completion Date, the excess of (a) the
Base Amount over (b) the sum of all amounts of Available Cash distributed in
such calendar quarter with respect to such Common Unit pursuant to paragraph
"Third" of Section 5.4(a) hereof.
"Completion Date" means the first day of the calendar quarter
following substantial completion and commencement of operation (as determined
by an independent engineering firm) of the expansion of the refinery as
described in the Registration Statement.
"Conflicts and Audit Committee" means a committee of the Board of
Directors of the Managing General Partner composed entirely of directors who
are neither officers or employees of, nor direct or indirect owners of more
than 5% of the voting securities of, the General Partners or their Affiliates.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash, contributed
to the Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.6(d) hereof,
such property shall no longer constitute a Contributed Property for purposes of
Section 5.1 hereof, but shall be deemed an Adjusted Property for such purposes.
"Contributing Partner" means each Partner contributing (or deemed to
have contributed on termination and reconstitution of the Partnership pursuant
to Section 708 of the Code or otherwise) a Contributed Property.
"Conveyance Agreement" means the Conveyance Agreement between the
Special General Partner and the Partnership whereby the Special General Partner
conveys to the Partnership the Assets (as defined in such Conveyance Agreement)
in exchange for (i) a 0.1% General Partner's Partnership Interest and (ii)
5,250,000 Common Units.
"Conversion Date" means the date which the Managing General Partner
specifies in its notice to Preferred Unitholders as the effective date of the
conversion of Preferred Units to Common Units.
"Conversion Event" means, at any time prior to or on the date of a
dissolution of the Partnership for the purpose of liquidation which constitutes
a Fundamental Change, (i) the termination of the Initial Period, (ii) each
annual anniversary date of the termination of the Initial Period, or (iii) the
occurrence of a Fundamental Change.
"Conversion Period" means the 60-day period commencing upon the
mailing by the Managing General Partner of any notice of a Conversion Event as
required by Section 18.1(b) hereof.
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"Conversion Rate" means one Common Unit for each Preferred Unit,
subject to adjustment in accordance with Section 18.7 hereof.
"Cumulative Base Distribution Deficiency" means, at any time, with
respect to any Preferred Unit, the excess, if any, of (a) the sum resulting
from adding together the Base Distribution Deficiency as to such Preferred Unit
for each prior quarter ending prior to the Initial Conversion Date, over (b)
the sum of any distributions theretofore made with respect to such Preferred
Unit pursuant to paragraph "Second" of Section 5.4(a) hereof, paragraph
"Second" of 5.5(a) hereof and paragraph "First" of Section 5.7(a) hereof.
"Cumulative Common Unit Deficiency" means, prior to the Initial
Conversion Date with respect to any Common Unit the excess, if any, of (a) the
sum resulting from adding together the Common Unit Deficiency for each prior
quarter, over (b) the sum of any distributions made with respect to such Common
Unit pursuant to paragraph "Fourth" of Section 5.4(a) hereof and paragraph
"Third" of Section 5.7(a) hereof: provided, however, that the Cumulative
Common Unit Deficiency shall be zero after the Initial Conversion Date.
"Cumulative Preferred Unit Deficiency" means, at any time with respect
to the any Preferred Unit, the excess, if any, of (a) the sum resulting from
adding together the Preferred Unit Deficiency as to such Preferred Unit for
each prior quarter ending after the Initial Conversion Date over (b) the sum of
any distributions theretofore made with respect to such Preferred Unit pursuant
to paragraph "Third" of Section 5.5(a) hereof and paragraph "Second" of Section
5.7(a) hereof.
"Current Market Price" shall have the meaning assigned to such term in
Section 17.1(a) hereof.
"Debt" means, as to any Person, as of any date of determination, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (c) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (d) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C.17-101, et seq., as it may be amended from time to time, and any
successor to such statute.
"Deposit Account" means the account established by the Depositary
pursuant to the Deposit Agreement.
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"Deposit Agreement" means the Deposit Agreement among the Managing
General Partner, in its capacity both as Managing General Partner and as
attorney-in-fact for the Limited Partners, the Partnership and the Depositary,
as it may be amended or restated from time to time.
"Depositary" means the bank or other institution appointed by the
Managing General Partner in its sole discretion to act as depositary for the
Depositary Units pursuant to the Deposit Agreement, or any successor to it as
depositary.
"Depositary Receipt" means a depositary receipt, issued by the
Depositary or agents appointed by the Depositary in accordance with the Deposit
Agreement, evidencing ownership of one or more Depositary Units.
"Depositary Unit" means a depositary unit representing a Unit on
deposit with the Depositary pursuant to the Deposit Agreement.
"Discretionary Allocation" shall mean any allocation of an item of
income, gain, deduction, or loss pursuant to the provisions of Section
5.1(d)(iv) hereof.
"Economic Risk of Loss" shall have the meaning set forth in Treasury
Regulation Section 1.704- 1T(b)(4)(iv)(k)(l).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership 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 the Partnership to a substantial risk of
cancellation or forfeiture of any of their property or any interest therein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor to such statute.
"First Target Amount" means $.68 per Unit (or, with respect to the
period commencing on the Closing Date and ending on March 31, 1990, the product
of $.68 multiplied by a fraction of which the numerator is the number of days
in such period and of which the denominator is 90), subject to adjustment in
accordance with Sections 5.9 and 9.6 hereof.
"Fundamental Change" shall be deemed to have occurred at such time
after the Initial Conversion Date as the Partnership (i) dissolves for the
purpose of liquidation, including a dissolution resulting from the sale, lease
or transfer of all or substantially all of the Partnership's assets, (ii)
repurchases (including repurchases by any Affiliate of the Partnership) Common
Units at a premium over the current market price or (iii) is a party to a
merger, consolidation, combination, reorganization or other transaction that
results in a reclassification, conversion,
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exchange, cancellation or other change (other than the issuance of additional
Common Units by the Partnership in an acquisition) in its Common Units.
"General Partner" means either the Managing General Partner or the
Special General Partner and "General Partners" means the Managing General
Partner and the Special General Partner.
"General Partner Equity Value" means, as of any date of determination,
the fair market value of a General Partner's Partnership Interest, as a General
Partner, as determined by the Managing General Partner using whatever
reasonable method of valuation it may adopt.
"Incentive Distribution" means any amount of cash distributed to the
Managing General Partner, in its capacity as managing general partner, pursuant
to paragraphs "Sixth," "Seventh" or "Thereafter" of Section 5.4(a) hereof and
paragraphs "Sixth," "Seventh" or "Thereafter" of Section 5.5(a) hereof which
exceeds that amount equal to 1.9% of the aggregate amount of cash then being
distributed to the Managing General Partner pursuant to such provisions.
"Incentive Interest" means an interest in the Partnership, held by the
Managing General Partner, having the right to receive the Incentive
Distribution and other rights and obligations specified in respect of the
Incentive Interest in this Agreement.
"Indemnitee" means any General Partner, any departing General Partner,
any Person who is or was an Affiliate of any General Partner or any departing
General Partner, any Person who is or was an officer, director, employee, agent
or trustee of any General Partner or any departing General Partner or any
Affiliate of any General Partner or departing General Partner, or any Person
who is or was serving at the request of any General Partner or any departing
General Partner or any Affiliate of any General Partner or any departing
General Partner as a director, officer, employee, agent or trustee of another
Person.
"Initial Conversion Date" means the first day of the third calendar
quarter following the termination of the Initial Period.
"Initial Limited Partners" means the Organizational Limited Partner,
Special General Partner in its capacity as a limited partner pursuant to the
ownership of Units and the Underwriters upon being admitted to the Partnership
in accordance with Section 4.3 hereof.
"Initial Offering" means the initial offering of Depositary Units to
the public, as described in the Registration Statement.
"Initial Offering Date" means the date on which the Initial Offering
commences.
"Initial Partners" means the Managing General Partner, the Special
General Partner, in its capacity as such, and the Initial Limited Partners.
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"Initial Period" means the period commencing upon the Closing Date and
ending on the later of (i) December 31, 1994, or (ii) the last day of the
calendar quarter in which, with respect to each Preferred Unit, the Cumulative
Base Distribution Deficiency has been paid.
"Initial Unit Price" means the initial price per Unit at which the
Underwriters will offer the Preferred Units to the public for sale.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, less any sales commission or underwriting discount charged to the
Partnership.
"Limited Partner" means each Initial Limited Partner, each Substituted
Limited Partner, each Additional Limited Partner and any departing General
Partner upon the change of its status from General Partner to Limited Partner
pursuant to Article XIII hereof and, solely for purposes of Articles IV, V and
VI hereof and Sections 14.3 and 14.4 hereof, shall include an Assignee thereof.
"Limited Partner Equity Value" means, as of any date of determination,
the amount equal to the product of (a) the total number of Units outstanding
(immediately prior to an issuance of Units or distribution of cash or
Partnership property), multiplied by (b)(i) in the case of a valuation required
by Section 4.6(d)(i) hereof (other than valuations caused by sales of a de
minimis quantity of Units) the Issue Price or (ii) in the case of a valuation
required by Section 4.6(d)(ii) hereof (or a valuation required by Section
4.6(d)(i) hereof caused by sales of a de minimis quantity of Units) the Closing
Price.
"Liquidator" means the Managing General Partner or other Person
approved pursuant to Section 14.3 hereof who performs the functions described
therein.
"Managing General Partner" means Pride Refining Inc., a Texas
corporation, or any successor in its capacity as managing general partner of
the Partnership.
"Merger Agreement" has the meaning assigned to such term in Section
16.1 hereof.
"Minimum Gain Attributable to Partner Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
Section 1.704-1T(b)(4)(iv)(h)(6).
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
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"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 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 as determined under
Section 752 of the Code.
"Net Income" shall mean, for any taxable period, the excess, if any,
of the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Terminating Capital Transactions) for
such taxable period over the Partnership's items of loss and deduction (other
than those items attributable to dispositions constituting Terminating Capital
Transactions) for such taxable period. The items included in the calculation
of Net Income shall be determined in accordance with Section 4.6(b) hereof and
shall not include any items specially allocated under Section 5.1(d) or 5.1(e)
hereof. Once an item of income, gain, loss or deduction that has been included
in the initial computation of Net Income is subjected to a Required Allocation
or a Discretionary Allocation, Net Income or the resulting Net Loss, whichever
the case may be, shall be recomputed without regard to such item.
"Net Loss" shall mean, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction (other than those items
attributable to dispositions constituting Terminating Capital Transactions) for
such taxable period over the Partnership's items of income and gain (other than
those items attributable to dispositions constituting Terminating Capital
Transactions) for such taxable period. The items included in the calculation
of Net Loss shall be determined in accordance with Section 4.6(b) hereof and
shall not include any items specially allocated under Section 5.1(d) or 5.1(e)
hereof. Once an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to a Required Allocation or
a Discretionary Allocation, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.
"Net Termination Gain" means, for each Partnership Year or shorter
period, the sum, if positive, of all items of gain or loss recognized by the
Partnership from Terminating Capital Transactions and all items of income,
gain, loss and deduction (as determined in accordance with Section 4.6(b)
hereof) recognized by the Partnership following the last day on which the
holder of a Preferred Unit may convert Preferred Units into Common Units
pursuant to Section 18.1 hereof as a result of a dissolution of the Partnership
for the purpose of liquidation.
"Net Termination Loss" means, for each Partnership Year or shorter
period, the sum, if negative, of all items of gain or loss recognized by the
Partnership from Terminating Capital Transactions and all items of income,
gain, loss and deduction (as determined in accordance with Section 4.6(b)
hereof) recognized by the Partnership following the last day on which the
holder of a Preferred Unit may convert Preferred Units into Common Units
pursuant to Section 18.1 hereof as a result of a dissolution of the Partnership
for the purpose of liquidation.
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"Non-citizen Assignee" means a Person who the Managing General Partner
has determined in its sole discretion does not meet the requirements of the
definition of an Eligible Citizen and as to whose Partnership Interest the
Managing General Partner has become the Substituted Limited Partner, pursuant
to Section 11.5 hereof.
"Nonrecourse Built-in Gain" shall mean, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable
gain that would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iii) hereof if such properties were disposed of in a
taxable transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Deductions" shall mean 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
1.704-1T(b)(4)(iv)(b), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulation Section 1.704- 1T(b)(4)(iv)(k)(3).
"Notice of Election to Purchase" has the meaning assigned to such term
in Section 17.1(b) hereof.
"Opinion to Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the Managing General Partner) in form and
substance acceptable to the Managing General Partner.
"Organizational Limited Partner" means Robert J. Schumacher as the
organizational limited partner of the Partnership pursuant to this Agreement.
"Outstanding" means all Units or other Partnership Securities that are
issued by the Partnership and reflected as outstanding on the Partnership's
books and records as of the date of determination.
"Partner" means a General Partner or a Limited Partner and Assignees
thereof, if applicable.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulation Section 1.704- 1T(b)(4)(iv)(k)(4).
"Partner Nonrecourse Deductions" shall mean any and all items of loss,
deduction or expenditure (described in Section 705(a)(2)(B) of the Code) that,
in accordance with the principles of Treasury Regulation Section 1.704-
1T(b)(4)(iv)(h)(3), are attributable to a Partner Nonrecourse Debt.
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"Partnership" means the limited partnership heretofore formed and
continued pursuant to this Agreement, and any successor thereto.
"Partnership Debt Securities" has the meaning assigned to such term in
Section 4.4(a) hereof.
"Partnership Equity Securities" has the meaning assigned to such term
in Section 4.4(a) hereof.
"Partnership Interest" means the interest of a Partner in the
Partnership which, in the case of a Limited Partner or Assignee, shall include
Units.
"Partnership Minimum Gain" shall mean that amount determined in
accordance with the principles of Treasury Regulation Sections
1.704-1T(b)(4)(iv)(a) and 1.704-1T(b)(4)(iv)(c).
"Partnership Securities" has the meaning assigned to such term in
Section 4.4(a) hereof.
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as of the date of such determination, (a)
as to the Managing General Partner in its capacity as such, 1.9%, (b) as to the
Special General Partner in its capacity as such, 0.1%, (c) as to any Limited
Partner or Assignee holding Units, the product of (i) 98% multiplied by (ii)
the quotient of the number of Units held by such Limited Partner or Assignee
divided by the total number of all Units then outstanding (as determined by the
number of Common Units into which the Preferred Units are then convertible);
provided, however, that following any issuance of additional Units by the
Partnership pursuant to Section 4.4 hereof, proper adjustment shall be made to
the Percentage Interest represented by each Unit to reflect such issuance.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Preferred Amount" means an amount equal to the Base Amount per
Preferred Unit per calendar quarter, subject to adjustment in accordance with
Sections 5.9 and 9.6 hereof.
"Preferred Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees thereof and having
the rights and obligations specified with respect to such Preferred Unit
pursuant in this Agreement.
"Preferred Unit Deficiency" means, with respect to any Preferred Unit
and as to any calendar quarter ending after the Initial Conversion Date, the
excess of (a) the Preferred
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Amount, over (b) the sum of all amounts of Available Cash distributed for such
calendar quarter with respect to Preferred Unit pursuant to paragraph "First"
of Section 5.5(a) hereof.
"Preferred Unit Redemption Amount" means, at any time with respect to
any Preferred Unit, the Initial Unit Price less any amounts previously
distributed in respect of a Preferred Unit other than from Available Cash (less
the sum of any distributions of Proceeds from Capital Transactions pursuant to
paragraphs "First" and "Second" of Section 5.7(a) hereof) plus the sum of the
Cumulative Base Distribution Deficiency at the time and the Cumulative
Preferred Unit Deficiency at the time.
"Proceeds from Capital Transactions" means, at any date, such amounts
of cash, debt securities or other property as are determined by the Managing
General Partner to be made available to the Partnership from or by reason of a
Capital Transaction.
"Public Unitholder" means a Person other than the Initial Partners who
hold Units.
"Purchase Date" means the date determined by the Managing General
Partner as the date for purchase of all outstanding Units (other than Units
owned by the Initial Partners) pursuant to Section 17.1(b) hereof.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
asset.
"Record Date" means the date established by the Managing General
Partner for determining (a) the identify of Limited Partners (or Assignees, if
applicable) 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
other lawful action of Limited Partners, or (b) the identify of Record Holders
entitled to receive any report or distribution.
"Record Holder" means the Person in whose name a Unit is registered on
the books of the Transfer Agent, as of the opening of business on a particular
Business Day.
"Redeemable Units" means any Units for which a redemption notice has
been given and has not been withdrawn, under Section 11.6 hereof.
"Refinery" means the refinery of the Partnership located near Abilene,
Texas.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 33-33099), as it has been or as it may be amended or
supplemented from time to time, filed by
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the Partnership with the Securities and Exchange Commission under the
Securities Act to register the offering and sale of the Units in the Initial
Offering.
"Remaining Capital" means, at any time with respect to any Unit, the
Initial Unit Price less the sum of (i) any distributions of Proceeds from
Capital Transactions pursuant to paragraph "Fourth" of Section 5.7(a) hereof,
(ii) any distributions of cash (or the Net Agreed Value of any distributions in
kind) in connection with the dissolution and liquidation of the Partnership
theretofore made in respect of such Unit and (iii) any distributions pursuant
to Section 5.10 hereto with respect to such Unit.
"Remaining Special Capital" means, at the time of determination, the
Special Capital (i) less any distributions of cash pursuant to clause (ii) of
Section 5.11 hereof, and (ii) plus any unpaid arrearages in the cumulative
annual yield in respect of the SPU pursuant to clause (i) of Section 5.11
hereof.
"Required Allocation" shall mean any allocation (or limitation imposed
on any allocation) of an item of income, gain, deduction or loss pursuant to
(a) the proviso-clause of Section 5.1(b)(ii) hereof or (b) Section 5.1(e)
hereof, such allocations (or limitations thereon) being directly or indirectly
required by the Treasury Regulations promulgated under Section 704(b) of the
Code.
"Residual Gain" or "Residual Loss" shall mean 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 Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Sections 5.2 (b) (i) (A) or 5.2 (b) (ii) (A) hereof to
eliminate Book-Tax Disparities.
"Second Target Amount" means $.73 per Unit (or, with respect to the
period commencing on the Closing Date and ending on March 31, 1990, the product
of $.73 multiplied by a fraction of which the numerator is the number of days
in such period and of which the denominator is 90), subject to adjustment in
accordance with Sections 5.9 or 9.6 hereof.
"Securities Act" means the Securities Act of 1933, as amended, and any
successor to such statute.
"Special Approval" means approval by (i) a majority of the members of
the Board of Directors of the Managing General Partner and (ii) a majority of
the members of the Conflicts and Audit Committee.
"Special Capital" shall be the amount of the special allocation of
gross income for the calendar year 1990 to the Special General Partner
referenced in Section 5.1(d)(i) hereof for which the Special General Partner is
issued a SPU.
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"Special General Partner" means Pride SGP, Inc., a Texas corporation,
or any successor in its capacity as special general partner of the Partnership.
"SPU" or "Special Redeemable Partner Unit" means an interest in the
Partnership, held by the Special General Partner, having the right to receive
certain distributions from the Partnership as described in Section 5.11 hereof.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 12.2 hereof 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.
"Sufficient Net Assets" means net assets of the Partnership having a
market value equal to at least 200% of the amount necessary to redeem all
outstanding Preferred Units at the Preferred Unit Redemption Amount.
"Surviving Business Entity" has the meaning assigned to such term in
Section 16.2(b) hereof.
"Terminating Capital Transactions" means any sales or other
dispositions of assets of the Partnership following the last day on which the
holder of a Preferred Unit may convert Preferred Units into Common Units
pursuant to Section 18.1 hereof as a result of a dissolution of the Partnership
for the purpose of liquidation.
"Third Target Amount" means $.83 per Unit (or, with respect to the
period commencing on the Closing Date and ending on March 31, 1990, the product
of $.83 multiplied by a fraction of which the numerator is the number of days
in such period and of which the denominator is 90), subject to adjustment in
accordance with Sections 5.9 or 9.6 hereof.
"Trading Day" has the meaning assigned to such term in Section 17.1(a)
hereof.
"Transfer Agent" means the Depositary or any bank, trust company or
other Person appointed by the Partnership to act as transfer agent for the
Units.
"Transfer Application" means an application and agreement for transfer
of Depositary Units in the form set forth on the back of a Depositary Receipt
or in a form substantially to the same effect in a separate instrument.
"Underwriter" means each Person named as an underwriter in the
Underwriting Agreement who purchases Units pursuant thereto.
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"Underwriting Agreement" means the Underwriting Agreement among the
Underwriters, the Partnership and the General Partners.
"Unit" means a Partnership Interest of a Limited Partner or Assignee
in the Partnership (not including the SPU) representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees; provided,
however, that in the event any class or series of Units issued pursuant to
Section 4.4 hereof shall have designations, preferences or special rights such
that a Unit of such class or series shall represent a greater or lesser part of
the Partnership Interests of all Limited Partners or Assignees than a Unit of
any other class or series of Units, the Partnership Interest represented by
such class or series of Units shall be determined in accordance with such
designations, preferences or special rights. Unless otherwise specifically
indicated to the contrary, Units includes Depositary Units. For the purpose of
Articles IV, X and XI hereof, Units include the Incentive Interest.
"Unit Register" has the meaning assigned to such term in Section
10.2(a) hereof.
"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, over (b) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 4.6(d) hereof) as of such date. In determining such Unrealized Gain,
the aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the Managing
General Partner using such reasonable method of valuation as if may adopt;
provided, however, the Managing General Partner, in arriving at such valuation,
must take fully into account (to the extent appropriate under the regulations
promulgated under Section 704(b) of the Code) the Limited Partner Equity Value
and the General Partner Equity Value at such time. The Managing General
Partner shall allocate such aggregate value among the assets of the Partnership
(in such manner as it determines in its sole discretion to be reasonable) to
arrive at a fair market value for individual properties.
"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 4.6(d) hereof) as of such date, over (b) the fair market
value of such property as of such date. In determining such Unrealized Loss,
the aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the Managing
General Partner using such reasonable method of valuation as it may adopt:
provided, however, the Managing General Partner, in arriving at such valuation,
must take fully into account (to the extent appropriate under the regulations
promulgated under Section 704(b) of the Code) the Limited Partner Equity Value
and the General Partner Equity Value at such time. The Managing General
Partner shall allocate such aggregate value among the assets of the Partnership
(in such manner as it determines in its sole discretion to be reasonable) to
arrive at a fair market value for individual properties.
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ARTICLE III
PURPOSE
3.1 Purpose and Business. The purpose and nature of the business
to be conducted by the Partnership shall be (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Delaware Act, including, without limitation, the refining, transport, gathering
and sale of hydrocarbon-based products, (ii) to enter into any partnership,
joint venture or other similar arrangements to engage in any of the foregoing
or the ownership of interests in any entity engaged in any of the foregoing,
and (iii) to do anything necessary or incidental to the foregoing.
3.2 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 herein and for the protection and benefit of the Partnership.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Contributions. In order to form the Partnership under
the Delaware Act, the Managing General Partner has made an initial Capital
Contribution to the Partnership in the amount of $19, the Special General
Partner has made an initial Capital Contribution of $1, and the Managing
General Partner has accepted a Capital Contribution to the Partnership in the
amount of $980 from the Organizational Limited Partner for a limited partner's
interest in the Partnership, and the Organizational Limited Partner has been
admitted as a limited partner of the Partnership.
4.2 Return of Initial Contributions. As of the Closing Date,
after giving effect to (i) the transactions contemplated by Section 4.3 hereof
and (ii) the admission to the Partnership of the Initial Limited Partners in
accordance with this Agreement, the interest in the Partnership of the
Organizational Limited Partner shall be terminated, the $19 Capital
Contribution by the Managing General Partner, the $1 Capital Contribution of
the Special General Partner, and the $980 Capital Contribution by the
Organizational Limited Partner as initial Capital Contributions shall be
refunded. Ninety-eight percent (98%) of any interest or other profit which may
have resulted from the investment or other use of such initial Capital
Contributions shall be allocated and distributed to the Organizational Limited
Partner, the balance thereof shall be allocated and distributed to the Managing
General Partner and Special General Partner in the proportion that their
respective percentage interests as general partners bears to 2%.
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4.3 Contribution by the General Partners and the Underwriters.
(a) On the Closing Date, the Managing General Partner shall contribute to the
capital of the Partnership $1,000 in exchange for a 1.9% general partner
interest in the Partnership and Incentive Interests.
(b) On the Closing Date, the Special General Partner shall, as
further provided in the Conveyance Agreement, contribute, transfer, convey,
assign and deliver to the Partnership, as a Capital Contribution, the Assets
(as defined in the Conveyance Agreement) in exchange for a 0.1% general partner
interest in the Partnership and a limited partner interest in the Partnership
represented by 5,250,000 Common Units.
(c) On the Closing Date, and as will then be required by the
Underwriting Agreement, each Underwriter shall contribute to the Partnership,
in exchange for the number of Preferred Units then specified in the
Underwriting Agreement to be purchased by such Underwriter at such time of
delivery, an amount in cash equal to the Issue Price for such Preferred Units
(as then specified in the Underwriting Agreement) multiplied by such number of
Preferred Units being so purchased. Upon receipt of such Capital Contribution,
each Underwriter shall be admitted to the Partnership as an Initial Limited
Partner in respect of the Units so issued to it.
(d) If the Underwriters exercise the over-allotment option granted
pursuant to the Underwriting Agreement, then on the date established pursuant
thereto, the Underwriters shall contribute to the Partnership an amount of cash
equal to the Issue Price specified in the Underwriting Agreement multiplied by
the number of Preferred Units established pursuant to the Underwriting
Agreement to be purchased by the Underwriters on exercise of the over-allotment
option. The effective date of any Capital Contribution made pursuant hereto
shall be deemed to be the time of delivery pursuant to Section 4.1(c) hereof,
regardless of the actual date of such contribution.
4.4 Issuances of Additional Units and Other Securities. (a) The
Managing General Partner is hereby authorized to cause the Partnership to
issue, in addition to the Units issued pursuant to Section 4.3 hereof, such
additional Units, or classes or series thereof, or options, rights, warrants or
appreciation rights relating thereto, or any other type of equity security that
the Partnership may lawfully issue ("Partnership Equity Securities"), any
unsecured or secured debt obligations of the Partnership convertible into any
class or series of equity securities of the Partnership ("Partnership Debt
Securities") (collectively, "Partnership Securities"), for any Partnership
purpose at any time or from time to time, to the Partners or to other Persons
for such consideration and on such terms and conditions as shall be established
by the Managing General Partner in its sole discretion, all without the
approval of any Limited Partners. The Managing General Partner shall have sole
discretion, subject to the guidelines set forth in this Section 4.4 and the
requirements of the Delaware Act, in determining the consideration and terms
and conditions with respect to any future issuance of Partnership Securities.
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(b) Additional Partnership Securities to be issued by the
Partnership pursuant to this Section 4.4 shall be issuable from time to time in
one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties senior
to existing classes and series of Partnership Securities, all as shall be fixed
by the Managing General Partner in the exercise of its sole and complete
discretion, subject to Delaware law, including, without limitation, (i) the
allocations of items of Partnership income, gain, loss, and deduction to each
such class or series of Partnership Securities; (ii) the right of each such
class or series of Partnership Securities to share in Partnership
distributions; (iii) the rights of each such class or series of Partnership
Securities upon dissolution and liquidation of the Partnership; (iv) whether
such class or series of additional Partnership Securities is redeemable by the
Partnership and, if so, the price at which, and the terms and conditions upon
which, such class or series of additional Partnership Securities may be
redeemed by the Partnership; (v) whether such class or series of additional
Partnership Securities is issued with the privilege of conversion and, if so,
the rate at which, and the terms and conditions upon which, such class or
series of Partnership Securities may be converted into any other class or
series of Partnership Securities; (vi) the terms and conditions upon which each
such class or series of Partnership Securities will be issued, deposited with
the Depositary, evidenced by Depositary Receipts and assigned or transferred;
and (vii) the right, if any, of each such class or series of Partnership
Securities to vote on Partnership matters, including matters relating to the
relative rights, preferences and privileges of each such class or series.
(c) Notwithstanding the terms of Sections 4.4(a) and 4.4(b)
hereof, prior to the Initial Conversion Date the Partnership shall not issue
(i) Partnership Equity Securities ranking senior to the Preferred Units in
priority of distributions prior to or upon liquidation, or (ii) an aggregate of
more than 1,000,000 additional Preferred Units (excluding Units issued in the
Initial Offering, including upon the exercise of the Underwriters'
over-allotment option) or other equity securities of the Partnership with a
comparable value to and ranking on a parity with the Preferred Units in
priority of distributions prior to or upon liquidation without, in either
event, the prior approval of the holders of at least 66-2/3% of the Outstanding
Preferred Units (excluding for purposes of such determination Units owned by
the General Partners and their Affiliates). After the Initial Conversion Date,
the Managing General Partner may cause the Partnership to issue Units or other
Partnership Securities having rights to distributions prior to or upon
liquidation ranking on a parity with or prior or senior to the Preferred Units
without the approval of the holders of the Preferred Units.
(d) The Managing General Partner is hereby authorized and directed
to take all actions which it deems appropriate or necessary in connection with
each issuance of Units or other Partnership Securities pursuant to Section
4.4(a) hereof and to amend this Agreement in any manner which it deems
appropriate or necessary to provide for each such issuance, to admit Additional
Limited Partners in connection therewith and to specify the relative rights,
powers and duties of the holders of the Partnership Securities being so issued.
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(e) The Managing General Partner shall do all things necessary to
comply with the Delaware Act and is authorized and directed to do all things it
deems to be necessary or advisable in connection with any future issuance of
Partnership Securities, 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 Depositary Units or other Partnership
Securities are listed for trading.
4.5 No Preemptive Rights. No Person shall have any preemptive,
preferential or other similar right with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Units or other
Partnership Securities, whether unissued, held in the treasury or hereafter
created; (c) issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase or subscribe to, any such
Units or Partnership Securities; (d) issuance of any right of subscription to
or right to receive, or any warrant or option for the purchase of, any such
Units or Partnership Securities; or (e) issuance or sale of any other
securities that may be issued or sold by the Partnership.
4.6 Capital Accounts. (a) The Partnership shall maintain for
each Partner (or a beneficial owner of Units held by a nominee in any case in
which the nominee has furnished the identity of such owner to the Partnership
in accordance with Section 6031 (c) of the Code or any other method acceptable
to the Managing General Partner in its sole discretion) a separate Capital
Account 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 by such Partner to the Partnership pursuant
to this Agreement and (ii) all items of Partnership income and gain (including
income and gain exempt from tax) computed in accordance with Section 4.6(b)
hereof and allocated to such Partner pursuant to Article V hereof, and
decreased by (x) the amount of cash or Net Agreed Value of all distributions of
cash or property made to such Partner pursuant to this Agreement and (y) all
items of Partnership deduction and loss computed in accordance with Section
4.6(b) hereof and allocated to such Partner pursuant to Article V hereof.
(b) For purposes of computing the amount of any item of income,
gain, deduction or loss 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 any method of depreciation, cost recovery or
amortization used for that purpose), provided, that:
(i) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a Partnership Interest
that can neither be deducted nor amortized under Section 709 of the
Code, if any, shall, for purposes of Capital Account maintenance, be
treated as an item of deduction at the time such fees and other
expenses are incurred.
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(ii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership
and, as to those items described in Section 795(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.
(iii) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(iv) In accordance with the requirements of Section 704(b)
of the Code, any deductions for depreciation, cost recovery, or
amortization attributable to any, Contributed Property shall be
determined as if the adjusted basis of such property as of the date it
was acquired by the Partnership was equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 4.6(d) hereof to the
Carrying Value of any Partnership property subject to depreciation,
cost recovery or amortization, any further deductions for such
depreciation, cost recovery or amortization attributable to such
property shall be determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such property immediately
following such adjustment and (B) using a rate of depreciation, cost
recovery or amortization derived from the same method and useful life
(or, if applicable, the remaining useful life) as is applied for
federal income tax purposes; provided, however, that, if the asset has
a zero adjusted basis for federal income tax purposes, depreciation,
cost recovery, or amortization deductions shall be determined using
any reasonable method that the Managing General Partner may adopt.
(v) If the Partnership's adjusted basis in a depreciable
or cost recovery property is reduced for federal income tax purposes
pursuant to Sections 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 5.1 hereof. Any restoration of such
basis pursuant to Section 48(q)(2) of the Code shall be allocated in
the year of such restoration as an item of income pursuant to Article
V hereof.
(c) A transferee of a Partnership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred: provided, however, that, if the transfer
causes a termination of the Partnership under Section 708(b)(1)(B) of the Code,
the Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including the transferee of a
Partnership Interest) pursuant to
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Sections 14.3 and 14.4 hereof and recontributed by such Partners in
reconstitution of the Partnership. Any such deemed distribution shall be
treated as an actual distribution for purposes of this Section 4.6. In such
event, the Carrying Values of the Partnership properties shall be adjusted
immediately prior to such deemed distribution pursuant to Section 4.6(d)(ii)
hereof and such adjusted Carrying Values shall then constitute the Agreed
Values of such properties upon such deemed contribution to the reconstituted
Partnership. The Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with the principles of this Section 4.6.
(d)(i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv) (f), on an issuance of additional Units for cash or
Contributed Property, the Capital Accounts of all Partners and the Carrying
Value of each Partnership property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale of each such property
immediately prior to such issuance and had been allocated to the Partners at
such time as provided in Section 5.1.
(ii) In accordance with Treasury Regulations Section 1.704
- - 1(b)(2)(iv)(f), immediately prior to any 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 each Partnership property shall,
immediately prior to any such distribution, be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership
property, as if such Unrealized Gain or Unrealized Loss had been recognized in
a sale of each such property immediately prior to such distribution for an
amount equal to its fair market value. Any Unrealized Gain or Unrealized Loss
attributable to such property shall be allocated to the Partners as provided in
Section 5.1.
4.7 Interest. No interest shall be paid by the Partnership on
Capital Contributions or on balances in Partners' Capital Accounts.
4.8 No Withdrawal. No Partner shall be entitled to withdraw any
part of his Capital Contribution or his Capital Account or to receive any,
distribution from the Partnership, except as provided in Section 4.2 hereof,
and Articles V, XIII and XIV hereof.
4.9 Loans from Partners. Loans by a Partner to the Partnership
shall not constitute Capital Contributions. If any Partner shall advance funds
to the Partnership in excess of the amounts required hereunder to be
contributed by it to the capital of the Partnership, the making of such excess
advances shall not result in any increase in the amount of the Capital Account
for such Partner. The amount of any such excess advances shall be a debt
obligation of the Partnership to such Partner and shall be payable or
collectible only out of the Partnership assets in accordance with the terms and
conditions upon which such advances are made.
4.10 No Fractional Units. No fractional Units shall be issued by
the Partnership.
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4.11 Splits and Combinations. (a) Subject to Sections 4.11 (f) and
5.10 hereof, the Managing General Partner may make a pro rata distribution of
Units or Partnership Securities to all Record Holders or may effect a
subdivision or combination of Units or other Partnership Securities: provided,
however, that after any such distribution, subdivision or combination, each
Partner shall have the same Percentage Interest in the Partnership as before
such distribution, subdivision or combination: and provided, however, that
nothing in this Section 4.11 shall be deemed to authorize the Managing General
Partner to combine Units or Partnership Securities of any class or series with
those of any other class or series.
(b) If Partnership Debt Securities are distributed pursuant to
Sections 4.11(a), such distribution shall be treated as a distribution of
property for purposes of this Agreement.
(c) If Partnership Equity Securities are distributed pursuant to
Section 4.11(a), the Managing General Partner shall be authorized to allocate
the Capital Account attributable to any Partner among the Partnership Equity
Securities held by such Partner using such reasonable method of allocation as
it may adopt.
(d) Whenever such a distribution, subdivision or combination of
Units or Partnership Securities is declared, the Managing General Partner shall
select a Record Date as of which the distribution, subdivision or combination
shall be effective and shall send notice of the distribution, subdivision or
combination at least 20 days prior to such Record Date, to each Record Holder
as of the date not less than 10 days prior to the date of such notice. The
Managing General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Units to be held by each
Record Holder after giving effect to such distribution, subdivision or
combination. The Managing General Partner shall be entitled to rely on any
certificate provided by such firm as conclusive evidence of the accuracy of
such calculation.
(e) Promptly following any such distribution, subdivision or
combination, the Managing General Partner may cause Depositary Receipts to be
issued to the Record Holders of Units as of the applicable Record Date
representing the new number of Units held by such Record Holders, or the
Managing General Partner may adopt such other procedures as it may deem
appropriate to reflect such distribution, subdivision or combination; provided,
however, that in the event any such distribution, subdivision or combination
results in a smaller total number of Units outstanding, the Managing General
Partner shall require, as a condition to the delivery to a Record Holder of
such new Depositary Receipt, the surrender of any Depositary Receipt held by
such Record Holder immediately prior to such Record Date.
(f) The Partnership shall not issue fractional Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of fractional
Units but for the provisions of Section 4.10 hereof and this Section 4.11(f),
each fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit
shall be rounded to the next higher Unit).
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ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 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 4.6(b) hereof) 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 Sections 5.1(d) and 5.1(e), all items of
income, gain, loss and deduction taken into account in computing Net
Income for such taxable period shall be allocated in the same manner
as such Net Income is allocated hereunder which Net Income shall be
allocated as follows:
(i) First, 100% to the General Partners, in the
proportion that their respective Percentage Interest bears to
2%, until the aggregate Net Income allocated to the General
Partners pursuant to this Section 5.1(a)(ii) for the current
taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partners
pursuant to Section 5.1(b)(iii) hereof for all previous
taxable years;
(ii) Second, 100% to the Limited Partners holding
Preferred Units or Common Units in the proportion that the
respective number of Units held by them bears to the total
number of Units then outstanding (as determined by the number
of Common Units into which the Preferred Units are then
convertible), until the aggregate Net Income allocated to the
holder of a Unit pursuant to this Section 5.1(a)(ii) for the
current taxable year and all previous taxable years is equal
to the aggregate Net Losses allocated to the holder of such
Unit pursuant to Section 5.1(b)(ii) hereof for all previous
taxable years: and
(iii) Third, the balance, if any, 100% to the
General Partners and the Limited Partners in accordance with
their respective Percentage Interests.
(b) Net Losses. After giving effect to the special
allocations set forth in Sections 5.1(d) and 5.1(e) hereof, all items
of income, gain, loss and deduction taken into account in computing
Net Losses for such taxable period shall be allocated in the same
manner as such Net Losses are allocated hereunder which Net Losses
shall be allocated as follows:
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(i) First, 100% to the General Partners and the
Limited Partners in accordance with their respective
Percentage Interests, until the aggregate Net Losses allocated
to the holder of a Unit pursuant to this Section 5.1(b)(i) for
the current taxable year and all previous taxable years is
equal to the aggregate Net Income allocated to the holder of
such Unit pursuant to Section 5.1(a)(iii) hereof for all
previous taxable years;
(ii) Second, 100% to the Limited Partners holding
Preferred Units or Common Units, in the proportion that the
respective number of Units held by them bears to the total
number of Units then outstanding (as determined by the number
of Common Units into which the Preferred Units are then
convertible); provided, that Net Losses shall not be allocated
pursuant to this Section 5.1(b)(ii) to the extent that such
allocation would cause any Limited Partner to have a deficit
balance in its Adjusted Capital Account at the end of such
taxable year (or increase any existing deficit balance in its
Adjusted Capital Account); and
(iii) Third, the balance, if any, 100% to the
General Partners, in the proportion that their respective
Percentage Interests bears to 2%.
(c) Net Termination Gain and Losses. After giving effect
to the special allocations set forth in Sections 5.1(d) and 5.1(e)
hereof, 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 5.1(c) shall be made after Capital
Account balances have been adjusted by all other allocations provided
under this Section and after all distributions of Available Cash
provided under Section 5.4 or 5.5 hereof have been made with respect
to such taxable period.
(i) If a Net Termination Gain is recognized, such Net
Termination Gain shall be allocated between the General Partners and
the Limited 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 Adjusted Capital Account, in the proportion of
such deficit balance to the deficit balances in the Adjusted
Capital Accounts of all Partners, until each such Partner has
been allocated Net Termination Gain equal to any such deficit
balance in its Adjusted Capital Account;
(B) Second, 98% to Limited Partners holding
Preferred Units in the proportion that the respective number
of Preferred Units held by them bears to
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the total number of Preferred Units outstanding, 1.9% to the
Managing General Partner and 0.1% to the Special General
Partner until each such Limited Partner's Adjusted Capital
Account (determined on a per Unit basis) is equal to the
Preferred Unit Redemption Amount;
(C) Third, 98% to Limited Partners holding Common
Units in the proportion that the respective number of Common
Units held by them bears to the total number of Common Units
outstanding, 1.9% to the Managing General Partner and 0.1% to
the Special General Partner until each such Limited Partner's
Adjusted Capital Account in respect of its Common Units
(determined on a per Unit basis) is equal to the sum of (aa)
its Remaining Capital plus (bb) any then existing Cumulative
Common Unit Deficiency;
(D) Fourth, 100% to the Special General Partner
until the Special General Partner's Adjusted Capital Account
in respect of its SPU is equal to its Remaining Special
Capital;
(E) Fifth, 78% to Limited Partners holding Common
Units in the proportion that the respective number of Common
Units held by them bears to the total number of Common Units,
1.9% to the Managing General Partner and 0.1% to the Special
General Partner and 20% to the Managing General Partner until
each Limited Partner's Adjusted Capital Account in respect of
its Common Units (determined on a per Unit basis) is equal to
the sum of the (aa) Remaining Capital plus (bb) any then
remaining Cumulative Common Unit Deficiency plus the excess of
(i) the Capital Target Amount over (ii) its Initial Unit Price
and any amounts previously distributed pursuant to paragraph
"Fourth" of Section 5.7 (a) hereof; and
(F) Finally, any remaining amount 48% to Limited
Partners holding Common Units in the proportion that the
respective number of Common Units held by them bears to the
total number of Common Units, 1.9% to the Managing General
Partner and 0.1% to the Special General Partner and 50% to the
Managing General Partner.
(ii) If a Net Termination Loss is recognized, such Net
Termination Loss shall be allocated to the Partners in the following
manner:
(A) First, 98% to Limited Partners holding
Preferred Units in the proportion that the respective number
of Preferred Units held by them bears to the total number of
Preferred Units outstanding, 1.9% to the Managing General
Partner and 0.1% to the Special General Partner until each
such Limited Partner's Adjusted Capital Account in respect of
its Preferred Units (determined on a per Unit basis) is equal
to the Preferred Unit Redemption Amount:
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(B) Second, 98% to Limited Partners holding
Common Units in proportion to, and to the extent of, the
positive balances in their respective Adjusted Capital
Accounts, 1.9% to the Managing General Partner and 0.1% to the
Special General Partner until such Limited Partner's Adjusted
Capital Accounts are reduced to zero;
(C) Third, 100% to the Special General Partner
until the Special General Partner's Adjusted Capital Account
in respect of its SPU is reduced to zero;
(D) Fourth, 98% to the Limited Partners holding
Preferred Units, 1.9% to the Managing General Partner and 0.1%
to the Special General Partner until such Limited Partners'
Adjusted Capital Accounts are reduced to zero; and
(E) Finally, the balance, if any, 100% to the
General Partners in the proportion that their respective
Percentage Interest bears to 2%.
(d) Agreed Allocations. Notwithstanding any other provisions of
this Section 5.1 (other than Section 5.1(e) hereof), the following special
allocations shall be made for such taxable period:
(i) Special Capital. During 1990, the Special General
Partner will be allocated $12,500,000 of gross income ("Special
Capital") which would otherwise be allocated to the Limited Partners.
Such allocation shall be made prior to the application of any other
allocations pursuant to this Section 5.1(d) with respect to such
period.
(ii) 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 14.3 or 14.4 hereof) to any
Limited Partner during 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 Limited Partners (on a per
Unit basis), then (1) each Limited Partner receiving such
greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (x) the amount by
which the distribution (on a per Unit basis) to such Limited
Partner exceeds the distribution (on a per Unit basis) to the
Limited Partners receiving the smallest distribution and (y)
the number of Units owned by the Limited Partner receiving the
greater distribution; and (2) the General Partners shall be
allocated gross income (95% to the Managing General Partner
and 5% to the Special General Partner) in an amount equal to
2.0408% of the sum of the amounts allocated in clause (1)
above.
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(B) If the amount of cash and the Net Agreed
Value of any property distributed (except cash or property
distributed pursuant to Section 14.3 or 14.4 hereof and other
than distributions in respect of the Incentive Interests and
the Special Capital) to the Limited Partners or the General
Partners during a taxable year exceeds that which would have
been distributed to either class of partners had such
distributions been made in the ratio of 98% and 2% (as between
the Limited Partners and the General Partners, respectively),
such class receiving the excess distribution will be allocated
gross income in an amount equal to such excess. Gross income
allocated to the Limited Partners pursuant to this Section
5.1(d)(ii)(B) shall be allocated among such Limited Partners
in the proportion that the respective number of Units held by
them bears to the total number of Units (as determined in each
case by the number of Common Units into which the Preferred
Units are convertible). Gross income allocated to the General
Partners pursuant to this Section 5.1(d)(ii)(B) shall be
allocated among such General Partners in the ratio that their
respective Percentage Interests bear to 2%.
(C) If cash is distributed to the Special General
Partner pursuant to Section 5.4(b), 5.5(b) or 5.7(b) hereof in
respect of yield on the SPU, but without regard to amounts
distributed in respect of a return of the Special Capital, the
Special General Partner shall be allocated items of
Partnership gross income or gain until the aggregate amount so
allocated for the current taxable period and all prior taxable
periods is equal to the cumulative amount of such cash
distributed to the Special General Partner for the current
taxable period and all prior taxable periods.
(D) All or a portion of the remaining items of
Partnership gross income or gain for the taxable period, if
any, shall be allocated 100% to the Managing General Partner
(or its assignee) until the aggregate amount of such items
allocated to the Managing General Partner (or its assignee)
under this paragraph (ii)(D) for the current taxable period
and all previous taxable periods is equal to the cumulative
amount of cash distributed to the Managing General Partner (or
its assignee) in respect of its Incentive Interest from the
Closing Date to a date 45 days after the end of the current
taxable period.
(iii) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752-1T(e)(ii)(C), 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.
(iv) Discretionary Allocation. (A) Notwithstanding any
other provisions of Section 5.1(a), (b) or (c) hereof, the Agreed
Allocations shall be adjusted so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to
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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 there been no Required Allocations; provided, however,
that for purposes of applying this Section 5.1(d)(iv)(A), it shall be
assumed that all chargebacks pursuant to Section 5.1(e)(i) and (ii)
hereof have occurred.
(B) The Managing General Partner shall have
reasonable discretion, with respect to each taxable year, to
(1) apply the provisions of Section 5.1(d)(iv)(A) hereof in
whatever fashion as is most likely to minimize the economic
distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to
Section 5.1(d)(iv)(A) hereof among the Partners in a manner
that is likely to minimize such economic distortions.
(e) Required Allocations. Notwithstanding any other provision of
this Section 5.1, the following special allocations shall be made for such
taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding
the other provisions of this Section 5.1, 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 proportion
to, and to the extent of, an amount equal to the greater of (A) the
portion of such Partner's share of the net decrease in Partnership
Minimum Gain during such taxable period that is allocable (in
accordance with the principles set forth in Treasury Regulation
Section 1.704-1T(b)(4)(iv)(e)(2)) to the disposition of Partnership
property subject to one or more Nonrecourse Liabilities of the
Partnership or (B) the deficit balance in such Partner's Adjusted
Capital Account at the end of such taxable period (modified, as
appropriate, by Treasury Regulation Section 1.704-1T(b)(4)(iv)(e)(2)).
The items to be so allocated shall be determined in accordance with
Treasury Regulation Section 1.704-1T(b)(4)(iv)(e) and, for purposes of
this Section 5.1(e), 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 5.1 with respect to such taxable
period. This Section 5.1(e)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-1T(b)(4)(iv)(e) and shall be interpreted consistently
therewith.
(ii) Chargeback of Minimum Gain Attributable to Partner
Nonrecourse Debt. Notwithstanding the other provisions of this
Section 5.1 (other than 5.1(e)(i) hereof), if there is a net decrease
in Minimum Gain Attributable to Partner Nonrecourse Debt during any
Partnership taxable period, any Partner with a share of Minimum Gain
Attributable to Partner Nonrecourse Debt 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 proportion
to, and to the extent of, an amount equal to the greater
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of (A) the portion of such Partner's share of the net decrease in the
Minimum Gain Attributable to Partner Nonrecourse Debt that is
allocable (in accordance with the principles set forth in Treasury
Regulation Section 1.704-1T(b)(4)(iv)(h)(4)) to the disposition of
Partnership property subject to such Partner Nonrecourse Debt, or (B)
the deficit balance in such Partner's Adjusted Capital Account at the
end of such taxable period (modified, as appropriate, by Treasury
Regulation Section 1.704-1T(b)(4)(iv)(h)(4)). The items to be so
allocated shall be determined in a manner consistent with the
Principles of Treasury Regulation Section 1.704-1T(b)(4)(iv)(e) and,
for purposes of this Section 5.1, 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 5.1(e), other than
Section 5.1(e)(1) hereof, with respect to such taxable period. This
Section 5.1(e)(ii) is intended to comply with the chargeback of items
of income and gain required in Treasury Regulation Section
1.704-1T(b)(4)(iv)(h)(4) and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives 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) (modified as
appropriate by Treasury Regulation Sections 1.704-1T(b)(4)(iv)(e)(3)
and 1.704-1T(b)(4)(iv)(h)(4)), items of Partnership income and gain
shall be specifically allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible
unless such deficit balance is otherwise eliminated pursuant to
Section 5.1(e)(i) or 5.1(e)(ii) hereof.
(iv) Gross Income Allocations. In the event any Partner
has a deficit balance in its Adjusted Capital Account at the end of
any Partnership taxable period that is in excess of the sum of (A) the
amount such Partner is obligated to restore and (B) the amount such
Partner is deemed to be obligated to restore pursuant to Treasury
Regulation Sections 1.704-1T(b)(4)(iv)(f) and 1.704-1T(b)(4)(h)(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 5.1(e)(iv) shall
be made only if and to the extent that such Partner would have a
deficit balance in its Adjusted Capital Account after all other
allocations provided in this Section 5.1 have been tentatively made as
if this Section 5.1(e)(iv) was not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for
any taxable period shall be allocated to the Partners in accordance
with their respective Percentage Interests. If the Managing General
Partner determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury regulations
promulgated under Section 704(b)
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of the Code, the Managing General Partner is authorized, upon notice
to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio which does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss for such Partnership
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulation Section
1.704-1T(b)(4)(iv)(h). 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.
5.2 Allocations for Tax Purposes. (a) Except as otherwise provided
herein, for Federal income tax purposes, each item of income, gain, loss and
deduction which is recognized by the Partnership, for federal income tax
purposes, 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 5.1 hereof.
(b) In an attempt to eliminate Book-Tax Disparities attributable
to a Contributed Property or Adjusted Property, each item of income, gain,
loss, depreciation, depletion and cost recovery deduction which is recognized
by the Partnership, for federal income tax purposes, shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In 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) except as
otherwise provided in Section 5.2(b)(iii) hereof, 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 5.1
hereof.
(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 7.04(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
4.6(d)(i) or (ii) hereof, and (2) second, in the event such property
was originally a Contributed Property, be allocated among the Partners
in a manner consistent with Section 5.2(b)(i)(A) hereof; and (B)
except as otherwise provided in Section 5.2(b)(iii) hereof, 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 5.1 hereof.
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(iii) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B) hereof shall be
subject to allocation by the Managing General Partner in a manner
designed to eliminate, to the maximum extent possible, Book-Tax
Disparities in a Contributed Property or Adjusted Property otherwise
resulting from the application of the "ceiling" limitation (under
Section 704(c) of the Code on Section 704(c) principles) to the
allocations provided under Section 5.2(b)(i)(A) or 5.2(b)(ii)(A)
hereof.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units (or any class or classes thereof), the
Managing General Partner shall have the 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 gross income) or deductions;
and (iii) amend the provisions of this Agreement as appropriate (x) to reflect
the proposal or promulgation of Treasury regulations under Section 704(b) of
the Code or (y) otherwise to preserve or achieve uniformity of the Units (or
any class or classes thereof). The Managing General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement
as provided in this Section 5.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the
holders of any class or classes of Units issued and outstanding or the
Partnership, and if such allocations are consistent with the principles of
Section 704 of the Code.
(d) The Managing General Partner in its sole discretion may
determine to depreciate 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 method and useful life applied to the
Partnership's common basis of such property, despite the inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n) and Treasury
Regulation Section 1.167(c)-1(a)(6). If the Managing General Partner later
determines that such reporting position cannot reasonably be taken, the
Managing General Partner may adopt a depreciation convention under which all
purchasers acquiring Units in the same month would receive depreciation based
upon the same applicable rate as if they had purchased a direct interest in the
Partnership's property. If the Managing General Partner chooses not to utilize
such aggregate method, the Managing General Partner may use any other
reasonable depreciation convention to preserve the uniformity of the intrinsic
tax characteristics of any Units that would not have a material adverse effect
on the Limited Partners or the Record Holders of any class or classes of Units.
(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 5.2, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income.
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(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 of the General Partners or
to transferred Units 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) except as otherwise provided in
clause (ii), such items for the period beginning on the Closing Date and ending
on the last day of the month in which the Closing Date occurs shall be
allocated to Partners as of the opening of the New York Stock Exchange on the
first Business Day of the next succeeding month or (ii) if the Underwriters'
over-allotment option is exercised, such items for the period beginning on the
Closing Date and ending on the last day of the month in which the Second Time
of Delivery (as defined in the Underwriting Agreement) occurs shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of the next succeeding month; and provided, further,
that gain or loss on a sale or other disposition of any assets of the
Partnership other than in the ordinary course of business shall be allocated to
the Partners as of the opening of the New York Stock Exchange on the first
Business Day of the month in which such gain or loss is recognized for federal
income tax purposes. The Managing General Partner may revise, alter or
otherwise modify such methods of allocation as it determines necessary, to the
extent permitted or required by Section 706 of the Code and the regulations or
rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner
under the provisions of this Article V shall instead be made to the beneficial
owner of Units held by a nominee in any case in which the nominee has furnished
the identity of such owner to the Partnership in accordance with Section 6031
(c) of the Code or any other method acceptable to the Managing General Partner
in its sole discretion.
5.3 Requirement and Characterization of Distributions. Within 60
days following the end of each calendar quarter (or by August 31, 1990 with
respect to the period from the Closing Date to March 31, 1990) an amount equal
to 100% of Available Cash with respect to such quarter (or period) shall be
distributed in accordance with this Article V by the Partnership to the
Partners, as of the Record Date selected by the Managing General Partner in its
reasonable discretion. The Managing General Partner shall have the right to
determine in its sole discretion the amount of Available Cash for each quarter
except to the extent it is established that such determination is contrary to
any express requirement of this Agreement. The foregoing shall not modify in
any respect the provisions of Section 4.2 hereof regarding the distribution of
any interest or other profit on the initial contributions referred to therein.
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5.4 Distributions Prior to the Initial Conversion Date. (a)
Available Cash with respect to an calendar quarter ending prior to the Initial
Conversion Date shall be distributed as follows:
First, 98% to Limited Partners holding Preferred Units, in the
proportion that the respective number of Preferred Units held by them
bears to the total number of Preferred Units outstanding, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Preferred Units
an amount equal to the Base Amount;
Second, 98% to Limited Partners holding Preferred Units, in
the proportion that the respective number of Preferred Units held by
them bears to the total number of Preferred Units outstanding, 1.9% to
the Managing General Partner and 0.1% to the Special General Partner
until there has been distributed in respect of each of the Preferred
Units outstanding an amount equal to the Cumulative Base Distribution
Deficiency at the time of the distribution;
Third, 98% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units outstanding, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Common Units
outstanding in amount equal to the Base Amount;
Fourth, 98% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units Outstanding, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Common Units
outstanding an amount equal to amy Cumulative Common Unit Deficiency
at the time of the distribution;
Fifth, 98% to all Limited Partners, in the proportion that the
respective number of Units held by them bears to the total number of
Units (as determined in each case by the number of Common Units into
which the Preferred Units are then convertible), 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed in respect of each Unit outstanding an amount
equal to the excess of the First Target Amount over the Base Amount;
Sixth, 88% to all Limited Partners, in the proportion that the
respective number of Units held by them bears to the total number of
Units (as determined in each case by the number of Common Units into
which the Preferred Units are then convertible), 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 10% to the
Managing General Partner in respect of the Incentive Interests until
there has been distributed in respect of each Unit outstanding an
amount equal to the excess of the Second Target Amount over the First
Target Amount;
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Seventh, 78% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 20% to the
Managing General Partner in respect of the Incentive Interests until
there has been distributed in respect of each Common Unit outstanding
an amount equal to the excess of the Third Target Amount over the
Second Target Amount; and
Thereafter, 48% to all Limited Partners, in the proportion
that the respective number of Units held by them bears to the total
number of Units (as determined in each case by the number of Common
Units into which the Preferred Units are then convertible), 1.9% to
the Managing General Partner and 0.1% to the Special General Partner
and 50% to the Managing General Partner in respect of the Incentive
Interests.
(b) Notwithstanding the foregoing distributions in Section 5.4(a)
hereof, Available Cash with respect to any quarter of any calendar year from
and after January 1, 1994 shall be distributed with respect to the SPU
immediately after the distribution referenced in paragraph "Fourth" of Section
5.4(a) hereof but before the distribution referenced in paragraph "Fifth" of
Section 5.4(a) hereof in an amount equal to the amounts (including the yield on
and reduction in the Special Capital) then due and owing with respect to the
SPU pursuant to Section 5.11 hereof.
5.5 Distributions After the Initial Conversion Date. (a)
Available Cash with respect to any calendar quarter ending after the Initial
Conversion Date shall be distributed as follows:
First, 98% to Limited Partners holding Preferred Units, in the
proportion that the respective number of Preferred Units held by them
bears to the total number of Preferred Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed in respect of each of the Preferred Units an
amount equal to the Preferred Amount;
Second, 98% to Limited Partners holding Preferred Units, in
the proportion that the respective number of Preferred Units held by
them bears to the total number of Preferred Units, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Preferred Units
an amount equal to the Cumulative Base Distribution Deficiency at the
time of the distribution;
Third, 98% to the Limited Partners holding Preferred Units, in
the proportion that the respective number of Preferred Units held by
them bears to the total number of Preferred Units, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Preferred Units
an amount equal to the Cumulative Preferred Distribution Deficiency at
the time of the distribution;
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Fourth, 98% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units outstanding, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Common Units
outstanding an amount equal to the Preferred Amount;
Fifth, 98% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed in respect of each of the Common Units
outstanding an amount equal to the excess of the First Target Amount
over the Base Amount.
Sixth, 88% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 10% to the
Managing General Partner in respect of the Incentive Interests until
there has been distributed in respect of each Common Unit outstanding
an amount equal to the excess of the Second Target Amount over the
First Target Amount;
Seventh, 78% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 20% to the
Managing General Partner in respect of the Incentive Interests until
there has been distributed in respect of each Common Unit outstanding
an amount equal to the excess of the Third Target Amount over the
Second Target Amount; and
Thereafter, 48% to Limited Partners holding Common Units, in
the proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 50% to the
Managing General Partner in respect of the Incentive Interests.
(b) Notwithstanding the foregoing distributions in Section 5.5(a)
hereof, Available Cash with respect to any quarter of any calendar year from
and after January 1, 1994 shall be distributed with respect to the SPU
immediately after the distribution referenced in paragraph "Fourth" of Section
5.5(a) hereof but before the distribution referenced in paragraph "Fifth" of
Section 5.5(a) hereof in an amount equal to the amounts (including the yield on
and reduction in the Special Capital) then due and owing with respect to the
SPU pursuant to Section 5.11 hereof.
5.6 Conversion of Units. Upon termination of the Initial Period,
the Preferred Units may be converted into Common Units, subject to the terms
and conditions set forth in Article XVIII hereof.
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5.7 Distributions of Proceeds from Capital Transactions. (a)
Proceeds from Capital Transactions which the Managing General Partner
determines to distribute shall be distributed, first as provided in Section
5.7(c) hereof and second as follows:
First, 98% to Limited Partners holding Preferred Units, in the
proportion that the respective number of Preferred Units held by them
bears to the total number of Preferred Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed in respect of each of the Preferred Units an
amount equal to the Cumulative Base Distribution Deficiency at the
time;
Second, 98% to Limited Partners holding Preferred Units, in
the proportion that the respective number of Preferred Units held by
them bears to the total number of Preferred Units, 1.9% to the
Managing General Partner and 0.1% to the Special General Partner until
there has been distributed in respect of each of the Preferred Units
an amount equal to the Cumulative Preferred Unit Deficiency at the
time of the time;
Third, 98% to the Limited Partners holding Common Units, in
the proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed in respect of each of the Common Units an amount
equal to the Cumulative Common Unit Deficiency for each Common Unit;
Fourth, 98% to Limited Partners holding Preferred Units or
Common Units, in the proportion that the respective number of Units
held by them bears to the total number of Units (as determined with
respect to the Preferred Units by the number of Common Units into
which the Preferred Units are then convertible), 1.9% to the Managing
General Partner and 0.1% to the Special General Partner until there
has been distributed pursuant to this clause in respect of each of the
Units outstanding, an amount equal to the Initial Unit Price; provided
that, if after giving effect to distributions made under this
paragraph "Fourth," the Partnership would not have Sufficient Net
Assets, then distributions to Limited Partners under this paragraph
"Fourth" shall be adjusted so that the holders of Preferred Units
would receive, to the extent possible, the Preferred Unit Redemption
Amount per Preferred Unit;
Fifth, 78% to Limited Partners holding Common Units, in the
proportion that the respective number of Common Units held by them
bears to the total number of Common Units, 1.9% to the Managing
General Partner and 0.1% to the Special General Partner and 20% to the
Managing General Partner until there has been distributed pursuant to
this Section 5.7 in respect of each Common Unit outstanding an amount
equal to the Capital Target Amount; and
Thereafter, 48% to Limited Partners holding Common Units in
the proportion that the respective number of Common Units held by them
bears to the total number of
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Common Units, 1.9% to the Managing General Partner and 0.1% to the
Special General Partner and 50% to the Managing General Partner.
(b) Notwithstanding the foregoing distributions in Section 5.7(a)
hereof, Proceeds from Capital Transactions with respect to any quarter of any
calendar year from and after January 1, 1994 which would otherwise be
distributed pursuant to Section 5.7(a) shall be distributed with respect to the
SPU immediately after the distribution referenced in paragraph "Third" of
Section 5.7(a) hereof and before the distribution referenced in paragraph
"Fourth" of Section 5.7(a) hereof in an amount equal to the amounts (including
the yield on and the reduction in the Special Capital) then due and owing with
respect to the SPU pursuant to Section 5.11 hereof.
(c) If one or more Capital Transactions shall occur in any taxable
year, then before any distribution is made pursuant to Section 5.7(a) hereof
(except as otherwise provided below in this Section 5.7(c)) the Managing
General Partner shall be required to make a distribution of Proceeds from
Capital Transactions on or before the April 1st next following the end of the
taxable year in which such Capital Transactions occur in accordance with the
following procedure:
(i) The Managing General Partner shall determine the net
capital gain and net ordinary income recognized by the Partnership
(without taking account of any Code Section 743 adjustments) for
federal income tax purposes from all Capital Transactions during such
year, and shall then determine the portion of such net capital gain
and net ordinary income allocable to any then outstanding Preferred
Units and Common Units.
(ii) The Managing General Partner shall then cause the
Partnership (except as provided in paragraph (iii) immediately below)
to distribute cash to the Partners, in accordance with the provisions
of this Section 5.7(c) until an amount has been distributed pursuant
hereto with respect to every Preferred Unit and Common Unit
outstanding on the Record Date established by the Managing General
Partner with respect to such distribution equal to 125% of the federal
income tax liability that would be due with respect to the "net
capital gain" and "net ordinary income" attributed to any outstanding
Preferred Unit or Common Unit on the Record Date (assuming for such
purpose (x) that the maximum marginal federal income tax rates for
individuals, relating to either long-term capital gain or ordinary
income, whichever the case may be, would apply at the time of such
recognition without regard to any elimination of the benefit of lower
rates, any surtaxes or any alternative minimum taxes and (y) that all
outstanding Units would be allocated the same amount of net capital
gain or net ordinary income as a Preferred Unit).
(iii) No distribution of Proceeds from Capital Transactions
shall be required by this Section 5.7(c) with respect to any tax year
if the amount or value otherwise distributable for such taxable year
under this Section 5.7(c) does not exceed $.10 per
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Preferred Unit, or if such distribution shall be prohibited by a loan
agreement or other instrument then in effect.
(iv) Any distribution pursuant to this Section 5.7(c)
shall be made 98% to the holders of Preferred Units and Common Units,
in the proportion that the respective number of Units held by them
bears to the total number of capital Units (as determined with respect
to the Preferred Units by the number of Common Units into which the
Preferred Units are then convertible), 1.9% to the Managing General
Partner and 0.1% to the Special General Partner.
5.8 Distributions Upon Liquidation. In the event of the
liquidation of the Partnership, distribution of the assets of the Partnership
shall be in accordance with Section 14.3 hereof.
5.9 Adjustment of Base Amount, the Preferred Amount, Target
Amounts and Capital Target Amount. (a) The Base Amount, the Preferred Amount,
First Target Amount, Second Target Amount, Third Target Amount and Capital
Target Amount 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 Partnership Securities in accordance
with Section 4.11 hereof.
(b) The Base Amount, Preferred Amount, First Target Amount, Second
Target Amount, Third Target Amount and Capital Target Amount shall also be
subject to adjustment pursuant to Section 9.6 hereof.
5.10 Other Capital Distributions.
(a) Subject to Section 5.10(c), distributions of equity securities
of the Partnership (other than distributions of securities on a parity with or
senior to the Preferred Units in priority of distribution prior to or upon
liquidation (or rights or warrants to subscribe for, or securities convertible
into or exchangeable for such securities) or securities in respect of a
liquidation of the Partnership) including without limitation, distributions of
Common Units, distributions of interests in the Partnership other than Common
Units, distributions of rights or warrants entitling the holders thereof to
subscribe for the Common Units or any securities entitling the holders thereof
to convert such securities into, or exchange such securities for, Common Units,
or distributions of rights or warrants to purchase debt securities or assets of
the Partnership, if distributed by the Partnership, shall be distributed 98% to
the holders of Common Units, in the proportion that the respective number of
Common Units held by them bears to the total number of Common Units, and 1.9%
to the Managing General Partner and 0.1% to the Special General Partner.
(b) Subject to Section 5.10(c), distributions of equity securities
on a parity with or senior to the Preferred Units of the Partnership in
priority of distribution prior to or upon liquidation (or rights or warrants to
subscribe for, or securities convertible into or exchangeable
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for such securities), if distributed by the Partnership, shall be distributed
98% to the holders of Preferred Units and Common Units, in the proportion that
the respective numbers of Units held by them bears to the total number of Units
(as determined with respect to the Preferred Units by the number of Common
Units into which the Preferred Units are then convertible), 1.9% to the
Managing General Partner and 0.1% to the Special General Partner.
(c) Notwithstanding the provisions of Section 5.10(a) and (b), the
Partnership may not (i) distribute equity securities ranking on a parity with
or senior to the Preferred Units in priority of distribution prior to or upon
liquidation (or rights or warrants to subscribe for, or securities convertible
into or exchangeable for such securities) without the approval of the holders
of 66 2/3% of the outstanding Preferred Units or (ii) distribute rights or
warrants that would entitle the holders thereof to purchase debt securities or
assets of the Partnership at less than their fair market value at the date of
distribution of such rights or warrants.
5.11 Special Redeemable Partner Unit. In connection with the
special allocation referenced in Section 5.1(d)(i) hereof, the Special General
Partner will receive a SPU which will entitle the Special General Partner to
receive with respect to each calendar year from and after January 1, 1994 and
ending when the Special Capital (plus the cumulative yield thereon) has been
fully repaid a distribution from the Partnership equal to the sum of (i) an
amount up to a 10% cumulative annual yield, from and after January 1, 1994, on
the Remaining Special Capital, and (ii) an amount up to 15% of the Special
Capital. The timing of distributions with respect to the SPU shall be as set
forth in this Article V provided that no distribution shall be made in respect
of the SPU unless and until the Base Amount or Preferred Amount (as the case
may be) and any arrearages in respect of the Preferred Units and the Common
Units for each such quarter have been paid. At such time distributions
pursuant to this Article V in respect of the SPU equal to the Special Capital
plus any accrued yield thereon, the SPU shall terminate.
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management. (a) The Managing General Partner shall conduct,
direct and exercise full control over all activities of the Partnership.
Except as otherwise expressly provided in this Agreement, all management powers
over the business and affairs of the Partnership shall be exclusively vested in
the Managing General Partner, and neither Limited Partners nor (except as
expressly set forth herein) the Special General Partner shall have any right of
control or management power over the business and affairs of the Partnership.
In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the Managing
General Partner under any other provision of this Agreement, the Managing
General Partner, subject to Section 6.3 hereof, shall have full power and
authority to do all things deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all powers set forth in Section 3.2
hereof and to effectuate the purposes set forth in Section 3.1 hereof
including, without limitation, (i) the making of any
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expenditures, the borrowing of money, the guaranteeing of indebtedness and
other liabilities, the issuance of evidences of indebtedness and the incurring
of any obligations it deems necessary for the conduct of the activities of the
Partnership; (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 assets of the Partnership or the merger or other combination of
the Partnership with or into another entity (all of the foregoing subject to
any prior approval which may be required by Section 6.3 hereof); (iv) the use
of the assets of the Partnership (including, without limitation, cash on hand)
for any purpose consistent with the terms of this Agreement and on any terms it
sees fit, including, without limitation, the financing of the conduct of the
operations of the Partnership or any of its Subsidiaries, the lending of funds
to other persons (including its Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and the making of capital contributions
to its Subsidiaries; (v) the negotiation and execution on any terms deemed
desirable in its sole discretion and the performance of any contracts,
conveyances or other instruments that it considers useful or necessary to the
conduct of the Partnership operations or the implementation of its powers under
this Agreement; (vi) the distribution of Partnership cash or other Partnership
assets; (vii) the selection and dismissal of employees and agents (including,
without limitation, 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 and the Partners as it deems
necessary or appropriate; (ix) the formation of, or acquisition of an interest
in, and the contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems desirable
(including, without limitation, the acquisition of interests in, and the
contributions of property to its Subsidiaries from time to time); (x) the
control of any matters affecting the rights and obligations of the Partnership,
including the conduct of litigation and the incurring of legal expense and the
settlement of claims and litigation; (xi) 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 and the securing
of same by mortgage, deed of trust or other lien or encumbrance, the bringing
and defending of actions at law or in equity and the indemnification of any
Person against liabilities and contingencies to the extent permitted by law;
(xii) the entering into listing agreements with the New York Stock Exchange and
any other securities exchange and delisting some or all of the Units from, or
requesting that trading be suspended on, any such exchange (subject to any
prior approval which may be required under Section 6.1 hereof); (xiii) the
undertaking of any action in connection with the Partnership's investment in
its Subsidiaries (including, without limitation, the contribution or loan by
the Partnership to its Subsidiaries of funds); (xiv) the undertaking of any
action in connection with the Partnership's direct or indirect investment in
its Subsidiaries; and (xv) determine the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as it
may adopt.
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(b) The Special General Partner shall have power and authority
coextensive with that of the Managing General Partner to represent the
Partnership in dealings with third parties (for the purposes of this Section
6.1, "third parties" shall be deemed to be persons other than the Partners and
the Assignees thereof), and accordingly may bind the Partnership. However, in
the absence of notice given to the Partnership by either of the Managing
General Partner or the Special General Partner to the contrary, the Special
General Partner's power and authority to manage the Partnership shall be
presumed to have been delegated to the Managing General Partner. In the
absence of such delegation of the Special General Partner's power and
authority, the Special General Partner shall have voting power in all matters
of management of the Partnership proportionate with its general partner
Partnership Interest.
(c) Each of the Partners and each other Person who may acquire an
interest in Units hereby approves, ratifies and confirms the execution,
delivery and performance by the parties thereto of the Deposit Agreement, the
Underwriting Agreement, and the other agreements described in the Registration
Statement, and agrees that the Managing General Partner is authorized to
execute, deliver and perform the above-mentioned agreements and transactions
and such other agreements described in the Registration Statement on behalf of
the Partnership without any further act, approval or vote of the Partners or
the other Persons who may acquire an interest in Units, notwithstanding any
other provisions of this Agreement, the Delaware Act or any applicable law,
rule or regulation. None of the execution, delivery or performance by the
Managing General Partner, the Partnership or any Affiliate of any of them of
any agreement authorized or permitted under this Agreement shall constitute a
breach by the Managing General Partner of any duty that the Managing General
Partner may owe the Partnership or the Limited Partners or any other Persons
under this Agreement or of any duty stated or implied by law or equity.
(d) If the Managing General Partner determines such action to be
necessary or appropriate in connection with the proposed qualification or
formation and operation of the Partnership in any state other than the State of
Delaware in which the Partnership is transacting or may transact business, the
Managing General Partner may cause the Partnership to form one or more
operating partnerships pursuant to and in conformity with the laws of such
jurisdiction or jurisdictions as the Managing General Partner may determine
("Operating Partnership"). An Operating Partnership may have conveyed to it
and may acquire, hold, operate and dispose of all or part of the Partnership
assets located in a state. Each Operating Partnership shall be composed of the
Managing General Partner as managing general partner thereof, having a 1.9%
interest in the Operating Partnership, the Special General Partner as special
general partner thereof, have a 0.1% general partner interest in the Operating
Partnership, which shall in turn reduce the interests of the Managing General
Partner and the Special General Partner in the Partnership so that the economic
interest of the Managing General Partner as managing general partner and the
Special General Partner as special general partner in the Partnership and the
Operating Partnership or Operating Partnerships remains 1.9% and 0.1%,
respectively, and the Partnership as the sole limited partner thereof having a
98% interest in the Operating Partnership. Each Operating Partnership shall be
formed pursuant to an agreement of limited
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partnership in substantially the form of this Agreement, provided that the
Operating Partnership agreement may contain (i) a provision providing for a
name of the Operating Partnership different from the name of the Partnership,
(ii) such provisions as the Managing General Partner determines are reasonable
and necessary or appropriate to comply with the laws of the jurisdiction in
which the Operating Partnership is being formed or to reflect the manner in
which the Operating Partnership will be or is required to conduct the
activities of the Operating Partnership with respect to the properties located
in a state, (iii) such provisions as the Managing General Partner would be
permitted to adopt as amendments to this Agreement (provided that the Managing
General Partner complies with any applicable requirements of such sections) and
(iv) any other provision that the Managing General Partner has determined is
necessary or appropriate and is fair and reasonable to all parties concerned.
The Managing General Partner is hereby authorized on behalf of the Partnership
to execute the agreement of limited partnership of each Operating Partnership
and any other certificates, instruments and documents necessary to form the
Operating Partnership, and the Partners hereby approve, ratify and confirm the
execution, delivery and performance thereof.
(e) At all times from and after the date hereof, the Managing
General Partner shall cause the Partnership and any Operating Partnership to
obtain and maintain to the extent available on a commercially reasonable basis
(i) casualty and liability insurance on the properties of the Partnership and
(ii) liability insurance for the General Partners and the Indemnitees
hereunder.
(f) At all times from and after the date hereof, the Managing
General Partner shall cause the Partnership to maintain working capital
reserves in such amounts as the Managing General Partner deems appropriate and
reasonable from time to time.
6.2 Certificate of Limited Partnership. The Managing General
Partner has filed the Certificate of Limited Partnership 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 reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware or any other state in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
Managing General Partner to be reasonable and necessary or appropriate, the
Managing General Partner shall file amendments to and restatements of the
Certificate of Limited Partnership and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware or any
other state in which the Partnership may elect to do business or own property.
Subject to the terms of Section 7.5(a) hereof, the Managing General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership or any amendment thereto to any Limited
Partner.
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6.3 Restrictions on the General Partners' Authority. (a) No
General Partner may, without the written approval of the specific act by all of
the Limited Partners or by other written instrument executed and delivered by
all of the Limited Partners subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, without limitation, (i)
take any act that would make it impossible to carry on the ordinary business of
the Partnership, except as otherwise provided in this Agreement, (ii) possess
Partnership property, or assign any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admit a person as a Partner, except
as otherwise provided in this Agreement; (iv) amend this Agreement in any
manner, except as otherwise provided in this Agreement; or (v) transfer its
interest as a General Partner of the Partnership, except as otherwise provided
in this Agreement.
(b) Except as provided in Article XIV hereof, no General Partner
may 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
with any other Person) without the approval of the holders of at least 66 2/3%
of each class of the Outstanding Units prior to the Initial Conversion Date and
thereafter without the approval of holders of at least a majority of the
Outstanding Units; provided, however, that this provision shall not preclude or
limit the mortgage, pledge, hypothecation or grant of a security interest in
all or substantially all of the Partnership's assets and shall not apply to any
forced sale of any or all of the Partnership's assets pursuant to the
foreclosure of, or other realization upon, any such encumbrance.
(c) Unless approved prior to the Initial Conversion Date by the
affirmative vote of the holders of at least 66 2/3% of each class of the
Outstanding Units and, thereafter by the affirmative vote of the holders of at
least a majority of the Outstanding Units, no General Partner shall take any
action or refuse to take any reasonable action the effect of which, if taken or
not taken, as the case may be, would cause the Partnership to be treated as a
corporation or as an association taxable as a corporation for federal income
tax purposes.
(d) At all times while serving as a general partner of the
Partnership, the General Partners will not make any dividend or distribution
on, or repurchase any stock or take any other action if the effect of such
dividend or distribution, repurchase or other action would be to reduce its net
worth below an amount necessary to receive an Opinion of Counsel that the
Partnership will be treated as a partnership for federal income tax purposes.
6.4 Reimbursement of the General Partners. (a) Except as
provided in this Section 6.4 and elsewhere in this Agreement, none of the
General Partners shall be compensated for its services as a general partner of
the Partnership.
(b) The General Partners shall be reimbursed on a monthly basis,
or such other basis as the Managing General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including amounts paid to any Person to
perform services to or for the Partnership) and (ii) that portion of the
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General Partners' or their Affiliates' legal, accounting, investor
communications, utilities, telephone, secretarial, travel, entertainment,
bookkeeping, reporting, data processing, office rent and other office expenses
(including overhead charges), salaries, fees and other compensation and benefit
expenses of employees, officers and directors, other administrative or overhead
expenses and all other expenses, in each such case, necessary or appropriate to
the conduct of the Partnership's business and allocable to the Partnership or
otherwise incurred by the General Partners in connection with operating the
Partnership's business (including, without limitation, expenses allocated to
the General Partners by their Affiliates). The Managing General Partner shall
determine the fees and expenses that are allocable to the Partnership in any
reasonable manner determined by the Managing General Partner in its sole
discretion. Such reimbursement shall be in addition to any reimbursement to
the General Partners as a result of indemnification pursuant to Section 6.7
hereof.
(c) Subject to Section 4.4(c) hereof, the Managing General Partner
in its sole discretion and without the approval of the Limited Partners may
propose and adopt on behalf of the Partnership, employee benefit plans
(including, without limitation, plans involving the issuance of Units), for the
benefit of employees of the General Partners, the Partnership, its Subsidiaries
or any Affiliate of any of them in respect of services performed, directly or
indirectly, for the benefit of the Partnership or any of its Subsidiaries.
6.5 Outside Activities. (a) After the Closing Date, no General
Partner shall, for so long as it is a general partner of the Partnership, enter
into or conduct any business or incur any debts or liabilities which adversely
affect or are in direct competition with the Partnership.
(b) Except as described in the Registration Statement or provided
in Section 6.5(a) hereof, no Indemnitee shall be expressly or implicitly
restricted or proscribed pursuant to this Agreement or the partnership
relationship established hereby from engaging in other activities for profit,
whether in the businesses engaged in by the Partnership or anticipated to be
engaged in by the Partnership or otherwise, including, without limitation,
those businesses described in or contemplated by the Registration Statement.
None of the Partnership, any Limited Partner or any other Person shall have any
rights by virtue of this Agreement or the partnership relationship established
hereby or thereby in any business ventures of any Indemnitee, and, except as
set forth in the Registration Statement, such Indemnitees shall have no
obligation to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person. The General
Partners and any other Persons affiliated with the General Partners may acquire
Units or Partnership Securities, in addition to those acquired by any of such
Persons on the Closing Date, and shall be entitled to exercise all rights of an
Assignee or Limited Partner, as applicable, relating to such Units or
Partnership Securities, as the case may be.
6.6 Contracts with Affiliates. (a) The Partnership may lend or
contribute to its Subsidiaries, and its Subsidiaries may borrow funds, on terms
and conditions established in the sole discretion of the Managing General
Partner. The foregoing authority shall be exercised by
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the Managing General Partner in its reasonable discretion and shall not create
any right or benefit in favor of any Subsidiary or any other Person. The
Partnership may not lend funds to the General Partners or any of their
Affiliates.
(b) Each General Partner may itself, or may enter into an
agreement with any of its Affiliates to, render services to the Partnership.
Any services rendered to the Partnership by a General Partner or any Affiliate
thereof shall be on terms that are fair and reasonable to the Partnership. The
provisions of Section 6.4 hereof shall apply to the rendering of services
described in this Section 6.6(b).
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law.
(d) Neither a General Partner nor any Affiliate thereof 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 6.6(d) shall be deemed to be satisfied as to any
transactions described in or contemplated by the Registration Statement.
6.7 Indemnification. (a) To the fullest extent permitted by law
but subject to the limitations expressly provided in this Agreement, each
Indemnitee 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, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, 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 (x) a General Partner, a departing
General Partner or any of their Affiliates, (y) an officer, director, employee,
partner, agent or trustee of a General Partner, any departing General Partner
or any of their Affiliates or (z) a Person serving at the request of the
Partnership in another entity in a similar capacity, provided that in each case
the Indemnitee acted in good faith and in the manner which such Indemnitee
believed to be in, or not opposed to, the best interests of the Partnership
and, with respect to any criminal proceeding, had no reasonable cause to
believe its conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 6.7 shall be made only out of the
assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including
legal fees and expenses) incurred by an lndemnitee 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 an undertaking by
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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 6.7.
(c) The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf
of a General Partner and such other Persons as the Managing General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities, 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 6.7, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.7(a); and action taken
or omitted by it with respect to an 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 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction were otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or
any provision hereof shall in any manner terminate, reduce or impair the right
of any past, present or future Indemnitee to be indemnified by the Partnership,
nor the obligation of the Partnership to indemnify any such Indemnitee under
and in accordance with the provisions of this Section 6.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims
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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.
6.8 Liability of Indemnitees (a) Notwithstanding anything to the
contrary set forth in this Agreement or as otherwise prohibited by law, no
Indemnitee shall be liable for monetary damages to the Partnership, Limited
Partners or to any Persons who have acquired interests in the Units for losses
sustained or liabilities incurred as a result of errors of judgment or of any
act or omission if such Indemnitee acted in good faith and in the manner which
such Indemnitee believed to be in, or not opposed to, the best Interests of the
Partnership.
(b) Subject to its obligations and duties as Managing General
Partner set forth in Section 6.1(a) hereof, the Managing General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents and the Managing General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by it in good
faith.
(c) Any amendment, modification or repeal of this Section 6.8 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations or the liability to the Partnership and the Limited Partners of
a General Partner, its directors, officers, partners and employees under this
Section 6.8 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.
6.9 Resolution of Conflicts of Interest. (a) Unless otherwise
expressly provided in this Agreement, whenever a potential conflict of interest
exists or arises between a General Partner or any Affiliate thereof, on the one
hand, and the Partnership, any Subsidiary or any Partner, on the other hand,
any resolution or course of action 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 agreement contemplated herein, or
of any duty stated or implied by law or equity, if the resolution or course of
action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The Managing General Partner shall be
authorized but not required in connection with its resolution of such conflict
of interest to seek Special Approval of a resolution of such conflict or course
of action. Any conflict of interest and any resolution of such conflict of
interest shall be deemed fair and reasonable to the Partnership upon Special
Approval of such conflict of interest or resolution. The Managing General
Partner may also adopt a resolution or course of action that has not received
Special Approval. Any such resolution or course of action in respect of any
conflict of interest shall not constitute a breach of this Agreement, of any
other agreement contemplated herein, or of any duty stated or implied by law or
equity, if such resolution or course of action is fair and reasonable to the
Partnership. The Managing General Partner (including the Conflicts and Audit
Committee in connection with Special Approval) shall be authorized in
connection with its resolution of any conflict of interest to consider (i) the
relative interests of any party to such
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conflict, agreement, transaction or situation and the benefits and burdens
relating to such interest; (ii) any customary or accepted industry practices;
(iii) any applicable generally accepted accounting practices or principles; and
(iv) such additional factors as the Managing General Partner (including the
Conflicts and Audit Committee in connection with Special Approval) determines
in its sole discretion to be relevant, reasonable or appropriate under the
circumstances. Nothing contained in this Agreement, however, is intended to
nor shall it be construed to require the Managing General Partner (including
the Conflicts and Audit Committee in connection with Special Approval) to
consider the interests of any Person other than the Partnership and the Limited
Partners as a group. So long as the Managing General Partner acted in good
faith and in a manner that it believed to be in, or not opposed to, the best
interests of the Partnership and had no reasonable grounds to believe its
conduct was unlawful, the resolution, action or terms so made, taken or
provided by the Managing General Partner with respect to such matter shall not
constitute a breach of this Agreement or any other agreement contemplated
herein or a breach of any standard of care or duty imposed herein or therein or
under the Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated
hereby provides that the Managing General Partner or any of its Affiliates is
permitted or required to make a decision (i) in its "discretion" or under a
grant of similar authority or latitude, the Managing General Partner or such
Affiliate shall be entitled to consider only such interests and factors as it
desires and shall have no duty or obligation to give any consideration to any
interest of or factors affecting, the Partnership or any Limited Partner, or
(ii) in "good faith" or under another express standard, the Managing General
Partner or such Affiliate shall act under such express standard and shall not
be subject to any other or different standards imposed by this Agreement or any
other agreement contemplated hereby.
(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.
6.10 Other Matters Concerning General Partners. (a) A General
Partner may rely and shall be protected in acting or refraining from acting
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties.
(b) A General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected in good faith 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 which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
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(c) A General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such
attorney shall, to the extent provided by such General Partner in the power of
attorney, have full power and authority to do and perform all and every act and
duty which is permitted or required to be done by such General Partner
hereunder.
(d) A General Partner shall have the right, but not the
obligation, to make loans to the Partnership, including, without limitation,
loans for the purpose of making distributions on the Preferred Units; provided,
that in no event shall such loans be on terms and conditions less favorable
than those that the Partnership could obtain from unaffiliated third parties or
banks for the same purpose.
6.11 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,
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 Managing
General Partner or one or more nominees, as the Managing General Partner may
determine, including Affiliates of the Managing General Partner. The Managing
General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the Managing General Partner or any
nominee or Affiliate of the Managing General Partner shall be held by the
Managing General Partner for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
Managing General Partner shall use its best efforts to cause beneficial and
record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
6.12 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the Managing General Partner 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 contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the Managing
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. The Special General Partner, each Limited Partner
and each Assignee hereby waives any and all defenses or other remedies which
may be available against such Person to contest, negate or disaffirm any action
of the Managing General Partner in connection with any such dealing. In no
event shall any Person dealing with the Managing General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the Managing General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the Managing General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the
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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.
6.13 Covenants and Representations of General Partners. (a) The
General Partners hereby covenant and represent that (i) at all times while
acting as general partners of the Partnership, they will collectively maintain
assets (excluding any interest in, or receivables due from, the Partnership)
the fair market value of which exceeds their liabilities by the amount of at
least $10 million; (ii) the Partnership will be operated in accordance with
applicable state partnership statutes, this Partnership Agreement and the
representations made in the Registration Statement; (iii) at least ninety
percent (90%) of the Partnership's gross income for each taxable year will
consist of (w) income or gain derived from the exploration, development,
production, processing, refining, transportation or marketing of crude oil and
refined petroleum products, (x) gains from the sale of real property, (y) real
property rents or (z) gains from the sale or other disposition of a capital
asset held for the production of income or gain of the character described in
clauses (w), (x) and (y) above; and (iv) the General Partners will act
independently of the Limited Partners.
(b) The Managing General Partner hereby covenants and agrees that
it will not permit the Partnership to exercise its purchase option to acquire
the Comyn pipeline (as described in the Registration Statement) unless the
Partnership has first received an opinion from a nationally recognized
investment banking firm which is independent of the General Partners to the
effect that the exercise of the option is fair from a financial point of view
to the holders of the Units in their capacity as such.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement
or the Delaware Act.
7.2 Management of Business. No Limited Partner or Assignee (in
his capacity as such) shall take part 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. The transaction of any such
business by a General Partner, any Affiliate thereof or any officer, director,
employee, partner, agent or trustee of such General Partner or any Affiliate
thereof, in its capacity as such, shall not affect, impair or eliminate the
limitations on the liability of the Limited Partners or Assignees under this
Agreement.
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7.3 Outside Activities. Subject to the provisions of Section 6.5
hereof 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 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. Neither the Partnership nor any Partners
shall have any rights by virtue of this Agreement in any business ventures of
any Limited Partner or Assignee.
7.4 Return of Capital. No Limited Partner shall be entitled to
the withdrawal or return of his Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided by Article V
hereof or as otherwise expressly provided in this Agreement, no Limited Partner
or Assignee shall have priority over any other Limited Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses or
distributions.
7.5 Rights of Limited Partners Relating to the Partnership. (a)
In addition to other rights provided by this Agreement or by applicable law,
and except as limited by Section 7.5(b) hereof, 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 demand and at such
Limited Partner's own expense:
(i) to obtain true and full information regarding the
status of the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy
of the Partnership's federal, state and local income tax returns for
each year;
(iii) to have furnished to him, upon notification to the
Managing General Partner, a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to have furnished to him, upon notification to the
Managing General Partner, a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with
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 Agreed Value of
any other Capital Contribution by each Partner and which each Partner
has agreed to contribute in the future, and the date on which each
became a Partner; and
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(vi) to obtain such other information regarding the
affairs of the Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Section 7.5, the
Managing General Partner may keep confidential from the Limited Partners for
such period of time as the Managing General Partner determines in its sole
discretion to be reasonable, any information that the Managing General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the Managing General Partner in good faith believes is
not in the best interests of the Partnership or which the Partnership is
required by law or by agreements with unaffiliated third parties to maintain
confidentiality.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The Managing General Partner shall
keep or cause to be kept at the principal office of the Partnership appropriate
books and records with respect to the Partnership's business including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 7.5(a) hereof. Any records maintained by or on behalf of the
Partnership in the regular course of business, including the record of the
Record Holders and Assignees of Units, Depository Units or Partnership
Securities, books of account and records of Partnership proceedings, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the
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 and tax reporting purposes, on an accrual basis in accordance
with generally accepted accounting principles.
8.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
8.3 Reports. (a) As soon as practicable, but in no event later
than 120 days after the close of each Partnership Year, the Managing General
Partner shall cause to be mailed to each Record Holder of a Unit as of a date
selected by the Managing General Partner in its sole discretion, an annual
report containing financial statements of the Partnership for such Partnership
Year, presented in accordance with generally accepted accounting principles,
including a balance sheet and statements of operations, Partners' equity and
changes in financial position, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the Managing
General Partner.
(b) As soon as practicable, but in no event later than 90 days
after the close of each calendar quarter except the last calendar quarter of
each year, the Managing General Partner shall cause to be mailed to each Record
Holder of a Unit, as of a date selected by the Managing General Partner in its
sole discretion, a report containing unaudited financial statements of the
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Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which the Units are
listed for trading, or as the Managing General Partner determines to be
appropriate.
ARTICLE IX
TAX MATTERS
9.1 Preparation of Tax Returns. The Managing General Partner
shall arrange for the preparation and timely filing of all returns of
Partnership income, gains, deductions, losses and other items required of the
Partnership for federal and state income tax purposes and shall use all
reasonable efforts to furnish, within 90 days of the close of each taxable
year, the tax information reasonably required by Unitholders for federal and
state income tax reporting purposes. The classification, realization and
recognition of income, gains, losses and deductions and other items shall be on
the accrual method of accounting for federal income tax purposes. The taxable
year of the Partnership shall be the calendar year.
9.2 Tax Elections. Except as otherwise provided herein, the
Managing General Partner shall, in its sole discretion, determine whether to
make any available election pursuant to the Code; provided, however, that the
Managing General Partner shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder. The Managing General
Partner shall have the right to seek to revoke any such election (including,
without limitation, the election under Section 754 of the Code) upon the
Managing General Partner's determination in its sole discretion that such
revocation is in the best interests of the Limited Partners and Assignees. For
purposes of computing the adjustments under Section 743(b) of the Code, the
Managing General Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of Units will be deemed to be
the lowest quoted trading price of the Units on any National Securities
Exchange on which such Units are traded during the calendar month in which such
transfer is deemed to occur pursuant to Section 5.1(d) hereof without regard to
the actual price paid by such transferee.
9.3 Tax Controversies. Subject to the provisions hereof, the
Managing General Partner is designated the Tax Matters Partners (as defined in
Section 6231 of 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 or Assignee
agrees to cooperate with the Managing General Partner and to do or refrain from
doing any or all things reasonably required by the Managing General Partner to
conduct such proceedings.
9.4 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60-month period as provided in Section 709 of the Code.
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9.5 Withholding. Notwithstanding any other provision of this
Agreement, the Managing General Partner is authorized to take any action that
it determines in its sole discretion to be necessary or appropriate to cause
the Partnership to comply with any withholding requirements established under
the Code or any other federal, state or local law including, without
limitation, pursuant to Section 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required 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 by reason of Section 1446 of the Code), the
amount withheld shall be treated as a distribution of cash pursuant to Section
5.3 hereof in the amount of such withholding from such Partner.
9.6 Entity-Level Taxation. If legislation is enacted which causes
the Partnership to become treated as an association taxable as a corporation
for federal income tax purposes, then with respect to any calendar quarter
thereafter, but in no event prior to the end of the Initial Period, the Base
Amount, the Preferred Amount, First Target Amount, Second Target Amount, Third
Target Amount and Capital Target Amount, as the case may be, shall be equal to
the product of (i) each such distribution amount multiplied by (ii) 1 minus the
sum of (x) the effective federal income tax rate applicable to the Partnership
(expressed as a percentage) plus (y) the effective overall state and local
income tax rate applicable to the Partnership (expressed as a percentage), in
each case, for the taxable year in which such quarter occurs (after taking into
account the benefit of any deduction allowable for federal income tax purposes
with respect to the payment of state and local income taxes).
9.7 Entity-Level Deficiency Collections. If the Partnership is
required by applicable law to pay any federal, state or local income tax on
behalf of any Partner or Assignee or any former Partner or Assignee, (i) the
Managing General Partner shall pay such tax on behalf of such Partner or
Assignee or former Partner or Assignee from the funds of the Partnership; (ii)
any amount so paid on behalf of any Partner or Assignee shall constitute a
distribution of Available Cash to such Partner or Assignee pursuant to Section
5.3 hereof or 14.3 hereof; and (iii) to the extent any such Partner or Assignee
(but not a former Partner or Assignee) is not then entitled to such
distribution under this Agreement, the Managing General Partner shall be
authorized, without the approval of any Partner or Assignee, to amend this
Agreement insofar as is necessary to maintain the uniformity of intrinsic tax
characteristics as to all Units and to make subsequent adjustments to
distributions in a manner which, in the reasonable judgment of the Managing
General Partner, will make as little alteration in the priority and amount of
distributions otherwise applicable under this Agreement, and will not otherwise
alter the distributions to which Partners and Assignees are entitled under this
Agreement. If the Partnership is permitted (but not required) by applicable
law to pay any such tax on behalf of any Partner or Assignee or former Partner
or Assignee, the Managing General Partner shall be authorized (but not
required) to pay such tax from the funds of the Partnership and to take any
action consistent with this Section 9.7. The Managing General Partner shall be
authorized (but not required) to take all necessary or appropriate actions to
collect all or any portion of a deficiency in the payment of any such tax which
relates to prior periods which is attributable to
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Persons who were Limited Partners or Assignees when such deficiencies arose
from such Persons.
9.8 Opinions of Counsel. Notwithstanding any other provision of
this Agreement, if the Partnership is taxable for federal income tax purposes
as a corporation or an association taxable as a corporation at any time and,
pursuant to the provisions hereof, an Opinion of Counsel would otherwise be
required at that time to the effect that an action will not cause the
Partnership to become so taxable as a corporation or to be treated as an
association taxable as a corporation, such requirement for an Opinion of
Counsel shall be deemed automatically waived.
ARTICLE X
CERTIFICATES AND DEPOSITARY RECEIPTS
10.1 Certificates and Depositary Receipts. (a) Upon the issuance
of Units by the Partnership to the Initial Limited Partners or any other
Person, the Partnership shall issue one or more Certificates in the name of the
Initial Limited Partners or such other Person evidencing the number of Units
being so issued. Certificates shall be executed on behalf of the Partnership
by the Managing General Partner.
(b) The Managing General Partner (i) may cause the deposit of some
or all of the Certificates in the Deposit Account pursuant to the Deposit
Agreement; (ii) with respect to those Certificates deposited in the Deposit
Account, shall receive Depository Receipts registered in the name of the
Person(s) to whom such Units have been issued, evidencing the same number of
Depositary Units, as the case may be, as the number of Units represented by the
Certificates so deposited; and (iii) shall cause the distribution of such
Depositary Receipts to such Person(s).
10.2 Registration of Transfer and Exchange. (a) The Managing
General Partner shall cause to be kept on behalf of the Partnership a register
(the "Unit Register") in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 10.2(b) hereof, the
Managing General Partner will provide for the registration of Units and the
transfer of such Units. The Depositary is hereby appointed Transfer Agent and
registrar for the purpose of registering Units and transfers of such Units as
herein provided. The Partnership shall not recognize transfers of Certificates
representing Units which have been deposited pursuant to Section 10.1(a) hereof
and not withdrawn or interests therein except by transfers of Depositary Units
in the manner described in this Section 10.2 and in the Deposit Agreement.
Upon surrender for registration of transfer of any Depositary Units evidenced
by a Depositary Receipt and, subject to the provisions of Section 10.2(b)
hereof, the Managing General Partner on behalf of the Partnership will execute,
and the Transfer Agent will 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 Depositary Receipts evidencing the same
aggregate number of Depositary Units as was evidenced by the Depositary Receipt
so surrendered.
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(b) The Partnership shall not recognize any transfer of Depositary
Units until the Depositary Receipts evidencing such Depositary Units are
surrendered for registration of transfer and such Depositary Receipts 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 Depositary Receipt under this Section 10.2, the
Managing General Partner may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed with respect thereto.
10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts. (a)
If any mutilated Depositary Receipt is surrendered to the Transfer Agent, the
Depositary shall execute, and the Transfer Agent shall countersign and deliver
in exchange therefor, a new Depositary Receipt evidencing the same number of
Depositary Units, as the case may be, as the Depositary Receipt so surrendered.
(b) If there shall be delivered to the Managing General Partner
and the Transfer Agent (i) evidence (including, without limitation, proof by
affidavit if requested by the Managing General Partner in form and substance
satisfactory to the Managing General Partner) to their satisfaction of the
destruction, loss or theft of any Depositary Receipt and (ii) such security or
indemnity as may be required by them to indemnify and hold each of them and any
of their agents harmless, then, in the absence of notice to the Managing
General Partner or the Transfer Agent that such Depositary Receipt has been
acquired by a bona fide purchaser, the Managing General Partner on behalf of
the Partnership shall execute and, upon its request, the Transfer Agent shall
countersign and deliver, in exchange for and in lieu of any such destroyed,
lost or stolen Depositary Receipt, a new Depositary Receipt evidencing the same
number of Depositary Units, as the Depositary Receipt so destroyed, lost or
stolen.
(c) As a condition to the issuance of any new Depositary Receipt
under this Section 10.3, the Managing General Partner may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Transfer Agent) connected therewith.
10.4 Registered Owner. In accordance with Section 10.2(b) hereof,
the Partnership shall be entitled to recognize the Record Holder as the Limited
Partner or Assignee with respect to any Units and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such Units on
the part of any other Person, whether or not 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 the Units 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 Units, as between the Partnership on the one hand and such other
Persons on the other hand, such representative Person (a) shall be the Limited
Partner or Assignee (as the case may
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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 Limited Partner or Assignee (as the case may be) hereunder
and as provided for herein.
10.5 Withdrawal of Units from and Redeposit of Units in Depositary
Account. Any Units may be withdrawn from the Depositary Account by surrender
of the Depositary Receipts evidencing the corresponding Depositary Units duly
executed by the Record Holder thereof (or his attorney-in-fact duly authorized
in writing), provided that such Record Holder is then reflected on the books
and records of the Partnership as the Limited Partner in respect of the Units
for which such withdrawal is requested. Upon any such withdrawal, the Managing
General Partner shall cause the Partnership to issue a Certificate evidencing
such Units. Any such withdrawn Units, or Units which have not previously been
so deposited, may be redeposited or deposited (as the case may be) in the
Deposit Account by the surrender of the Certificate evidencing such withdrawn
Units or non-deposited Units to the Depositary and payment to the Depositary of
such fee and upon such terms as may be required therefor pursuant to the
Deposit Agreement. Upon any such redeposit or deposit, the Depositary shall
issue a Depositary Receipt evidencing the same number of Units as was evidenced
by the Certificate so redeposited or deposited.
10.6 Amendment of Deposit Agreement. Subject to its fiduciary
obligations, the Managing General Partner may amend or modify any provision of
the Deposit Agreement in any respect it reasonably determines to be necessary
or appropriate, provided, however, that the Managing General Partner shall not
amend or modify the Deposit Agreement if the effect of any such amendment or
modification would materially adversely affect the Limited Partners or would
impair the right of Limited Partners to withdraw their Units from deposit
thereunder.
ARTICLE XI
TRANSFER OF INTERESTS
11.1 Transfer. (a) The term "transfer," when used in this Article
XI with respect to a Partnership Interest, shall be deemed to refer to an
appropriate transaction by which a General Partner assigns its general partner
Partnership Interest to another Person or by which the holder of a Unit assigns
such Unit to another Person who is or becomes 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 XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
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11.2 Transfer of a General Partner's Partnership Interest. (a)
Each of the General Partners may transfer all, but not less than all, of its
general partner Partnership Interest (unless to an Affiliate, in which case
less than all of such interest may be transferred) to a single transferee if,
but only if, (i) the transferee agrees to assume and be bound by the rights and
duties of such general partner under the provisions of this 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 the taxation of the
Partnership as a corporation or as an association taxable as a corporation for
federal income tax purposes and (iii) the transfer is made to an Affiliate or
upon such General Partner's merger, consolidation or other combination into any
other entity or the transfer by it of all or substantially all of its assets to
another entity.
(b) Notwithstanding Section 11.2(a) hereof, the Managing General
Partner may not transfer any or all of its general partner Partnership Interest
during the Initial Period without the approval of at least a majority of the
Outstanding Units (excluding for purposes of such determination any Units owned
by the General Partners and their Affiliates), and the Special General Partner
may not transfer its general partner Partnership Interest without the consent
of the Managing General Partner.
(c) Any transferee of the Managing General Partner's general
partner interest pursuant to Section 11.2(a) hereof shall be admitted to the
Partnership as successor Managing General Partner hereunder and shall continue
the business of the Partnership and the transferor of such general partner
interest shall cease to be a General Partner following the admission of such
transferee.
(d) Any transferee of the Special General Partner's general
partner interest pursuant to Section 11.2(a) hereof shall be admitted to the
Partnership as successor Special General Partner hereunder and the Managing
General Partner shall continue the business of the Partnership notwithstanding
such transfer by the Special General Partner and the transferor of such general
partner interest shall cease to be a General Partner following the admission of
such transferee.
(e) any successor General Partner pursuant to this Section 11.2
shall become a General Partner effective, to the extent permitted by the
Delaware Act, as of the date immediately prior to the date of the transfer of
the general partner interest. This Agreement and the Certificate of Limited
Partnership shall be amended as appropriate to reflect the cessation of the
former General Partner and the substitution of the successor General Partner.
11.3 Transfer of Units. (a) Any Units which have been deposited in
the Deposit Account may be transferred, but only in the manner described in
Section 10.2 hereof. Units with respect to which no such deposit has been made
or which have been withdrawn from the Deposit Account and not redeposited are
not transferable except upon death or by operation of law, by transfer to the
Managing General Partner for the account of the Partnership, pursuant
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to Section 11.7 or otherwise in accordance with this Agreement. The transfer
of any Units and the admission of any new Partner shall not constitute an
amendment to this Agreement.
(b) Until admitted as a Substituted Limited Partner pursuant to
Article XII hereof, the Record Holder of a Depositary Unit shall constitute an
Assignee in respect of such Unit.
(c) Each distribution in respect of Units shall be paid by the
Partnership, directly or through the Transfer Agent or through any other Person
or agent, only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of
the Partnership's liability with 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.
11.4 Restrictions on Transfers. Notwithstanding the other
provisions of this Article XI, no transfer of any Unit or interest therein of
any Limited Partner in the Partnership shall be made if such transfer (i) would
violate the then applicable federal or state securities laws or rules and
regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authorities with jurisdiction over such
transfer, (ii) would result in the taxation of the Partnership as a corporation
or as an association taxable as a corporation for federal income tax purposes
or (iii) would affect the Partnership's existence or qualification as a limited
partnership under the Delaware Act.
11.5 Citizenship Certification; Non-citizen Assignees. (a) In the
event that, because of the nationality (or any other status) of a Limited
Partner or Assignee, the Partnership is or becomes subject to federal, state or
local laws or regulations the effect of which would, in the reasonable
determination of the Managing General Partner, cause cancellation or forfeiture
of any property in which the Partnership has an interest, the Managing General
Partner may request any such Limited Partner or Assignee to furnish to the
Managing General Partner or, with respect to Depositary Units, to the
Depositary within 30 days after receipt of such request an executed Citizenship
Certification or such other information concerning his nationality, citizenship
or other status (or, if the Limited Partner or Assignee is a nominee holding
for the account of another Person, the nationality, citizenship or other status
of such Person) as the Managing General Partner may request. If a Limited
Partner or Assignee fails to furnish such Citizenship Certification or other
information as may be requested or if upon receipt of such Citizenship
Certification or other information the Managing General Partner determines,
with the advice of counsel, that a Limited Partner or an Assignee is not an
Eligible Citizen, the Units owned by such Limited Partner or Assignee shall be
subject to redemption, the Managing General Partner may require that the status
of any such Limited Partner or Assignee be changed to that of a Non-citizen
Assignee, and, thereupon, the Managing General Partner shall be substituted for
such Non-citizen Assignee as the Limited Partner in respect of his Units.
(b) The Managing General Partner shall, in exercising voting
rights in respect of Units held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the
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votes of the Limited Partners in respect of Units 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 14.4
hereof but shall be entitled to the cash equivalent thereof, and the Managing
General Partner 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
Managing General Partner from the Non-citizen Assignee of his Partnership
Interest (representing his right to receive his share of such distribution in
kind).
(d) At any time after he can and does certify that he has become
an Eligible Citizen, a Non-citizen Assignee may, upon application to the
Managing General Partner, request admission as a Substituted Limited Partner
with respect to any Partnership Interest of such Non-citizen Assignee not
redeemed pursuant to Section 11.6 hereof and upon his admission pursuant to
Section 12.2 hereof the Managing General Partner shall cease to be deemed to be
the Limited Partner in respect of the Non-citizen Assignee's Units.
11.6 Redemption of Interests. (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 11.5(a)
hereof, or if upon receipt of such Citizenship Certification or other
information the Managing General Partner determines, with the advice of
counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Partnership may, unless the Limited Partner or Assignee, establishes to the
satisfaction of the Managing General Partner that such Limited Partner or
Assignee is an Eligible Citizen or has transferred his Units to a Person who
furnishes a Citizenship Certification to the Managing General Partner prior to
the date fixed for redemption as provided below, redeem the Partnership
Interest of such Limited Partner or Assignee as follows:
(i) The Managing General Partner shall, not later than
the 30th day before the date fixed for redemption, give notice of
redemption to the Limited Partner or Assignee, at his last address
designated on the records of the Partnership or the Depositary, 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 Units, the date fixed for redemption, the place of
payment, that payment of the redemption price will be made upon
surrender of the Depositary Receipt or the Certificate evidencing the
Redeemable Units 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
Units will accrue or be made.
(ii) The aggregate redemption price for Redeemable Units
shall be an amount equal to the Current Market Price (the date of
determination of which shall be the date fixed for redemption) of
Units of the class to be so redeemed multiplied by the number
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of Units of each such class included among the Redeemable Units. The
redemption price shall be paid, in the sole discretion of the Managing
General Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price, bearing
interest at the rate of 10% annually and payable in three equal annual
installments of principal, together with accrued interest, commencing
one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner
or Assignee, at the place specified in the notice of redemption, of
the Depositary Receipt or the Certificate evidencing the Redeemable
Units, 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 Units shall no
longer constitute issued and outstanding Units.
(b) The provisions of this Section 11.6 shall be applicable to
Units 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 11.6 shall prevent the recipient of a
notice of redemption from transferring his Units before the redemption date if
such transfer is otherwise permitted under this Agreement. Upon receipt of
notice of such a transfer, the Managing General Partner shall withdraw the
notice of redemption; provided, the transferee of such Units or Depositary
Units certifies in 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.
(d) Notwithstanding the provisions of Article XVIII hereof, if the
Units subject to redemption are Preferred Units, the holder of such Preferred
Units may not convert them into Common Units.
(e) If the Partnership or the Managing General Partner determines
that because of the nationality (or other status) of a General Partner, whether
or not in its capacity as such, the Partnership is or becomes subject to
federal, state or local regulations the effect of which would, in the
reasonable determination of the Managing General Partner, cause cancellation or
forfeiture of any property in which the Partnership has an interest, the
Partnership may, unless such General Partner has furnished a Citizenship
Certification or transferred his Partnership Interest or Units to a Person who
furnishes a Citizenship Certification prior to the date fixed for redemption,
redeem the Partnership Interest or Interests of such General Partner in the
Partnership as provided in Section 11.6(a) hereof. The redemption price shall
be paid in cash.
11.7 Transfer of Common Units by the Special General Partner. The
Special General Partner shall not have the right to transfer the Common Units
initially held by it during the one
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year period commencing on the date of closing of the Initial Offering to
persons other than shareholders of the Special General Partner or relatives of
such shareholders (or trusts established for the benefit of such relatives) and
then only if the transaction is registered under the Securities Act or an
exemption from registration is available. The Special General Partner shall
not have the right to transfer more than 50% of the Common Units initially held
by it during the second year following the date of closing of the Initial
Offering to persons other than shareholders of the Special General Partner or
any relatives of such shareholders (or trusts established for the benefit of
such relatives) and then only if the transaction is registered under the
Securities Act or an exemption from registration is available. Prior to any
transfer of the Common Units to any Affiliate or shareholder of the Special
General Partner or any relative of such shareholder (or any trust or trusts for
such relative), such transferee must agree to be similarly restricted as set
forth above in this Section 11.7.
11.8 Transfer of Incentive Interest by the Managing General
Partner. The Managing General Partner shall not have the right to transfer the
Incentive Interest at any time; provided, that the Managing General Partner
shall transfer the Incentive Interest to any successor managing general
partner.
11.9 Registration Rights. From and after the Initial Conversion
Date, the Special General Partner or any of its shareholders or their relatives
who may acquire Common Units from the Special General Partner have the right to
cause the Partnership, upon request, to register an offering and sale of their
Common Units with the Securities and Exchange Commission subject to the terms
set forth in an agreement dated of even date herewith by and among the Special
General Partner and the Partnership.
ARTICLE XII
ADMISSION OF PARTNERS
12.1 Admission of Initial Limited Partners and Underwriters. Upon
the issuance of Units by the Partnership to the Initial Limited Partners (as
described in Section 4.3 hereof), the Managing General Partner shall admit to
the Partnership the Initial Limited Partners as Limited Partners in respect of
the Units. Each such party shall execute a Transfer Application and thereby
agree to be bound by the terms hereof as a Limited Partner.
12.2 Admission of Substituted Limited Partners. By transfer of a
Depositary Unit in accordance with Article XI hereof, 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 Depositary Receipt shall,
however, only have the authority to convey to a purchaser or other transferee
who does not execute and deliver a Transfer Application (i) the right to
negotiate such Unit to a purchaser or other transferee and (ii) the right to
transfer the right to request admission as a Substituted
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Limited Partner to such purchaser or other transferee in respect of the
transferred Depositary Units. Each transferee of a Depositary Unit (including
any nominee holder or an agent acquiring such Depositary Unit for the account
of another Person) who executes a Transfer Application shall be an Assignee and
shall be deemed to have applied to become a Substituted Limited Partner with
respect to the Depositary Units so transferred to such Person by virtue of
executing and delivering such Transfer Application. Such Assignee shall become
a Substituted Limited Partner at such time as the Managing General Partner
consents thereto, which consent may be given or withheld in the Managing
General Partner's sole discretion, and 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 Units that are held by Assignees,
the Managing General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such
Units on any matter, vote such Units at the written direction of the Assignee
who is the Record Holder of such Units. If no such written direction is
received, such Units will not be voted. An Assignee shall have no other rights
of a Limited Partner.
12.3 Admission of Successor Managing General Partner and Special
General Partner. (a) A successor Managing General Partner approved pursuant
to Section 13.1 hereof or the transferee of or successor to all of the Managing
General Partner's Partnership interest pursuant to Section 11.2 hereof who is
proposed to be admitted as a successor Managing General Partner shall be
admitted to the Partnership as the Managing General Partner, effective
immediately prior to the withdrawal or removal of the Managing General Partner
pursuant to Section 13.1 hereof or the transfer pursuant to Section 11.2
hereof; provided, however, that no such successor shall be admitted to the
Partnership until the terms of Section 11.2 hereof have been complied with.
Any such successor shall carry on the business of the Partnership without
dissolution. In each case, the admission shall be subject to the successor
Managing General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
(b) A successor Special General Partner approved pursuant to
Section 13.2 hereof or the transferee of or successor to all of the Special
General Partner's Partnership Interest pursuant to Section 11.2 hereof who is
proposed to be admitted to the Partnership as a successor Special General
Partner shall be admitted to the Partnership as the Special General Partner
effective immediately prior to the withdrawal or removal of the Special General
Partner pursuant to Section 13.2 hereof or the transfer pursuant to Section
11.2 hereof; provided, however, that no such successor, shall be admitted to
the Partnership until the terms of Section 11.2 hereof have been complied with.
In each case, the admission shall be subject to the successor Special General
Partner executing and delivering to the Partnership an acceptance of all of the
terms and conditions of this Agreement and such other documents or instruments
as may be required to effect the admission.
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12.4 Admission of Additional Limited Partners. (a) A Person
(other than an Initial Limited Partner, an Underwriter or a Substituted Limited
Partner) who makes a Capital Contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the Managing General Partner (i) evidence of
acceptance in form satisfactory to the Managing General Partner of all of the
terms and conditions of this Agreement, including, without limitation, the
power of attorney granted in Section 1.4 hereof and (ii) such other documents
or instruments as may be required in the discretion of the Managing General
Partner in order to effect such Person's admission as an Additional Limited
Partner.
(b) Notwithstanding anything to the contrary in this Section 12.4,
no Person shall be admitted as an Additional Limited Partner without the
consent of the Managing General Partner, which consent may be given or withheld
in the Managing General Partner's sole 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 on the books and records of the
Partnership, following the consent of the Managing General Partner to such
admission.
12.5 Amendment of Agreement and Certificate of Limited Partnership.
For the admission to the Partnership of any Partner, the Managing General
Partner shall take all steps necessary and appropriate under the Delaware Act
to amend the records of the Partnership and, if necessary, to prepare as soon
as practical an amendment of this Agreement and, if required by law, shall
prepare and file an amendment to the Certificate of Limited Partnership and may
for this purpose exercise the power of attorney granted pursuant to Section 1.4
hereof.
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 Withdrawal of the Managing General Partner. (a) The Managing
General Partner covenants and agrees that it will not withdraw as Managing
General Partner before December 31, 2000, subject to its right to transfer its
Partnership Interest pursuant to Section 11.2 hereof.
(b) The Managing General Partner shall be deemed to have withdrawn
from the Partnership upon the occurrence of any one of the following events
(each such event herein referred to as an "Event of Withdrawal"):
(i) the Managing General Partner voluntarily withdraws
from the Partnership by giving written notice to the other Partners;
(ii) the Managing General Partner transfers all of its
rights as Managing General Partner pursuant to Section 11.2 hereof;
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(iii) the Managing General Partner is removed pursuant to
Section 13.2 hereof;
(iv) the Managing General Partner
(A) makes a general assignment for the benefit of
creditors;
(B) files a voluntary bankruptcy petition;
(C) files a petition or answer seeking for itself
a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any law;
(D) files an answer or other pleading admitting
or failing to contest the material allegations of a petition
filed against the Managing General Partner in a proceeding of
the type described in paragraphs (A)-(C) of this subsection;
or
(E) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the
Managing General Partner or of all or any substantial part of
its properties;
(v) a final and non-appealable judgment is entered by a
court with appropriate jurisdiction ruling that the Managing General
Partner is bankrupt or insolvent, or a final and non-appealable order
for relief is entered by a court with appropriate jurisdiction against
the Managing General Partner, in each case under any federal or state
bankruptcy or insolvency laws as now or hereafter in effect; or
(vi) a certificate of dissolution or its equivalent is
filed for the Managing General Partner, or 90 days expire after the
date of notice to the Managing General Partner of revocation of its
charter without a reinstatement of its charter, under the laws of its
state of incorporation.
If an Event of Withdrawal specified in paragraphs (iv), (v) or (vi) occurs, the
withdrawing Managing General Partner shall given written 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 13.1 shall result in
withdrawal of the Managing General Partner from the Partnership.
(c) Withdrawal of the Managing General Partner from the
Partnership (including withdrawal upon the occurrence of an Event of
Withdrawal) will constitute a breach of this Agreement if such withdrawal
occurs; (i) at any time prior to December 31, 2000, unless the Managing General
Partner gives at least 90 days' advance written notice of its intention to
withdraw to the Limited Partners and prior to the effective date of such
withdrawal, the Limited Partners approve such withdrawal by the vote of at
least a majority of the Outstanding Units
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(excluding for purposes of such determination any Units owned by the General
Partners and their Affiliates); or (ii) at any time after December 31, 2000,
unless the Managing General Partner gives at least 90 days' advance written
notice to the Limited Partners and the Partnership receives an Opinion of
Counsel that such withdrawal (following the selection of the successor Managing
General Partner) would not result in the loss of the limited liability of
holders of Units or cause the Partnership to be taxable as a corporation or to
be treated as an association taxable as a corporation for federal income tax
purposes, such withdrawal to take effect on the date specified in such notice.
(d) Withdrawal of the Managing General Partner from the
Partnership upon the occurrence of an Event of Withdrawal will not constitute a
breach of this Agreement under the following circumstances: (i) at any time
that the Managing General Partner ceases to be a Managing General Partner
pursuant to Section 13.1(b)(ii) hereof or is removed pursuant to Section 13.2
hereof; or (ii) notwithstanding Section 13.1(c) above, at any time that the
Managing General Partner voluntarily withdraws by giving at least 90 days'
advance written 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 more than 50% of the Outstanding Units held by
Persons other than the withdrawing Managing General Partner and its Affiliates
are owned beneficially or of record or controlled at any time by one Person or
its Affiliates. If the Managing General Partner gives a notice of withdrawal
pursuant to Section 13.1(b)(i) hereof or if the Managing General Partner is
removed pursuant to Section 13.2 hereof, holders of at least a majority of the
outstanding Units (including for purposes of such determination Units owned by
the General Partners and their Affiliates) may, prior to the effective date of
such withdrawal, elect a successor Managing General Partner. If prior to the
effective date of the Managing General Partner's withdrawal, a successor is not
selected by the Limited Partners as provided herein or the Partnership does not
receive an Opinion of Counsel that such withdrawal (following the selection of
the successor Managing General Partner) would not result in the loss of the
limited liability of the holders of Units or cause the Partnership to be
taxable as a corporation or to be treated as an association taxable as a
corporation for federal income tax purposes, the Partnership shall be dissolved
in accordance with Section 14.1 hereof. If a successor Managing General
Partner is elected and the Opinion of Counsel rendered as provided herein, such
successor shall be admitted (subject to Section 12.3 hereof) immediately prior
to the effective time of the withdrawal of the departing Managing General
Partner and shall continue the business of the Partnership without dissolution.
13.2 Removal of the Managing General Partner. The Managing General
Partner may be removed only if such removal is approved by the written consent
or affirmative vote of Limited Partners holding not less than 66 2/3% of the
Outstanding Units. Any such action by the Limited Partners for removal of the
Managing General Partner must also provide for the election and succession of a
new Managing General Partner. Such removal shall be effective immediately
following the admission of the successor Managing General Partner pursuant to
Section 12.3 hereof. The right of the Limited Partners to remove the Managing
General Partner shall not exist or be exercised unless the Partnership has
received an Opinion of Counsel that
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the removal of the Managing General Partner and the selection of a successor
Managing General Partner will not result in (i) the loss of limited liability
of any Limited Partner in the Partnership or (ii) the taxation of the
Partnership as a corporation or the treatment of the Partnership as an
association taxable as a corporation for federal income tax purposes.
13.3 Interest of Departing Managing General Partner and Successor
Managing General Partner. (a) In the event of (i) withdrawal of the Managing
General Partner under circumstances where such withdrawal does not violate this
Agreement or (ii) removal of the Managing General Partner by the Limited
Partners, the departing Managing General Partner shall, at its option
exercisable prior to the effective date of the departure of such departing
Managing General Partner, promptly receive from its successor in exchange for
its Partnership Interest as Managing General Partner an amount in cash equal to
the fair market value of the departing Managing General Partner's Partnership
Interest as Managing General Partner, such amount to be determined and payable
as of the effective date of its departure. If the Managing General Partner
withdraws under circumstances where such withdrawal violates this Agreement,
its successor shall have the option described in the immediately preceding
sentence, and the departing Managing General Partner shall not have such
option. In either event, the departing Managing General Partner shall be
entitled to receive all reimbursements due such departing Managing General
Partner pursuant to Section 6.4 hereof, including any employee- related
liabilities (including severance liabilities only in the event of (i)
withdrawal of the Managing General Partner under circumstances where such
withdrawal does not violate this Agreement or (ii) removal of the Managing
General Partner by the Limited Partners), incurred in connection with the
termination of any employees employed by the departing Managing General Partner
for the benefit of the Partnership. Subject to Section 13.3(b) hereof, the
departing Managing General Partner shall, as of the effective date of its
departure, cease to share in any allocations or distributions with respect to
its Partnership Interest as the Managing General Partner and Partnership
income, gain, loss, deduction and credit will be prorated and allocated as set
forth in Section 5.1(d) hereof.
For purposes of this Section 13.3(a), the fair market value of the
departing Managing General Partner's Partnership Interest as Managing General
Partner herein shall be determined by agreement between the departing Managing
General Partner and its successor or, failing agreement within 30 days after
the effective date of such departing Managing General Partner's departure, by
an independent investment banking firm or other independent expert selected by
the departing Managing General 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 such firm shall be designated by the independent
investment banking firms or other independent experts selected by each of the
departing Managing General Partner and its successor. In making its
determination, such independent investment banking firm or other independent
expert shall consider the then current trading price of Units on any National
Securities Exchange on which Units are then listed, the
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value of the Partnership's assets, the rights and obligations of the Managing
General Partner and other factors it may deem relevant.
(b) If its Partnership Interest is not acquired in the manner set
forth in Section 13.3(a) hereof, the departing Managing General Partner shall
become a Limited Partner and its Partnership Interest in the Partnership shall
be converted into Units equal to the fair market value of such interest
pursuant to a valuation made by an investment banking firm or other independent
expert selected pursuant to Section 13.3(a) hereof, without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). In the event that upon withdrawal more than one
class or series of Units shall be outstanding, the Managing General Partner
shall receive Units of each such class or series in such ratios as shall be
equal to the rates of the total outstanding Units of such class or series. The
Partnership shall indemnify the departing Managing General Partner as to all
debts and liabilities of the Partnership arising on or after the date on which
the departing Managing General Partner becomes a Limited Partner, including
employee related liabilities, including severance liabilities, incurred in
connection with the termination of the employees employed by the departing
Managing General Partner for the benefit of the Partnership. For purposes of
this Agreement, the departing Managing General Partner's conversion of its
Partnership Interest to Units will be characterized as if the departing
Managing General Partner contributed its Partnership Interest to the
Partnership in exchange for the newly-issued Units.
(c) If the option described in Section 13.3(a) hereof is not
exercised by the party entitled to do so, the successor Managing General
Partner shall, at the effective date of its admission to the Partnership,
contribute to the capital of the Partnership cash in an amount such that its
Capital Account, after giving effect to such contribution and any adjustments
made to the Capital Accounts of all Partners pursuant to Section 4.6(d)(i)
hereof, shall be equal to that percentage of the Capital Accounts of all
Partners that is equal to its Percentage Interest as the Managing General
Partner. In such event, each successor Managing General Partner shall, subject
to the following sentence, be entitled to such Percentage Interest of all
Partnership allocations and distributions and any other allocations and
distributions to which the departing Managing General Partner was entitled. In
addition, such successor Managing General Partner shall cause this Agreement to
be amended to reflect that, from and after the date of such successor Managing
General Partner's admission, the successor Managing General Partner's interest
in all Partnership distributions and allocations shall be 1.9%, and that of the
Special General Partner and the Limited Partner shall be 0.1% and 98%,
respectively.
13.4 Withdrawal or Removal of Special General Partner. (a) The
Special General Partner may withdraw from the Partnership in the capacity of
Special General Partner (i) upon 30 days' advance written notice to the
Managing General Partner or (ii) by transferring its general partner interest
in the Partnership pursuant to Section 11.2 hereof. Such withdrawal shall take
effect on the date specified in such notice. Upon receiving such notice, the
Managing General Partner shall select a successor Special General Partner
within such 30-day period. Any withdrawal of the Special General Partner shall
not become effective unless the Partnership has
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received by the end of such 30-day period an Opinion of Counsel that such
withdrawal will not result in the loss of limited liability of any Limited
Partner or cause the Partnership to be treated as a corporation or as an
association taxable as a corporation for federal income tax purposes.
Following any withdrawal of the Special General Partner, the business and
operations of the Partnership shall be continued by the Managing General
Partner.
(b) In addition to the voluntary withdrawal described above, the
Special General Partner shall be deemed to have withdrawn (i) when and if, the
Special General Partner (A) makes a general assignment for the benefit of
creditors, (B) files a voluntary bankruptcy petition, (C) files a petition or
answer seeking for itself a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any law, (D)
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Special General Partner in a
proceeding of the type described in clauses (A)-(C) of this subsection, or (E)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Special General Partner or of all or any substantial part of
its properties; or, (ii), when a final and non-appealable judgment is entered
by a court with appropriate jurisdiction ruling that the Special General
Partner is bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction against the Special
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereinafter in effect; or (iii) when a certificate of
dissolution or its equivalent is filed for the Special General Partner, or 90
days expire after the date of notice to the Special General Partner of
revocation of its charter without a reinstatement of its charter, under the
laws of its state of incorporation.
(c) The Special General Partner may be removed only if such
removal is approved by the written consent or affirmative vote of Limited
Partners holding not less than 66 2/3% of the Outstanding Units. Any such
action by the Limited Partners for removal of the Special General Partner must
also provide for the approval of the successor Special General Partner. Such
removal shall be effective immediately following the admission of the successor
Special General Partner pursuant to Article XII hereof. The right of the
Limited Partners to remove the Special General Partner shall not exist or be
exercised unless the Partnership has received an Opinion of Counsel that the
removal of the Special General Partner and the selection of a successor Special
General Partner will not result in (i) the loss of limited liability of any
Limited Partner or (ii) the taxation of the Partnership as a corporation or the
treatment of the Partnership as an association taxable as a corporation for
federal income tax purposes unless already so taxed.
(d) Upon the withdrawal or removal of the Special General Partner
under this Section 13.4 (except by reason of a transfer of the interest made
pursuant to Section 11.2 hereof), the Partnership shall distribute to the
Special General Partner an amount of cash equal to the positive balance in its
Capital Account (following the adjustment of its Capital Account in accordance
with Section 4.6 hereof).
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(e) Notwithstanding the other provisions of this Section 13.4, a
successor Special General Partner or a successor special general partner of any
Operating Partnership need not be selected if the Partnership has received an
Opinion of Counsel that the failure to select a successor would not cause the
Partnership or any Operating Partnership to be treated as a corporation or as
an association taxable as a corporation for federal income tax purposes.
13.5 Withdrawal of Limited Partners. Except as provided in Section
13.5 hereof, no Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of a Limited Partner's
Units becomes a Record Holder, such transferring Limited Partner shall cease to
be a Limited Partner with respect to the Units so transferred.
13.6 Continuation of Partnership. Upon the withdrawal or removal
of any General Partner, any successor General Partner or any remaining General
Partner is authorized to and shall carry on the business of the Partnership.
13.7 No Incentive Fees After Withdrawal or Removal. Nothing in
this Article XIII shall be construed to entitle the Managing General Partner to
any Incentive Interest resulting from the liquidation of the Partnership which
liquidation is caused directly by the Managing General Partner's withdrawal as
managing general partner of the Partnership. Upon the withdrawal or removal of
the Managing General Partner, such departing Managing General Partner shall
cease to have any interest in any Incentive Interest which shall not have
become due and payable from the Partnership prior to the effective date of such
withdrawal or removal, and the Incentive Interest shall be assigned to any
successor Managing General Partner.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners, the
admission of successor General Partners in accordance with the terms of this
Agreement or the withdrawal of the Special General Partner pursuant to Section
13.4 hereof. Upon the removal or withdrawal of the Managing General Partner,
any successor Managing General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound
up, upon:
(a) the expiration of its terms as provided in Section 1.5 hereof;
(b) an Event of Withdrawal of the Managing General Partner as
provided in Section 13.1(b) hereof, unless a successor is named as provided in
13.1(c) hereof;
(c) an election to dissolve the Partnership by the Managing
General Partner that is approved by the written consent or the affirmative vote
of holders of at least 66 2/3% of the
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Outstanding Units prior to the Initial Conversion Date and, thereafter, by the
written consent or affirmative vote of holders of at least a majority of the
Outstanding Units.
(d) 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.
14.2 Continuation of the Business of the Partnership after
Dissolution. Upon (i) dissolution of the Partnership following an Event of
Withdrawal caused by the withdrawal or removal of the Managing General Partner
and a failure of the requisite number of Partners to agree to continue the
business of the Partnership and appoint a successor Managing General Partner as
provided in Sections 13.1 and 13.2 hereof, then within an additional 90 days or
(ii) dissolution of the Partnership upon an event constituting an Event of
Withdrawal as defined in Section 13.2(b)(iv) hereof, then within 180 days
thereafter, at least a majority of the outstanding Units may elect to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in this Agreement by forming a new limited partnership on
terms identical to those set forth in this Agreement and having as a managing
general partner a Person approved by the holders of at least a majority of the
outstanding Units. Upon any such election by the holders of at least a
majority of the outstanding Units, all Partners shall be bound thereby and
shall be deemed to have approved thereof. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election
is so made, then:
(a) the reconstituted Partnership shall continue until
the end of the term set forth in Section 1.5 hereof unless earlier
dissolved in accordance with this Article XIV;
(b) if the successor Managing General Partner is not the
former Managing General Partner, then the interest of the former
Managing General Partner shall be treated thenceforth as the interests
of a Limited Partner and converted into Units in the manner provided
in Section 13.3(b) hereof; and
(c) all necessary steps shall be taken to cancel this
Agreement and the Certificate of Limited Partnership and to enter into
and, as necessary, to file a new partnership agreement and certificate
of limited partnership, and the successor Managing General Partner may
for this purpose exercise the powers of attorney granted the Managing
General Partner pursuant to Section 1.4 hereof; provided, that the
right of the holders of at least a majority of outstanding Units to
approve a successor managing general partner and to reconstitute and
to continue the business of the Partnership shall not exist and may
not be exercised unless the Partnership has received an Opinion of
Counsel that (x) the exercise of the right would not result in the
loss of limited liability of any Limited Partner and (y) neither the
Partnership nor the reconstituted limited partnership would become
taxable as a corporation or treated as an association taxable
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as a corporation for federal income tax purposes upon the exercise of
such right to continue.
14.3 Liquidation. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2 hereof, the Managing General Partner, or
in the event the Managing General Partner has been dissolved or removed, become
bankrupt as set forth in Section 13.1 hereof or withdrawn from the Partnership,
a liquidator or liquidating committee approved by the holders of at least a
majority of the outstanding Units, shall be the Liquidator. The Liquidator (if
other than the Managing General Partner) shall be entitled to receive such
compensation for its services as may be approved by the holders of at least a
majority of the outstanding Units. The Liquidator shall agree not to resign at
any time without 15 days' prior written notice and (if other than the Managing
General Partner) may be removed at any time, with or without cause by notice of
removal approved by at least a majority of the outstanding Units. Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, power and
duties of the original Liquidator) shall within 30 days thereafter be approved
by the holders of at least a majority of the outstanding Units. The right to
approve a successor or substitute Liquidator in the manner provided herein
shall be deemed to refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly provided in this
Article XIV, the Liquidator approved in the manner provided herein shall have
and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the Managing General Partner
under the terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of such powers, other
than the limitation on sale set forth in Section 6.3(b) hereof) 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. The Liquidator shall liquidate the assets of the
Partnership, and apply and distribute the proceeds of such liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
(a) the payment to creditors of the Partnership,
including Partners who are creditors, in order of priority provided by
law; and the creation of a reserve of cash or other assets of the
Partnership for contingent liabilities in an amount, if any,
determined by the Liquidator to be appropriate for such purposes; and
(b) to all Partners in accordance with and to the extent
of the positive balances in their respective Capital Accounts after
taking into account adjustments to such Capital Accounts pursuant to
Article V hereof.
14.4 Distributions in Kind. Notwithstanding the provisions of
Section 14.3 hereof which require the liquidation of the assets of the
Partnership, but subject to the order of priorities set forth therein, if the
Liquidator determines that an immediate sale of part or all of
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the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including those to Partners as creditors)
and/or distribute to the Partners or to specific classes of Partners, in lieu
of cash, as tenants in common and in accordance with the provisions of Section
14.3 hereof, undivided interests in such Partnership assets as the Liquidator
deems not suitable for liquidation. Any such distributions in kind shall be
made only if, in the good faith judgment of the Liquidator, such distributions
in kind are in the best interest of the Limited Partners, and shall be subject
to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidator shall determine the fair market value of any property distributed in
kind using such reasonable method of valuation as it may adopt.
14.5 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 14.3 and 14.4 hereof, 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 cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
14.6 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 14.3 hereof,
in order to minimize any losses otherwise attendant upon such winding-up and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
14.7 Return of Capital. No General Partner shall be personally
liable for the return of the Capital Contribution of the Limited Partners, or
any portion thereof, it being expressly understood that any such return shall
be made solely from Partnership assets.
14.8 No Capital Account Restoration. No Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership.
14.9 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
15.1 Amendment to be Adopted Solely by Managing General Partner.
Each Limited Partner agrees that the Managing General Partner (pursuant to its
powers of attorney from the
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Limited Partners and Assignees), without the approval of any Limited 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 or the
registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Limited or
Initial Partners in accordance with this Agreement:
(c) a change that, in the sole discretion of the Managing General
Partner, is reasonable and necessary or appropriate 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, subject to the provisions of Section 1.6 hereof, that is necessary or
advisable in the opinion of the Managing General Partner to ensure that the
Partnership will not be taxable as a corporation or treated as an association
taxable as a corporation for federal income tax purposes.
(d) a change (i) that does not adversely affect the Limited
Partners in any material respect, (ii) that is necessary or desirable to
satisfy any requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute (including,
without limitation, the Delaware Act) or that is necessary or desirable to
facilitate the trading of the Depositary Units (including, without limitation,
the division of outstanding Units into different classes in order to facilitate
uniformity of tax consequences within such classes of Units) or comply with any
rule, regulation, guideline or requirement of any National Securities Exchange
on which the Depositary Units are or will be listed for trading, compliance
with any of which the Managing General Partner determines to be in the best
interests of the Partnership and the Limited Partners or (iii) that is required
to effect the intent of the provisions of this Agreement or is otherwise
contemplated by this Agreement;
(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or any General Partner or its directors or officers
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, whether or not substantially similar to plan asset
regulations currently applied or proposed by the United States Department of
Labor;
(f) subject to the terms of Section 4.4 hereof, an amendment that
the Managing General Partner determines in its sole discretion to be necessary
or desirable in connection with the authorization for issuance of any class or
series of Units pursuant to Section 4.4 hereof;
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(g) any amendment expressly permitted in this Agreement to be made
by the Managing General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a
Merger Agreement approved in accordance with Section 16.3 hereof; or
(i) any other amendments similar to the foregoing.
15.2 Amendment Procedures. Except as provided in Sections 15.1 and
15.3 hereof, all amendments to this Agreement shall be made in accordance with
the following requirements: If an amendment is proposed, the Managing General
Partner shall seek the written approval of the requisite Percentage Interests
or call a meeting of the Limited Partners to consider and vote on such proposed
amendment. Each such proposal to the Limited Partners shall contain the text
of the proposed amendment. A proposed amendment shall be effective upon its
approval by the holders of at least 66 2/3% of the Outstanding Units prior to
the Initial Conversion Date and after the Initial Conversion Date upon approval
by holders of at least a majority of the Outstanding Units unless a greater or
different percentage is required under this Agreement. The Managing General
Partner shall notify all Record Holders upon final adoption of any proposed
amendment.
15.3 Amendment Requirements. (a) Amendments to this Agreement may
be proposed solely by the Managing General Partner. Notwithstanding the
provisions of Sections 15.1 and 15.2 hereof, no provision of this Agreement
which establishes a Percentage Interest required to take any action shall be
amended, altered, changed, repealed or rescinded in any respect which would
have the effect of reducing such voting requirement unless such amendment is
approved by the written consent or the affirmative vote of Partners whose
aggregate Percentage Interests constitute not less than the voting requirement
sought to be reduced.
(b) Notwithstanding the provisions of Sections 15.1 and 15.2
hereof, (i) the approval of the Special General Partner shall be required for
any amendment, if such amendment would change the Special General Partner's
Percentage Interest or increase the Special General Partner's duties or
liabilities or if the Partnership has received an Opinion of Counsel that such
amendment would have a materially adverse consequence to the Special General
Partner and (ii) the approval of the Special General Partner shall be required
for any amendment if such amendment would change the provisions altering the
timing of subordination in respect of distributions affecting the Common Units.
(c) Notwithstanding the provisions of Sections 15.1 and 15.2
hereof, no amendment to this Agreement may (i) enlarge the obligations of any
Limited Partner, (ii) modify the compensation payable to the Managing General
Partner or any Affiliates of the Managing General Partner by the Partnership,
(iii) change Section 14.1(a) or (c) hereof, (iv) restrict in any way any action
by or rights of the Managing General Partner as set forth in this Agreement or
(v) except as set forth in Section 14.1(c) hereof, give any person the right to
dissolve the Partnership.
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(d) In the event at any time there exists any class or series of
outstanding Units having any rights or preferences different from the rights or
preferences of any other class or series of outstanding Units, no amendment
shall be effective which the Managing General Partner determines would have a
material adverse effect on the rights and preferences of any such class or
series of outstanding Units without, in addition to any other required
approval, the approval by written consent or affirmative vote of 66 2/3% in
interest of the holders of the Outstanding Units of such class or series.
(e) Notwithstanding any other provision of this Agreement, except
for amendments pursuant to Section 15.1 hereof, no amendment shall become
effective without the approval of the Record Holders of all Units unless the
Partnership obtains an Opinion of Counsel to the effect that (i) such amendment
would cause the Partnership to become taxable as a corporation or treated as an
association taxable as a corporation for federal income tax purposes and (ii)
such amendment will not affect the limited liability of any Limited Partner in
the Partnership under applicable law.
(f) This Section 15.3 shall only be amended with the approval by
written consent or affirmative vote of the holders of not less than 90% of the
Outstanding Units.
15.4 Meetings. All acts of Limited Partners to be taken hereunder
shall be taken in the manner provided in this Article XV. Meetings of the
Limited Partners may be called by the Managing General Partner or by Limited
Partners owning 20% or more of the outstanding Units of the class for which a
meeting is proposed. Limited Partners shall call a meeting by delivering to
the Managing General Partner one or more requests in writing stating that the
signing Limited Partners wish to call a meeting and indicating the general or
specific purposes for which the meeting is to be called. Within 60 days after
receipt of such a call from Limited Partners or within such greater time as may
be reasonably necessary for the Partnership to comply with any statutes, rules,
regulations, listing agreements or similar requirements governing the holding
of a meeting or the solicitation of proxies for use at such a meeting, the
Managing General Partner shall send a notice of the meeting to the Limited
Partners either directly or indirectly through the Transfer Agent. A meeting
shall be held at a time and place determined by the Managing General Partner on
a date not 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 laws of any other
state in which the Partnership is qualified to do business.
15.5 Notice of a Meeting. Notice of a meeting called pursuant to
Section 15.4 hereof shall be given to the Record Holders in writing by mail or
other means of written communication in accordance with Section 17.1 hereof.
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.
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15.6 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 15.11 hereof, the
Managing General Partner may set a Record Date, which shall not be less than 10
nor more than 60 days before (a) the date of the meeting (unless such
requirement conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units 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 on which Limited Partners are requested in writing by the Managing
General Partner to give such approvals.
15.7 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 XV.
15.8 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 had 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, each of the Limited Partners
entitled to vote, present in person or by proxy, signs 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.
15.9 Quorum. 66 2/3% of the Outstanding Units of the class for
which a meeting has been called represented in person or by proxy shall
constitute a quorum at a meeting of Limited Partners of such class unless any
such action by the Limited Partners requires approval by holders of a smaller
percentage of Outstanding Units, in which case, the quorum shall be the
percentage of Outstanding Units required for approval. 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 whose Percentage
Interests represent at least a majority of the Percentage 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 different percentage is
required with respect to such action under the provisions of this Agreement, in
which case the act of the Limited Partners owning such different percentage
shall be required. The Limited Partners present at
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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 Interests of the Limited
Partners specified in this Agreement. In the absence of a quorum, any meeting
of Limited Partners may be adjourned from time to time by the affirmative vote
of a majority of the Percentage Interests represented either in person or by
proxy, but no other business may be transacted, except as provided in Section
15.7 hereof.
15.10 Conduct of Meeting. The Managing General Partner shall have
full power and authority concerning the manner of conducting any meeting of the
Limited Partners or solicitation of approvals in writing, including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 15.4 hereof, the
conduct of voting, the validity and effect of any proxies and the determination
of any controversies, votes or challenges arising in connection with or during
the meeting or voting. The Managing General Partner shall designate a Person
to serve as chairman of any meeting and shall further designate a Person to
take the minutes of any meeting, in either case including, without limitation,
a Partner or a director or officer of the Managing General Partner. All
minutes shall be kept with the records of the Partnership maintained by the
Managing General Partner. The Managing General Partner may make such other
regulations consistent with applicable law and this Agreement as it may deem
advisable concerning the conduct of any meeting of the Limited Partners or
solicitation of approvals in writing, including regulations in regard to the
appointment of proxies, the appointment and duties of inspectors of votes and
approvals, the submission and examination of proxies and other evidence of the
right to vote, and the revocation of approvals in writing.
15.11 Action Without a Meeting. 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 Interests that would be necessary
to authorize or take such action at a meeting at which the Limited Partners
were present and voted. Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in
writing. The Managing General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time period, which
shall not be less than 20 days, specified by the Managing General Partner. If
a ballot returned to the Partnership does not vote all of the Units held by the
Limited Partner, the Partnership shall be deemed to have failed to receive a
ballot for the Units which were not voted. If approval of the taking of any
action by the Limited Partners is solicited by any Person other than by or on
behalf of the Managing General Partner, the written approvals shall have no
force and effect unless and until (a) they are deposited with the Partnership
in care of the Managing General Partner, (b) approvals sufficient to take the
action proposed are dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership and (c) an Opinion of
Counsel is delivered to the Managing General Partner as to whether the exercise
of such right and the action proposed to be taken with respect to any
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particular matter (i) 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, (ii)
would jeopardize the status of the Partnership as a partnership under
applicable tax laws and regulations and (iii) is otherwise permissible under
the state statutes then governing the rights, duties and liabilities of the
Partnership and the Partners.
15.12 Voting and Other Rights. (a) Only those Record Holders of
Units on the Record Date set pursuant to Section 15.6 hereof 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 approvals are solicited.
(b) With respect to Units 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 Units are
registered, such broker, dealer or other agent shall, in exercising the voting
rights in respect of such Units on any matter, and unless the arrangement
between such Persons provides otherwise, vote such Units in favor of, and at
the direction of, the Person who is the beneficial owner, and the Partnership
shall be entitled to assume it is so acting without further inquiry. The
provisions of this Section 15.12(b) (as well as all other provisions of this
Agreement) are subject to the provisions of Section 10.4 hereof.
ARTICLE XVI
MERGER
16.1 Authority. The Partnership may merger or consolidate with one
or more corporations, business trusts or associations, real estate investment
trusts, common law trusts or unincorporated businesses, including, without
limitation, 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 XVI.
16.2 Procedure for Merger or Consolidation. Merger or
consolidation of the Partnership pursuant to this Article requires the prior
approval of the Managing General Partner. If the Managing General Partner
shall determine, in the exercise of its sole discretion, to consent to the
merger or consolidation, the Managing General Partner shall approve the Merger
Agreement, which shall set forth:
(a) The names and jurisdictions of formation or
organization of each of the business entities proposing to merge or
consolidate;
(b) The name and jurisdictions of formation or
organization of the business entity that is to survive the proposed
merger or consolidation (hereafter designated as the "Surviving
Business Entity");
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(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 partnership interests, rights,
securities or obligations of the Surviving Business Entity; and (i) if
any general or limited partnership 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 partnership
interests, rights, securities or obligations of the Surviving Business
Entity, the cash, property, or general or limited partnership
interests, rights, securities or obligations of any limited
partnership, corporation, trust on other entity (other than the
Surviving Business Entity) which the holders of such general or
limited partnership interests are to receive in exchange for, or upon
conversion of, their 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 partnership
interests, rights, securities or obligations of the Surviving Business
Entity or any 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 (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
16.4 hereof 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, it 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 desirable.
16.3 Approval by Limited Partners of Merger or Consolidation. (a)
The Managing General Partner of the Partnership, upon its approval of the
Merger Agreement, shall direct that the Merger Agreement be submitted to a vote
of Limited Partners whether at a meeting or by written consent, in either case
in accordance with the requirements of Article XV hereof. A copy or a summary
of the Merger Agreement shall be included in or enclosed with the notice of a
meeting or the written consent.
(b) During the Initial Period, the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of at
least 66 2/3% of the outstanding Units of each class, and thereafter, by the
affirmative vote or consent of the holders of a majority of the
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Outstanding Units, unless the Merger Agreement contains any provision which, if
contained in an amendment to the Agreement, the provisions of this Agreement or
the Delaware Act would require the vote or consent of a greater percentage of
the Percentage Interests of the Limited Partners 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) 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 16.4 hereof, the merger or consolidation may be abandoned
pursuant to provisions therefor, if any, set forth in the Merger Agreement.
16.4 Certificate of Merger. Upon the required approval by the
Managing General Partner and Limited Partners of a Merger Agreement, a
certificate of merger shall be executed and filed with the Secretary of State
of the State of Delaware in conformity with the requirements of the Delaware
Act.
16.5 Effect of Merger. (a) Upon the effective date 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 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 having occurred.
16.6 Exempt Transaction. Notwithstanding any other provisions of
this Article XVI, the merger of Pride Pipeline Limited Partnership, an Oklahoma
limited partnership, with and into the Partnership as described in the
Registration Statement shall be subject to the approval
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of the Merger Agreement therefor by the Managing General Partner in its sole
discretion and shall not be subject to approval by the Limited Partners as
referenced in Section 16.3 hereof.
ARTICLE XVII
RIGHT TO ACQUIRE UNITS
17.1 Right to Acquire Units. (a) Notwithstanding the provisions
of Section 13.1(a) hereof or any other provision of this Agreement, in the
event that at any time after the Initial Conversion Date less than 10% of the
total Units outstanding are held by Persons other than the General Partners and
any Affiliate of the General Partners, the Managing General Partner shall then
have the right, which right it may assign and transfer to the Partnership or
any Affiliates of the Managing General Partner, exercisable in its sole
discretion, to purchase all, but not less than all, of the Units outstanding
held by Persons other than the General Partners and any Affiliates of the
General Partners, at the greater of (y) the Current Market Price as of the date
the notice described in Section 17.1(b) hereof is mailed or (z) the highest
cash price paid by either of the General Partners or any of their Affiliates
for any Unit purchased during the 90-day period preceding the date that the
notice described in Section 17.1(b) hereof is mailed. As used herein, (i)
"Current Market Price" of any class of Units listed or admitted to trading on
any National Securities Exchange means the average of the daily Closing Prices
per Unit of such class for the 30 consecutive Trading Days (as hereinafter
defined) immediately prior to such date and (ii) "Trading Day" means a day on
which the principal National Securities Exchange on which the Units of any
class are listed or admitted to trading is open for the transaction of business
or, if Units of a class are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.
(b) If the Managing General Partner, any Affiliate of the Managing
General Partner or the Partnership elects to exercise either right to purchase
Units granted pursuant to Section 17.1(a) hereof, the Managing General Partner
shall deliver to the Transfer Agent written notice of such election to purchase
(hereinafter in this Section 17.1 called 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 Units (as of a Record Date selected by the
Managing General Partner) at least 10, but not more than 60, days prior to the
Purchase Date. Such Notice of Election to Purchase shall also be published in
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 17.1(a) hereof) at which Units will be purchased and
state that the Managing General Partner, any Affiliate of the Managing General
Partner or the Partnership, as the case may be, elects to purchase such Units,
upon surrender of Depositary Receipts with respect to such Units 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 the Units are listed or admitted to trading. Any such Notice of Election
to Purchase mailed to a Record Holder of Units at his address as reflected in
the records of the Transfer
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Agent shall be conclusively presumed to have been given whether or not the
owner receives such notice. On or prior to the Purchase Date, the Managing
General Partner, any Affiliate of the Managing General Partner 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 the Units to
be purchased in accordance with this Section 17.1. 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 Units subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Depositary Receipt shall not have
been surrendered for purchase, all rights of the holders of such Units
(including, without limitation, any rights pursuant to Articles IV, V and XIV
hereof) shall thereupon cease, except the right to receive the purchase price
(determined in accordance with Section 17.1(a) hereof) for Units therefor,
without interest, upon surrender to the Transfer Agent of the Depositary
Receipts representing such Units, and such Units shall thereupon be deemed to
be transferred to the Managing General Partner, any Affiliate of the Managing
General Partner or the Partnership, as the case may be, on the record books of
the Transfer Agent and the Partnership, and the Managing General Partner or any
Affiliate of the Managing General Partner, or the Partnership, as the case may
be, shall be deemed to be the owner of all such Units from and after the
Purchase Date and shall have all rights as the owner of such Units (including,
without limitation, all rights as owner of such Units pursuant to Articles IV,
V and XIV hereof).
(c) At any time from and after the Purchase Date, a holder of an
outstanding Unit subject to purchase as provided in this Section 17.1 may
surrender his Depositary Receipt or Certificate, as the case may be, evidencing
such Unit to the Transfer Agent in exchange for payment of the amount described
in Section 17.1(a) therefor without interest thereon.
ARTICLE XVIII
CONVERSION AND REDEMPTION OF PREFERRED UNITS
18.1 Conversion During Any Conversion Period. (a) During any
Conversion Period and subject to compliance with the procedures set forth in
Section 18.1(b) and 18.1(c) below, each holder of Preferred Units may convert
any or all of such holder's Preferred Units into Common Units at the Conversion
Rate then in effect.
(b) Within 90 days of the termination of the Initial Period and of
each anniversary date thereafter and within 30 days of the occurrence of a
Fundamental Change, the Managing General Partner shall mail by first class
mail, postage prepaid, to each holder of Preferred Units at the address as the
same shall appear on the books of the Depositary or Partnership, as the case
may be, notice of the termination of the Initial Period and of each anniversary
date thereof or the occurrence of a Fundamental Change and such holder's right,
during the Conversion Period, to elect to convert all or any of such holder's
Preferred Units into Common Units on the Initial
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Conversion Date or Conversion Date, as the case may be, at the Conversion Rate
in affect at such time. No failure to mail such notice or any defect therein
or in the mailing thereof shall affect the validity of the proceedings for such
conversion. A notice given regarding the Initial Conversion Date shall include
the financial statements of the Partnership for the most recently ended fiscal
year and the most recently ended interim period available to the Partnership.
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given regardless of whether the holder receives the notice.
(c) All Preferred Units or, in the event the Preferred Units to be
converted are not deposited in the Deposit Account, certificates evidencing the
Preferred Units to be converted, which have been properly endorsed and
surrendered for conversion until the close of business on the last day of the
Conversion Period shall be converted into Common Units effective as of (i) with
respect to a conversion caused by the termination of the Initial Period, the
Initial Conversion Date, (ii) with respect to a conversion caused by an
election of a holder of Preferred Units on any anniversary date of the
termination of the Initial Period, such anniversary date, and (iii) with
respect to a conversion caused by the occurrence of a Fundamental Change, the
Conversion Date.
(d) As promptly as practicable after the surrender, as herein
provided, of any Preferred Units for conversion, the Partnership shall issue
pursuant to Section 4.4(a) hereof the number of Common Units into which such
Preferred Units may be converted in accordance with the provisions of this
Section 18.1 and shall deliver or cause to be delivered Depositary Receipts
evidencing such Common Units and a check in lieu of any fractional Units.
Prior to delivery of such Depositary Receipts, the Partnership shall require a
written notice from the holder of the Preferred Units so surrendered indicating
his election to convert such Preferred Units and specifying the name or names
(with address) in which such Depositary Receipts are to be issued. If the
Depositary Receipts are to be issued to a Person who is other than the holder
of the Preferred Units to be converted, the surrender of such Preferred Units
shall be accompanied by such duly executed instruments of transfer (including a
Transfer Application duly executed by the transferee) as shall be required by
the Depositary Agreement. No payments in respect of the Preferred Units to be
converted, or distributions declared but unpaid on the Common Units to be
issued, shall be made upon the conversion of such Preferred Units; provided,
however, that if the conversion shall be effective subsequent to the Record
Date but prior to the payment date for a previously declared distribution, the
Preferred Units surrendered for conversion shall be deemed to remain
outstanding until such payment date solely for purposes of determining the
Preferred Units entitled to receive such distribution on such payment date.
(e) If a Fundamental Change occurs of the type specified in clause
(iii) of the definition of Fundamental Change (a "Reorganization Change") and
the holder of Preferred Units elects to convert during such Conversion Period,
such Preferred Units shall be entitled to be converted into the kind or amount
of securities (including Common Units), cash or other assets which the
Preferred Units would have been converted into if the conversion had occurred
immediately prior to the Reorganization Change. If a Reorganization Change
occurs and the
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holder of Preferred Units does not elect to convert during such Conversion
Period then, pursuant to any subsequent Fundamental Change or conversion right
of the holder of Preferred Units occurring by reason of a notice of redemption,
such Preferred Units shall again be entitled to be converted into the kind or
amount of securities (including Common Units), cash or other assets which the
Preferred Units would have been converted as a result of such Reorganization
Change. The holder of a Preferred Unit shall have 60 days from the date of
mailing of the notice of such Reorganization Change by the Partnership to
exercise the conversion right created in this Section 18.1. If, however, a
Reorganization Change occurs in which the Partnership is not the surviving
entity and the holder of Preferred Units elects not to convert pursuant to this
conversion right, such holder's Preferred Units shall be redeemed at an amount
equal to the Preferred Unit Redemption Amount within 60 days of the end of the
sixty day election period provided to holders of Preferred Units.
Notwithstanding anything to the contrary in Section 18.1(a) hereof, a holder of
Preferred Units, who elects to convert in the event of a Fundamental Change
must convert all, but not less than all, of such holder's Preferred Units.
(f) The Managing General Partner will use all reasonable efforts
to provide holders of Preferred Units with prior notice of a Fundamental Change
to the extent practicable.
18.2 Redemption at the Option of the Partnership. (a) Subject to
compliance with the procedures set forth in Section 18.2(b) hereof, the
Partnership may at any time redeem any or all of the then outstanding Preferred
Units at a price per Preferred Unit equal to the Preferred Unit Redemption
Amount applicable to such Preferred Unit (i) if Available Cash plus capital
expenditures (other than capital expenditures financed or anticipated to be
refinanced with the proceeds from Capital Transactions) and other investments
of the Partnership for any period of eight consecutive quarters ending not
earlier than the Initial Conversion Date and not more than sixty (60) days
prior to the date of redemption equals or exceeds 120% of the aggregate Base
Amount for such eight quarters multiplied by the number of Units outstanding as
of the end of such period and all arrearages in the Base Amount or Preferred
Amount (as the case may be) in respect of the Preferred Units have been paid,
(ii) if 66 2/3% or more of the initially outstanding Preferred Units have been
converted and (iii) after July 1, 1997.
(b) Redemption Procedure. If less than all of the outstanding
Preferred Units are to be redeemed, the Preferred Units to be redeemed shall be
selected by the Partnership by lot or pro rata (as nearly as may be) as
determined by the Managing General Partner and pursuant to such procedures is
the Managing General Partner may determine in the exercise of its sole
discretion.
Not less than 30 nor more than 60 days prior to the date fixed for
redemption of Preferred Units pursuant to Section 18.2(a) hereof, a notice
thereof shall be given by mail to the holders of record of the Preferred Units
selected for redemption at their respective addresses as the same shall appear
on the books of the Depositary or Partnership, as the case may be. Such notice
shall also state (i) the date fixed for redemption, (ii) the redemption price,
and (iii) the holder's right to convert any or all of the Preferred Units
called for redemption into Common
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Units prior to the redemption, and shall call upon such holder to surrender to
the Partnership on said date at the place designated in the notice such
holder's Depositary Receipts or, in the event the Preferred Units to be
redeemed are not deposited in the Deposit Account, certificates evidencing the
Preferred Units to be redeemed. No failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given regardless of whether the holder
receives the notice.
If, on or before the redemption date specified in such notice, all
funds necessary for such redemption shall have been set aside by the
Partnership for the benefit of the holders of the Preferred Units selected for
redemption, so as to be and continue to be available therefor, then upon and
after the date of redemption so designated, such holders of Preferred Units
selected for redemption and to whom notice has been duly given shall cease to
be Partners with respect to such Preferred Units. Such Persons shall have no
interest in, or right or claim against the Partnership by virtue thereof, and
shall have no voting or other rights with respect to such Preferred Units
except the right to receive from the Partnership the monies, without interest
thereon, payable upon such redemption, upon surrender of the Depositary
Receipts or, in the event the Preferred Units to be redeemed are not deposited
in the Deposit Account, certificates therefor, and the Preferred Units
represented thereby shall no longer be deemed to be Outstanding.
After giving any notice of redemption and prior to the close of
business on the second Business Day prior to the date fixed for redemption, the
holders of Preferred Units so called for redemption may convert any or all such
Preferred Units into Common Units in accordance with the conversion privileges
set forth in Section 18.3 hereof.
18.3 Conversion of Preferred Units Upon Notice of Redemption. (a)
The holder of any Preferred Units shall have the right upon notice of
redemption thereof, at his option, to convert, subject to the terms and
provisions of this Section 18.3, such Preferred Units into Common Units, at the
Conversion Rate in effect upon the date of conversion, upon surrender of
properly endorsed Depositary Receipts or, in the event the Preferred Units to
be converted are not deposited in the Deposit Account, certificates evidencing
the Preferred Units that are to be so converted to the Partnership at any time
during usual business hours at the offices of the conversion agent designated
by the Partnership. Such conversion right shall terminate at the close of
business on the second Business Day prior to the date fixed for redemption of
such Preferred Units unless the Partnership shall default in making the
payments due upon redemption thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any Preferred Units for conversion, the Partnership shall issue
pursuant to Section 4.4(a) the number of Common Units into which such Preferred
Units may be converted in accordance with the provisions of this Section 18.3
and shall deliver or cause to be delivered Depositary Receipts evidencing such
Common Units and a check for any fractional Units. Prior to delivery of such
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Depositary Receipts, the Partnership shall require a written notice from the
holder of the Preferred Units so surrendered indicating his election to convert
such Preferred Units and specifying the name or names (with address) in which
such Depositary Receipts are to be issued. If the Depositary Receipts are to
be issued to a Person who is other than the holder of the Preferred Units to be
converted, the surrender of such Preferred Units shall be accompanied by such
duly executed instruments of transfer (including a Transfer Application duly
executed by the transferee) as shall be required by the Depositary Agreement.
Such conversion shall be deemed to have been made immediately prior to the date
fixed for redemption of such Preferred Units, so that the rights of the holder
of such Preferred Units shall cease with respect to such Preferred Units at
such time, and the Person or Persons entitled to receive the Common Units upon
conversion of such Preferred Units shall be treated for all purposes as having
become the Record Holders of such Common Units at such time. No payments in
respect of the Preferred Units to be converted, or distributions declared but
unpaid on the Common Units to be issued, shall be made upon the conversion of
such Preferred Units; provided, however, that if the conversion shall be
effective subsequent to the Record Date but prior to the payment date for a
previously declared distribution, the Preferred Units surrendered for
conversion shall be deemed to remain Outstanding until such payment date solely
for purposes of determining the Preferred Units entitled to receive such
distribution on such payment date.
18.4 Legal Holidays. If the last day on which a Preferred Unit may
be converted is not a Business Day, the Unit may be surrendered on the next
succeeding day that is a Business Day.
18.5 Fractional Units. The Partnership will not issue a fractional
Common Unit upon conversion. Instead the Partnership will deliver its check
for the current market value of the fractional Common Unit. The current market
value of a fraction of a Unit is determined by multiplying the Closing Price of
a Unit on the last business day prior to the date of conversion by the fraction
and rounding the result to the nearest cent.
18.6 Taxes on Conversion. If a holder of a Preferred Unit converts
such Preferred Unit, the Partnership shall pay any documentary, stamp or
similar issue or transfer tax due on the issue of Common Units upon the
conversion. However, the holder shall pay any such tax which is due because
the Common Units are issued in a name other than the holder's name.
18.7 Adjustment for Change in Common Units. If the Partnership:
(i) makes a distribution on its Common Units in shares of
its Common Units;
(ii) subdivides or reclassifies its outstanding shares of
Common Units into a greater number of shares of Common Units;
(iii) combines or reclassifies its outstanding shares of
Common Units into a smaller number of shares of Common Units
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then the Conversion Rate in effect immediately prior to such action shall be
adjusted so that the holder of a Preferred Unit thereafter converted may
receive the number of Common Units which he would have owned immediately
following such action. No adjustment in the Conversion Rate need be made
unless such adjustment would require a change of at least 1% in the Conversion
Rate. Any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment.
Subject to Section 18.9, the adjustment shall become effective
immediately after the record date in the case of a distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
All calculations under this Article XVIII shall be made to the nearest
cent or to the nearest 1/100th of a Unit, as the case may be.
If, as a result of an adjustment to the Conversion Rate made pursuant
to this Section 18.7, the holder of any Preferred Unit thereafter surrendered
for conversion shall become entitled to receive Units other than Common Units
(including Units of two or more classes), thereafter the number of such other
Units so receivable upon conversion of any Preferred Unit shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Units contained in
this Agreement, and the provisions of this Agreement shall apply on like terms
to such other Units, and, in the event two or more classes of Units are
receivable, the Managing General Partner (whose determination shall be
conclusive and shall be described in a statement provided to each record holder
of Preferred Units) shall determine the allocation of the Conversion Rate
between and among such classes of Units.
18.8 Capital Account Adjustments. Upon the conversion of any
Preferred Unit into Common Units at a time when the Conversion Rate is other
than one Common Unit for each Preferred Unit, the capital account balance
assigned to each such Preferred Unit immediately prior to its conversion shall
be divided among and assigned to the Common Units into which such Preferred
Unit is converted on a pro rata basis.
18.9 Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Partnership shall promptly mail to holders of Preferred Units a
notice of the adjustment. The Partnership shall obtain a certificate from the
Partnership's independent public accountants briefly stating the facts
requiring the adjustment and the manner of computing it. The certificate shall
be conclusive evidence that the adjustment is correct.
18.10 Partnership Determination Final. Any determination that the
Partnership or the Managing General Partner must make pursuant to Sections
18.3, 18.6, 18.8, or 18.9 is conclusive.
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18.11 Rights or Warrants to Acquire Common Units. At no time shall
the Managing General Partner issue, distribute or declare a distribution of
rights or warrants to the holders of Common Units entitling them to subscribe
for or purchase Common Units at a price per Unit less than the then Current
Market Price of the Common Units as of the record date for the determination of
Partners entitled to receive such rights or warrants, unless a number of
identical rights or warrants equal, in respect of each holder of Preferred
Units on such record date, to the number of rights or warrants the holder of
Preferred Units would have received on such record date if he had theretofore
converted such Preferred Units into Common Units pursuant to the provisions of
this Article XVIII, are also then issued to all holders of Preferred Units.
ARTICLE XIX
GENERAL PROVISIONS
19.1 Addresses and Notices. Any notice, demand, request or report
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 Unit 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 Unit or the Partnership Interest of a General Partner by reason of an
assignment or otherwise. An affidavit or certificate of making of any notice,
payment or report in accordance with the provisions of this Section 19.1
executed by the Managing General Partner, the Transfer Agent or the mailing
organization shall be prima facie evidence of the giving or making of such
notice, payment or report. If any notice, payment or report addressed to a
Record Holder at the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by the United
States Post Office marked to indicate that the United States Postal Service is
unable to deliver it, such notice, payment or report and any subsequent
notices, payments and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder or another
Person notifies the Transfer Agent or the Partnership of a change in his
address ) if they are available for the Partner or Assignee at the principal
office of the Partnership for a period of one year from the date of the giving
or making of such notice, payment or report to the other Partners and
Assignees. Any notice to the Partnership shall be deemed given if received by
the Managing General Partner at the principal office of the Partnership
designated pursuant to Section 1.3 hereof. The Partnership and the Managing
General Partner may rely and shall be protected in relying on any notice or
other document from a Partner or other Person if believed by them to be
genuine.
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19.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the
scope or intent of any provisions hereof. Except as specifically provided
otherwise, references to "Articles" and "Sections" are to Articles and Sections
of this Agreement.
19.3 Pronouns and Plurals. Whenever the context may require, 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.
19.4 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.
19.5 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.
19.6 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.
19.7 Creditors. None of the provisions of this Agreement (other
than Section 6.12 hereof) shall be for the benefit of, or shall be enforceable
by, any creditor of the Partnership.
19.8 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 or any other covenant, duty, agreement or
condition.
19.9 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one 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 executing and delivering a Transfer Application
as herein described, independently of the signature of any other party.
19.10 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
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19.11 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MANAGING GENERAL PARTNER
Pride Refining, Inc.
By:
------------------------------------
Robert J. Schumacher, Chairman and
Chief Executive Officer
SPECIAL GENERAL PARTNER
Pride SGP, Inc.
By:
------------------------------------
Robert J. Schumacher, Chairman and
Chief Executive Officer
LIMITED PARTNERS:
All Limited Partners now and hereafter
admitted as limited partners
of the Partnership, pursuant
to Powers of Attorney now and
hereafter executed in favor
of, and granted and delivered
to, the Managing General
Partner.
By: Pride Refining, Inc. Managing
General Partner, as
attorney-in-fact for all
Limited Partners pursuant to
the Powers of Attorney
granted pursuant to Section
1.4 hereof.
By:
------------------------------------
Robert J. Schumacher, Chairman and
Chief Executive Officer
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APPENDIX B
<PAGE> 211
October [ ], 1996
Board of Directors of
Pride Refining, Inc.
Gentlemen:
We have acted as your financial advisor in connection with the adoption of
certain amendments (the "Proposed Amendments") to the Agreement of Limited
Partnership of Pride Companies, L.P. (the "Partnership"), under which all of the
currently outstanding preferred and common units and their respective cumulative
distribution arrearages will be changed into a single class of limited partner
units of the Partnership with no outstanding arrearages (the "Transaction"). The
terms and conditions of the Transaction are more fully set forth in the Pride
Companies, L.P. Consent Solicitation Statement dated October [ ], 1996, (the
"Consent Solicitation Statement").
You have requested our opinion as to the fairness to the disinterested
preferred unit holders of the Partnership from a financial point of view of the
consideration to be received by them in the Transaction. For purposes of this
opinion, the term "disinterested preferred unit holders" means holders of the
Partnership's one class of publicly traded preferred units other than (1)
directors, officers and employees of Pride Refining, Inc. (the "Managing General
Partner"), and (2) any holder of ten percent or more of the outstanding units of
such class.
In connection with rendering our opinion we have:
(i) analyzed certain publicly available financial statements and
reports regarding the Partnership;
(ii) analyzed certain internal financial statements and other
financial and operating data (including financial projections) concerning
the Partnership prepared by the Managing General Partner;
(iii) analyzed, on a pro forma basis, the effect of the Transaction on
the Partnership's balance sheet, capitalization ratios, earnings and book
value both in the aggregate and, where applicable, on a per unit basis;
(iv) reviewed the reported prices and trading activity for the
preferred units;
(v) compared the financial performance of the Partnership and the
prices and trading activity of the preferred units with that of certain
other comparable publicly-traded companies and their securities;
(vi) reviewed the financial terms, to the extent publicly available,
of certain comparable transactions;
(vii) reviewed the Consent Solicitation Statement and related
documents;
(viii) discussed with the Managing General Partner the operations of
and future business prospects for the Partnership and the anticipated
financial consequences of the Transaction to the Partnership;
(ix) assisted in your deliberations regarding the material terms of
the Transaction; and
(x) performed such other analyses and provided such other services as
we have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Managing General Partner, and our opinion
is based upon such information. We have inquired into the reliability of such
information and financial data only to the limited extent necessary to provide a
reasonable basis for our opinion, recognizing that we are rendering only an
informed opinion and not an appraisal or certification of value. With respect to
the financial projections prepared by Managing General Partner, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Partnership.
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. In the ordinary course of business, Stephens Inc.
and its affiliates at any time may hold long or short
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positions, and may trade or otherwise effect transactions as principal or for
the accounts of customers, in debt or equity securities or options on securities
of the Partnership. Stephens is receiving a fee, and reimbursement of its
expenses, in connection with the issuance of this fairness opinion.
Based on the foregoing and our general experience as investment bankers,
and subject to the qualifications stated herein, we are of the opinion on the
date hereof that the consideration to be received by the disinterested preferred
unit holders of the Partnership in the Transaction is fair to them from a
financial point of view.
Neither this opinion nor its substance may be disclosed by you to anyone
other than your advisors without our written permission.
This opinion and a summary discussion of our underlying analyses and role
as your financial advisor may be included in communications to the Company's
shareholders provided that we approve of such disclosures prior to publication.
Very truly yours,
STEPHENS INC.
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APPENDIX C
<PAGE> 214
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Pride Companies, L.P. is a Delaware limited partnership formed on January
17, 1990, to acquire, own and operate a petroleum refining business
("Refinery"), products pipeline business ("Products System"), and crude oil
gathering business ("Crude Gathering System").
The Crude Gathering System is the primary source of crude supply for the
Refinery, although some gathering is done for others. It gathers crude at the
wellhead and then buys and sells crude oil so that it can deliver crude through
its Crude Gathering System to the Refinery. After the crude is processed into
petroleum products at the Refinery, it is marketed and if necessary transported
to the Partnership's terminals through the Products System's pipelines.
The following is a discussion of the results of operations for the
Partnership. This discussion should be read in conjunction with the financial
statements included in this report.
GENERAL
The Partnership's operating results depend principally on the rate of
utilization of the Refinery, the margins between the prices of its refined
petroleum products and the cost of crude oil, the volume throughput on the
Products System, and the volume throughput on and margins from the
transportation and resale of crude oil from its Crude Gathering System. Higher
Refinery utilization allows the Partnership to spread its fixed costs across
more barrels, thereby lowering the fixed costs per barrel of crude oil
processed. The refining business is highly competitive, and the Partnership's
margins are significantly impacted by general industry margins. Industry margins
are determined by a variety of regional, national, and global trends, including
oil prices, weather, and economic conditions, among other things. The Refinery's
JP-8 (a grade of military aviation fuel) prices are influenced by these trends
since the pricing for JP-8 is based on Jet A, a kerosene-based product, and the
price of diesel and heating fuels affect the price of kerosene.
In 1991, the Partnership completed construction of the catalytic reformer
unit ("CRU") that allows it to refine naphtha into unleaded gasoline. Prior to
construction of the CRU, almost all naphtha went into the production of JP-4, a
grade of military jet fuel. The CRU provided the Partnership an alternative
market for its naphtha in the short-term and prepared it for the conversion of
the military fuel from JP-4 to JP-8 that was effective in April 1994 for East
and Gulf Coast bases. JP-8 is a kerosene-based fuel and without the CRU the
Partnership would not have had a market for its naphtha. As a result of the CRU,
the Partnership has entered into sales and exchange agreements with eight major
oil companies.
When the diesel desulfurization unit ("DDU") went on line in the third
quarter of 1993, it marked the completion of a three-year diversification
process that allows the Partnership to refine more valuable products and expand
its markets. In addition to completing the diversification process, the
construction of the DDU also met the challenge of present environmental
regulations. Federal law required the sulfur content in all diesel produced for
highway use to be reduced by October 1, 1993.
Margins in the Crude Gathering System are influenced by the level of
competition and the price of crude oil. When prices are higher, crude oil can
generally be resold at higher margins. Additionally, transportation charges
trend upward when higher crude oil prices stimulate increased exploration and
development. Conversely, when crude oil prices decrease, margins on the resale
of crude oil as well as transportation charges tend to decrease.
In evaluating the financial performance of the Partnership, management
believes it is important to look at operating income, excluding depreciation in
addition to operating income which is after depreciation. Operating income,
excluding depreciation measures the Partnership's ability to generate and
sustain working capital and ultimately cash flows from operations. However, such
measure is before debt service so it does not indicate the amount available for
distribution, reinvestment or other discretionary uses. Gross revenues
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primarily reflect the level of crude oil prices and are not necessarily an
accurate reflection of the Partnership's profitability. Also important to the
evaluation of the Refinery's performance are barrels of crude oil refined, gross
margin (revenue less cost of crude) per barrel, and operating expense per
barrel, excluding depreciation.
SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995
General. Net loss for the second quarter of 1996 was $1.4 million compared
to net income of $26,000 for the second quarter of 1995. The decline was
primarily a result of increased credit and loan fees of $1.2 million and weak
refining margins during the second quarter of 1996. Credit and loan fees
increased due to facility fees incurred in the second quarter of 1996. In the
second quarter of 1995, a facility fee was not required. In addition, the
Partnership had a one-time nonrecurring reversal of facility fees of $683,000
related to periods prior to the second quarter of 1995 as a result of an
amendment to the then existing credit agreement.
Operating income was $739,000 for the second quarter of 1996 compared to
operating income of $1.3 million for the second quarter of 1995. Operating
income, excluding depreciation, for the second quarter of 1996 decreased to $2.5
million from $3.0 million for the second quarter of 1995 as a result of weak
refining margins which was partially offset by strong crude gathering margins.
The following table details the operating income (loss); depreciation; and
the operating income (loss), excluding depreciation (in thousands), for the
second quarter of 1996 and 1995.
<TABLE>
<CAPTION>
OPERATING
INCOME (LOSS)
OPERATING EXCLUDING
INCOME (LOSS) DEPRECIATION DEPRECIATION
------------- ------------ -------------
<S> <C> <C> <C>
Second quarter 1996
Refinery and Products System.............. $(3,269) $1,251 $(2,018)
Crude Gathering System.................... 4,008 504 4,512
------- ------ -------
Total............................. $ 739 $1,755 $ 2,494
======= ====== =======
Second quarter 1995
Refinery and Products System.............. $ 434 $1,231 $ 1,665
Crude Gathering System.................... 840 515 1,355
------- ------ -------
Total............................. $ 1,274 $1,746 $ 3,020
======= ====== =======
</TABLE>
Refinery and Products System. Operating loss of the Refinery and Products
System was $3.3 million for the second quarter of 1996 compared to operating
income of $434,000 for the second quarter of 1995. Depreciation expense for the
Refinery and Products System was approximately $1.3 million for the second
quarter of 1996 and $1.2 million for the second quarter of 1995. Operating loss,
excluding depreciation, of the Refinery and Products System was $2.0 million for
the second quarter of 1996 compared to operating income, excluding depreciation,
of $1.7 million for the second quarter of 1995.
Operating loss of the Refinery was $3.5 million for the second quarter of
1996 compared to $27,000 for the same period in 1995. The decline was due to the
higher cost of crude relative to the posting price of crude in the second
quarter of 1996. However, this was mostly offset by the higher sales price for
crude realized by the Crude Gathering System on such sale to Refining.
Depreciation expense for the Refinery alone was $1.0 million for both the second
quarter of 1996 and the second quarter of 1995. Operating loss, excluding
depreciation, of the Refinery was $2.5 million for the second quarter of 1996
compared to operating income, excluding depreciation, of $986,000 for the second
quarter of 1995.
Refinery gross margin per barrel was $0.57 for the second quarter of 1996
versus $1.80 for the same period in 1995. Refinery throughput averaged 31,352
BPD for the second quarter of 1996 versus 31,664 BPD for the same period in
1995. Operating expenses per barrel, excluding depreciation, were $1.07 for the
second quarter of 1996 compared to $0.98 for the second quarter of 1995 due to
higher utility costs and repair and maintenance in the second quarter of 1996.
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<PAGE> 216
Operating income for the Products System was $262,000 for the second
quarter of 1996 compared to $461,000 for the second quarter of 1995.
Depreciation expense for the Products System was $220,000 for the second quarter
of 1996 compared to $218,000 for the second quarter of 1995. Operating income,
excluding depreciation, for the Products System decreased to $482,000 for the
second quarter of 1996 from $679,000 for the same period in 1995 principally as
a result of decreased pipeline volumes to the Aledo and San Angelo terminals in
the second quarter of 1996. Total transportation volumes were 12,806 BPD for the
second quarter of 1996 compared to 16,078 BPD for the same period in 1995.
Crude Gathering System. Operating income for the Crude Gathering System was
$4.0 million for the second quarter of 1996 compared to $840,000 for the same
period in 1995 due to the higher sales price of crude relative to the posting
price of crude in the second quarter of 1996 as mentioned above. Depreciation
expense for the Crude Gathering System decreased to $504,000 for the second
quarter of 1996 from $515,000 for the second quarter of 1995. Operating income,
excluding depreciation, for the Crude Gathering System was $4.5 million for the
second quarter of 1996 and $1.4 million for the second quarter of 1995. The net
margin was $0.74 per barrel for the second quarter of 1996 versus $0.13 per
barrel for the same period in 1995. Due to the elimination of several marginal
contracts, the volume of crude oil gathered by the Crude Gathering System
decreased to 59,854 BPD for the second quarter of 1996 from 68,569 BPD for the
second quarter of 1995.
FIRST SIX MONTHS 1996 COMPARED TO FIRST SIX MONTHS 1995
General. Net loss for the first six months of 1996 was $848,000 compared to
net loss of $5.5 million for the first six months of 1995. The improvement was
primarily a result of stronger refining and crude gathering margins during the
first six months of 1996. This was partially offset by higher interest and
credit and loan fees of $1.3 million during the first six months of 1996 due to
facility fees of $694,000 and expenses of $378,000 related to the restructuring
and recapitalization of the Partnership's debt and equity incurred during the
first six months of 1996. Also, the Partnership had a one-time nonrecurring
reversal of an accrual for facility fees of $234,000 for the first six months of
1995 for periods prior to 1995.
Operating income was $3.5 million for the first six months of 1996 compared
to an operating loss of $2.1 million for the first six months of 1995. Operating
income, excluding depreciation, increased for the first six months of 1996 to
$7.0 million from $1.4 million for the first six months of 1995.
The table below details the operating income (loss); depreciation; and the
operating income (loss), excluding depreciation by division (in thousands) for
the first six months of 1996 and 1995.
<TABLE>
<CAPTION>
OPERATING
INCOME (LOSS)
OPERATING EXCLUDING
INCOME (LOSS) DEPRECIATION DEPRECIATION
------------- ------------ -------------
<S> <C> <C> <C>
First six months 1996
Refinery and Products System................ $(2,685) $2,500 $ (185)
Crude Gathering System...................... 6,182 1,020 7,202
------- ------ -------
Total............................... $ 3,497 $3,520 $ 7,017
======= ====== =======
First six months 1995
Refinery and Products System................ $(3,603) $2,484 $(1,119)
Crude Gathering System...................... 1,503 1.030 2,533
------- ------ -------
Total............................... $(2,100 $3,514 $ 1,414
======= ====== =======
</TABLE>
Refinery and Products System. Operating loss of the Refinery and Products
System was $2.7 million for the first six months of 1996 compared to operating
loss of $3.6 million for the first six months of 1995. Depreciation expense for
the Refinery and Products System was $2.5 million for the first six months of
1996 and the first six months of 1995. Operating loss, excluding depreciation,
of the Refinery and Products System was $185,000 for the first six months of
1996 compared to operating loss, excluding depreciation, of $1.1 million for the
first six months of 1995.
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<PAGE> 217
Operating loss of the Refinery was $3.3 million for the first six months of
1996 compared to $4.5 million for the first six months of 1995. Refining margins
increased for the first six months of 1996 due to the colder winter experienced
during the first few months of 1996 as compared to the same period in 1995.
However, this was somewhat offset by the higher cost of crude relative to the
posting price of crude during the first six months of 1996. Depreciation expense
for the Refinery alone was $2.1 million for the first six months of 1996 and
$2.0 million for the first six months of 1995. Operating loss, excluding
depreciation, of the Refinery was $1.2 million for the first six months of 1996
compared to $2.4 million for the first six months of 1995.
Refinery gross margin per barrel was $1.30 for the first six months of 1996
versus $1.11 for the same period in 1995. Refinery throughput averaged 32,264
BPD during the first six months of 1996 versus 32,077 BPD for the same period in
1995. Operating expenses per barrel, excluding depreciation, were $1.08 for the
first six months of 1996 versus $1.06 for the same period in 1995.
Operating income for the Products System was $610,000 for the first six
months of 1996 compared to $848,000 for the first six months of 1995.
Depreciation expense for the Products System was $441,000 for the first six
months of 1996 and $436,000 for the first six months of 1995. Operating income,
excluding depreciation, for the Products System decreased to $1.1 million for
the first six months of 1996 from $1.3 million for the same period in 1995 as a
result of decreased volumes. Total transportation volumes were 13,392 BPD for
the first six months of 1996 compared to 15,585 BPD for the same period in 1995.
Crude Gathering System. Operating income for the Crude Gathering System was
$6.2 million for the first six months of 1996 compared to $1.5 million for the
same period in 1995 due to the higher sales price of crude relative to the
posting price of crude in the first six months of 1996. Depreciation expense for
the Crude Gathering System was $1.0 million for both the first six months of
1996 and the first six months of 1995. Operating income, excluding depreciation,
for the Crude Gathering System was $7.2 million for the first six months of 1996
and $2.5 million for the first six months of 1995. The net margin was $0.54 per
barrel for the first six months of 1996 compared to $0.12 per barrel for the
first six months of 1995. Due to the elimination of several marginal contracts,
the volume of crude oil gathered by the Crude Gathering System decreased to
63,212 BPD for the first six months of 1996 from 70,472 BPD for the first six
months of 1995.
FACTORS AND TRENDS AFFECTING OPERATING RESULTS
A number of factors have affected the Partnership's operating results, both
indirectly and directly, such as environmental compliance, other regulatory
matters, industry trends and price of crude oil, inventory prices, and
seasonality and weather. The Managing General Partner of the Partnership expects
that such conditions will continue to affect the Partnership's business to
varying degrees in the future. The order in which these factors are discussed is
not intended to represent their relative significance.
Environmental Compliance. Increasing public and governmental concern about
air quality is expected to result in continued regulation of air emissions.
Regulations relating to carbon monoxide and regulations on oxygen content in
gasoline and sulfur content in diesel fuel are expected to be increasingly
important as a means of improving air quality in urban areas. The Partnership
plans to spend approximately $675,000 in 1996, 1997 and 1998 on several projects
to maintain compliance with various other environmental requirements including
$400,000 for a sewer system upgrade.
Effective January 1, 1995, the Clean Air Act Amendment of 1990 required
that certain areas of the country use reformulated gasoline ("RFG"). The Abilene
and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and
Tarrant Counties, which comprise the Dallas-Fort Worth ("DFW") metroplex area,
do require RFG; however, the Partnership's Aledo terminal lies outside this area
and is allowed to supply conventional gasoline that is not destined for sale in
these four counties. In addition to the requirement for RFG in certain areas,
new but much less restrictive regulations took effect that impose new quality
standards for conventional gasoline in the rest of the country. Management does
not anticipate that these have had or will have a material adverse effect on the
Partnership's operations.
In early 1993, the United States Environmental Protection Agency ("EPA")
filed an administrative complaint and compliance order against the Partnership.
The complaint initially proposed an assessment of
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<PAGE> 218
$553,000 in penalties and fulfillment of a compliance order at an unspecified
cost against the Partnership. The principal violations alleged by the EPA
include the failure to properly monitor ground water and to implement a ground
water monitoring program. Management believes that it has complied or is
complying with the matter specified by the EPA and has filed an answer to the
complaint. On February 8, 1996, the Partnership received a letter from the EPA
offering to settle the complaint for $405,000 in penalties plus fulfillment of
the compliance order. The Partnership will continue to vigorously contest the
matter until a more favorable settlement can be reached with the EPA.
Other Regulatory Requirements. The Partnership is also subject to the rules
and regulations of Occupational Safety and Health Administration, Texas Air
Control Board, Texas Railroad Commission, and Texas Water Commission.
Industry Trends and Price of Crude Oil. Industry trends and the price of
crude oil will continue to affect the Partnership's business. While refined
products are generally sold at a margin above crude oil prices, fluctuations in
the price of crude oil can have a significant short-term effect on refining
margins because there is usually a lag in the movement of product prices, both
up and down, in relation to the movement of crude oil prices. The general level
of crude oil prices can also have a significant effect on the margins in the
crude gathering business. Margins in the Crude Gathering System generally tend
to be influenced by competition and the general price level of crude oil. When
prices are higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges are slightly less competitive when higher
crude oil prices result in increased exploration and development. Conversely,
when crude oil prices decrease, margins on the resale of crude oil and
transportation charges generally tend to decrease.
Inventory Prices. In 1993, the Partnership adopted the last-in/first-out
(LIFO) method of determining inventory values. This change should minimize the
effect of fluctuations in inventory prices on earnings by matching current costs
with current revenue. The LIFO method is the predominant method used in the
refining industry.
Seasonality and Weather. Gasoline consumption is typically highest in the
United States in the summer months and lowest in the winter months. As a result,
margins for gasoline tend to be higher in the summer months. Diesel consumption
in the southern United States is generally higher just prior to and during the
winter months when commercial trucking is routed on southern highways to avoid
severe weather conditions further north. Additionally, diesel fuel prices tend
to increase during the winter months when refiners divert heating fuels to
northern areas. During unseasonably warm winters, as was experienced during
1995, diesel prices do not trend up as in colder, longer winters. The Refinery's
JP-8 prices are influenced by these trends since the pricing for JP-8 is based
on Jet A, a kerosene based product, and the price of diesel and heating fuels
affect the price of kerosene.
Other Factors. The Partnership has been awarded contracts from the United
States Government for the right to supply 106 million gallons of JP-8 to ten
military installations in Texas for the period from April 1, 1996 through March
31, 1997.
FINANCIAL CONDITION
INFLATION
The Partnership's operations would be adversely impacted by significant,
sustained increases in crude oil and other energy prices. Although the
Partnership's operating costs are generally impacted by inflation, the Managing
General Partner does not expect general inflationary trends to materially
adversely impact the Partnership's businesses.
FINANCIAL RESOURCES AND LIQUIDITY
The Partnership's operations require substantial amounts of working capital
and open lines of credit which the Partnership believes are currently adequate
to provide funds to sustain operations at present levels. The Partnership
receives payments from the United States Government, major oil companies, and
other
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<PAGE> 219
customers within approximately 7 to 15 days from shipment in the case of
products sales and by the 20th of the following month in the case of third-party
crude oil sales and exchanges. The Partnership maintains inventory in the amount
of approximately 10 to 20 days of sales. The Partnership generally pays for
crude oil feedstock on the 20th of the month following the month in which it is
received. As a result, the Partnership's operating cycle is such that it
generally receives cash for the refined products on a basis roughly equal to the
average terms on which it pays for the crude oil feedstock.
Letters of credit are an integral part of the operations of the Crude
Gathering System since the Partnership takes title to both first purchased
barrels and custom gathered barrels. On August 13, 1996, the Partnership's
credit facility was restated and amended to extend the maturity date to July 31,
1997. Under this credit facility, the Partnership has a $6,500,000 standby
letter of credit facility for general corporate purposes and the purchase of
crude oil and other refinery feedstocks ("Facility A") and a $45,000,000 standby
letter of credit facility for the purchase of crude oil ("Facility B"). The fee
on outstanding Facility A and Facility B standby letters of credit is 1 and
1/2% per annum. For the unused portion of the standby letter of credit
facility, the fee is one-half of 1% per annum. Though no advances had been drawn
under either the Facility A or Facility B letter of credit facility, the
Partnership did have approximately $721,000 and $44.1 million, respectively, in
outstanding standby letters of credit as of June 30, 1996. The prior agreement
also provided an additional $8,000,000 standby letter of credit facility for the
purchase of crude oil and other refinery feedstocks ("Special LC Facility"). The
fee on outstanding Special LC Facility standby letters of credit was 3% per
annum. There was no commitment fee for the unused portion of the Special LC
Facility. The Partnership had approximately $1.6 million outstanding under the
Special LC Facility as of June 30, 1996.
Under the restated and amended credit facility, the Partnership has
available to it a revolving line of credit of $8.0 million (the "Revolver") and
a $45.0 million term loan (the "Term Loan"). The amount available under the
Revolver is subject to a borrowing base which includes a reduction by the amount
of letters of credit issued under Facility A. Advances under the Revolver and
Term Loan bear interest at prime plus 2% and 3%, respectively, payable monthly.
The prime rate was 8.25% as of June 30, 1996. The Term Loan is subject to a
facility fee of 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. Such fee will be canceled upon the completion of phase
two of the Partnership's restructuring plan (see below). The Partnership has
pledged substantially all its assets as collateral. In addition, the General
Partners guaranteed the facility and Pride SGP as guarantor has pledged its
assets as collateral for such loans. The Partnership may elect to prepay the
credit facilities without any prepayment penalty. The fee for the unused portion
of the Revolver is one-half of 1% per annum. At June 30, 1996, the Partnership
had no advances outstanding on the Revolver; the balance outstanding on the Term
Loan was $42.9 million. The Partnership is required to make scheduled principal
payments of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of excess cash, as defined in the credit
agreement, for the preceding quarter. Accordingly, the Partnership has
classified $1.8 million of the Term Loan as current as of June 30, 1996.
Advances under the Revolver are subject to repayment on a daily basis.
Subject to the borrowing base, the Partnership may borrow any amounts previously
paid.
The facility also includes a $2.5 million uncommitted line of credit
("Uncommitted Line"). Advances under the Uncommitted Line are made solely at the
lenders' discretion and bear interest at the prime rate plus 4%. The Uncommitted
Line must be completely paid off for fifteen consecutive days each month. There
were no advances outstanding under the Uncommitted Line at June 30, 1996.
The amended credit facility also requires the Partnership to pay a monthly
fee of $10,000 and restricts the payment of distributions to unitholders
throughout the term of the amended credit agreement. Future distributions will
be dependent on payment in full of bank debt, expiration of all liabilities for
letters of credit, and the termination of the credit agreement.
The Partnership has a nonrecourse loan from Diamond Shamrock with an
outstanding principal balance of $5.8 million at June 30, 1996, bearing interest
at 8% per annum with monthly principal and interest payments. The assets of
Pride Borger, Inc., a wholly owned subsidiary of the Partnership, which owns 50%
of the Texas Plains Pipeline System, are pledged as collateral. Pride Borger,
Inc. has also guaranteed the note.
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<PAGE> 220
Monthly principal payments are made to Diamond Shamrock based on the number of
throughput barrels for the prior month in the Texas Plains Pipeline System.
Current maturities are estimated to be $158,000 at June 30, 1996. In 1996, the
Partnership acquired the other 50% interest in the Texas Plains System from
Scurlock Permian.
Pride SGP has made unsecured loans to the Partnership in the principal
amount of $2.5 million bearing interest at prime plus 2%. The loans mature July
31, 1997.
During 1995, the Partnership converted non-interest bearing accounts
payable to the United States Government related to pricing adjustments which had
been accrued since 1993 to a $2.4 million installment loan. The principal
balance was $1.8 million at June 30, 1996. The note bears interest based on the
rate set by the Secretary of the Treasury. This rate was 5.875% as of June 30,
1996. The note requires monthly payments of $84,000. The note matures June 1,
1998. The Partnership has classified $922,000 of the note as current as of June
30, 1996.
On January 9, 1995, the Partnership executed a note to a local bank related
to the renovation and refinancing of its administrative offices in Abilene.
Prior to this, the Partnership had to lease additional office space from a third
party. The note bears interest at prime plus one-half of 1% and had an
outstanding principal balance of $381,000 at June 30, 1996. The note matures
January 9, 2000. The Partnership has classified $16,000 of the note as current
as of June 30, 1996.
Cash flows have been and will continue to be significantly affected by
fluctuations in the cost and volume of crude oil and refined products held in
inventory and the timing of accounts receivable collections. Cash flows are also
affected by refining margins and crude oil gathering margins.
The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These conditions and financial results were primarily a result of
depressed refining margins along with increasing depreciation expense and
interest expense and related fees. Crude gathering volumes have also decreased.
The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins, as well as continued cost control initiatives.
Management believes the extension of the existing credit facility to July 31,
1997 sufficiently alleviates any short-term threats to the liquidity of the
Partnership. Though management has and will continue to pursue options regarding
increasing volumes and margins and reducing costs, including limiting any
significant capital expenditures, these improvements will be gradual and, in
many cases, will take sustained periods of time to implement in order to achieve
profitability. The most significant and urgent need of the Partnership is to
effect a complete restructuring and recapitalization of the Partnership's debt
and equity. On August 13, 1996, the Partnership completed the first ("Phase 1")
of three phases which called for the execution of documents with the
Partnership's bank lenders. In phase two ("Phase 2"), the Partnership will seek
unitholder approval to convert the outstanding preferred units into common
units. If approved, the preferred unitholders will own at least 95% of the
outstanding common units of the Partnership upon conversion and all preferred
and common unit arrearages will be canceled. In addition, the credit facility
will automatically be extended to November 30, 1997, the term loan will be
reduced to $25.0 million, three notes will be created for the remaining portion
of the previously outstanding term loan, the interest rate on the debt will be
reduced, and the facility fee which is now required will be canceled. Phase
three ("Phase 3") anticipates the refinancing of the letter of credit line, the
revolving line, and the term loan. Upon completion of Phase 3, the banks will
convert two of the notes to equity. The third note, if not refinanced, can be
converted to equity at the banks' election. During the first six months of 1996,
the Partnership expensed $378,000 related to this proposed restructuring of its
credit facility. This is in addition to the $873,000 expensed for the year ended
December 31, 1995.
The Partnership will be preparing proxy solicitation material related to
the second phase. The Partnership expects to send out the material to
unitholders in September or October of 1996. The Managing General Partner is
hopeful Phase 2 will be completed during the fourth quarter of 1996 and Phase 3
will be completed in either the fourth quarter of 1996 or first quarter of 1997.
There can be no assurance the Partnership will be able to complete each of the
phases outlined. If the Partnership fails to complete them, it will have to
pursue
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<PAGE> 221
other means of effecting a restructuring and recapitalization prior to the
maturity of its credit facility on July 31, 1997. If the Partnership is
successful in completing the restructuring and recapitalization of the
Partnership, the Managing General Partner believes it will enhance the
Partnership's financial strength, flexibility and future access to capital
markets as well as lowering interest expense.
CAPITAL EXPENDITURES
The Partnership incurred maintenance capital expenditures of $559,000 for
the second quarter of 1996.
CASH DISTRIBUTIONS
At June 30, 1996, 4,700,000 Preferred Units were outstanding, representing
an approximate 46.3% limited partner interest in the Partnership. The Preferred
Units are cumulative, entitled to a minimum quarterly distribution of $0.65 per
unit through the Initial Conversion Date which is the first day of the third
calendar quarter in which the payment of all cumulative arrearages to Preferred
Unitholders have been paid, and all arrearages must be paid before the Common
Unitholders may receive distributions. The Preferred Units are convertible into
Common Units on the Initial Conversion Date. The Common Units are also
cumulative and entitled to a quarterly distribution of $0.65 per unit; however,
no Common Unit arrearages, will be paid after the Initial Conversion Date, and
any such accumulated arrearages then existing will be canceled. The general
partners are entitled to 2% of all distributions. At June 30, 1996, cumulative
arrearages were $13.00 per Common Unit which totaled $68.3 million and $11.35
per Preferred Unit which totaled $53.3 million.
Under the terms of the Partnership's credit agreement, the bank restricted
the payment of distributions to unitholders throughout the term of the credit
agreement. Future distributions will be dependent on payment in full of the bank
debt, expiration of all liabilities for letters of credit, and the termination
of the credit agreement.
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PRIDE COMPANIES, L.P.
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN)THOUSANDS,
EXCEPT UNIT AMOUNTS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 706 $ 288
Accounts receivable, less allowance for doubtful accounts.......... 13,794 16,205
Inventories........................................................ 16,079 14,248
Prepaid expenses................................................... 937 1,606
-------- --------
Total current assets....................................... 31,516 32,347
Property, plant and equipment........................................ 135,810 137,778
Accumulated depreciation............................................. 33,791 32,941
-------- --------
Property, plant and equipment -- net............................... 102,019 104,837
Other assets......................................................... 1,117 1,122
-------- --------
$134,652 $138,306
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................... $ 35,317 $ 34,631
Accrued payroll and related benefits............................... 1,787 1,568
Accrued taxes...................................................... 3,300 3,797
Other accrued liabilities.......................................... 3,060 2,807
Current portion of long-term debt.................................. 2,881 3,447
-------- --------
Total current liabilities.................................. 46,345 46,250
Long-term debt, excluding current portion............................ 50,488 53,053
Deferred income taxes................................................ 2,654 2,718
Other long-term liabilities.......................................... -- 272
Partners' capital:
Preferred units (4,700,000 units authorized and outstanding)....... 17,346 17,739
Common units (5,250,000 units authorized and outstanding).......... 17,854 18,022
General partners' interest......................................... 235 252
-------- --------
Total partners' capital.................................... 35,165 36,013
-------- --------
$134,652 $138,306
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 223
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenues............................................................... 154,422 $147,589
Cost of sales and operating expenses, excluding depreciation........... 149,401 141,829
Marketing, general and administrative expenses......................... 2,527 2,740
Depreciation........................................................... 1,755 1,746
-------- --------
Operating income (loss)................................................ 739 1,274
Other income (expense):
Interest income...................................................... 66 13
Interest expense..................................................... (1,432) (1,663)
Credit and loan fees................................................. (756) 434
Other -- net......................................................... 8 (40)
-------- --------
Income (loss) before income taxes...................................... (1,375) 18
Income tax expense (benefit)......................................... (19) (8)
-------- --------
Net income (loss)...................................................... $ (1,356) $ 26
======== ========
General partners' interest............................................. $ (27) $ --
-------- --------
Net income (loss) allocable to unitholders............................. $ (1,329) $ 26
-------- --------
Net income (loss) per unit............................................. $ (0.13) $ .00
-------- --------
</TABLE>
See accompanying notes.
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PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenues............................................................. $304,786 $298,015
Cost of sales and operating expenses, excluding depreciation......... 292,675 291,105
Marketing, general and administrative expenses....................... 5,094 5,496
Depreciation......................................................... 3,520 3,514
-------- --------
Operating income (loss).............................................. 3,497 (2,100)
Other income (expense):
Interest income.................................................... 86 63
Interest expense................................................... (2,923) (3,323)
Credit and loan fees............................................... (1,561) (259)
Other -- net....................................................... 35 74
-------- --------
Income (loss) before income taxes.................................... (866) (5,545)
Income tax expense (benefit)....................................... (18) (13)
-------- --------
Net income (loss).................................................... $ (848) $ (5,532)
======== ========
General partners' interest........................................... $ (17) $ (111)
-------- --------
Net income (loss) allocable to unitholders........................... $ (831) $ (5,421)
-------- --------
Net income (loss) per unit........................................... $ (0.08) $ (.54)
-------- --------
</TABLE>
See accompanying notes.
C-11
<PAGE> 225
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ (848) $ (5,532)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation.................................................... 3,520 3,514
(Gain) loss on sale of property, plant and equipment............ (26) (1)
Deferred tax benefit............................................ (64) (55)
Cash provided by (used in) current assets and current liabilities:
(Increase) decrease in accounts receivable...................... 2,411 (1,961)
(Increase) decrease in inventories.............................. (1,831) 5,130
(Increase) decrease in prepaid expenses......................... 669 634
Increase (decrease) in accounts payable......................... 686 (290)
Increase (decrease) in accrued liabilities...................... (25) (385)
-------- --------
Total adjustments............................................ 5,340 6,586
-------- --------
Net cash provided by (used in) operating activities.................... 4,492 1,054
Cash flows from investing activities:
Purchases of property, plant and equipment........................... (964) (555)
Proceeds from disposal of property, plant and equipment.............. 43 89
Other................................................................ (18) 116
-------- --------
Net cash provided by (used in) investing activities.................... (939) (350)
Cash flows from financing activities:
Proceeds from debt and credit facilities............................. 9,235 14,525
Payments on debt and credit facilities............................... (12,366) (15,165)
Other................................................................ (4) (82)
-------- --------
Net cash provided by (used in) financing activities.................... (3,135) (722)
-------- --------
Net increase (decrease) in cash and cash equivalents................... 418 (18)
Cash and cash equivalents at the beginning of the period............... 288 35
-------- --------
Cash and cash equivalents at the end of the period..................... $ 706 $ 17
======== ========
</TABLE>
See accompanying notes.
C-12
<PAGE> 226
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Pride Companies, L.P. (the "Partnership"), a Delaware limited partnership,
owns and operates a modem simplex petroleum refinery facility located near
Abilene, Texas (the "Refinery"), a crude oil gathering business (the "Crude
Gathering System") that gathers, transports, and resells and redelivers crude
oil in the Texas and New Mexico markets, and certain integrated product pipeline
operations (the "Products System"). The Partnership's operations are considered
a single industry segment, the refining of crude oil and the sale of the
resulting petroleum products. The primary purpose of the Crude Gathering System
is to supply the Refinery with crude oil at strategic locations for input into
the Refinery. The Crude Gathering System consists of a series of gathering lines
and a fleet of trucks which transport crude oil into third party pipelines and
into the system's primary asset, a common carrier pipeline which delivers crude
oil to and terminates at the Refinery. The Products System consists of certain
product pipelines which originate at the Refinery and terminate at the
Partnership's marketing terminals.
Pride SGP ("Pride SGP" or the "Special General Partner") serves as special
general partner of the Partnership and owns a 0.1% general partner interest and
the 5,250,000 common units ("Common Units"). Pride Refining, Inc. serves as the
managing general partner of the Partnership and owns a 1.9% general partner
interest (the "Managing General Partner").
2. ACCOUNTING POLICIES
The financial statements of the Partnership include all of its majority
owned subsidiaries including limited partnership interests where the Partnership
has significant control through related parties. All intercompany transactions
have been eliminated and minority interest has been provided where applicable.
The financial statements included in this quarterly report on Form 10-Q are
unaudited and condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all material adjustments necessary to
present fairly the financial position, results of operations, and cash flows for
such periods have been included. Interim period results are not necessarily
indicative of the results to be achieved for the full year. 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.
The financial statements of the Partnership presented in its Annual Report
on Form 10-K for the year ended December 31, 1995 include a summary of
significant accounting policies that should be read in conjunction with this
quarterly report on Form 10-Q. The Partnership has two subsidiaries that are
corporations which are separate taxable entities whose operations are subject to
federal income taxes.
Net Income (Loss) per Unit is calculated using the weighted average number
of Units outstanding during the period (4,700,000 convertible preferred units
and 5,250,000 Common Units) divided into the Partnership's net income (loss)
after adjusting for general partner allocations.
3. RELATED PARTY TRANSACTIONS
In accordance with the Amended and Restated Agreement of Limited
Partnership of Pride Companies, L.P. ("Partnership Agreement"), the Managing
General Partner conducts, directs and exercises control over substantially all
of the activities of the Partnership. The Managing General Partner has a 1.9%
interest in the income and cash distributions of the Partnership, subject to
certain adjustments. Certain members of the management of the Managing General
Partner are also members of the management of Pride SGP, which has a 0.1%
general partner interest and a 51.7% limited partner interest in the
Partnership.
The Partnership has no directors or officers; however, directors and
officers of the Managing General Partner are employed by the Partnership to
function in this capacity. Compensation of these persons and any
C-13
<PAGE> 227
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
other expenses incurred on behalf of the Partnership by the Managing General
Partner and Pride SGP are paid by the Partnership.
Certain conflicts of interest, including potential non-arm's length
transactions, could arise as a result of the relationships described above. The
Board of Directors and management of the Managing General Partner have a duty to
manage the Partnership in the best interests of the unitholders and consequently
must exercise good faith and integrity in handling the assets and affairs of the
Partnership.
4. INVENTORIES
Inventories are valued at the lower of cost or market and June 30, December
31, consist of:
<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1996 1995
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
Crude oil.................................................. $ 10,874 $10,981
Refined products and blending materials.................... 9,885 5,589
------- -------
20,759 16,570
LIFO reserve............................................... (5,754) (3,426)
------- -------
Petroleum inventories...................................... 15,005 13,144
Spare parts and supplies................................... 1,074 1,104
------- -------
$ 16,079 $14,248
======= =======
</TABLE>
The last-in/first-out (LIFO) inventory cost method is used for crude oil
and refined products and blending materials. The weighted average inventory cost
method is used for spare parts and supplies.
5. LONG-TERM DEBT
On August 13, 1996, the Partnership's credit facility was restated and
amended to extend the maturity date to July 31, 1997. Under this credit
facility, the Partnership has a $6,500,000 standby letter of credit facility for
general corporate purposes and the purchase of crude oil and other refinery
feedstocks ("Facility A") and a $45,000,000 standby letter of credit facility
for the purchase of crude oil ("Facility B"). The fee on outstanding Facility A
and Facility B standby letters of credit is 1 1/2% per annum. For the unused
portion of the standby letter of credit facility, the fee is one-half of 1% per
annum. Though no advances had been drawn under either the Facility A or Facility
B letter of credit facility, the Partnership did have approximately $721,000 and
$44.1 million, respectively, in outstanding standby letters of credit as of June
30, 1996. The prior credit agreement also provided an additional $8,000,000
standby letter of credit facility for the purchase of crude oil and other
refinery feedstocks ("Special LC Facility"). The fee on outstanding Special LC
Facility standby letters of credit was 3% per annum. There was no commitment fee
for the unused portion of the Special LC Facility. The Partnership had
approximately $1.6 million outstanding under the Special LC Facility as of June
30, 1996.
Under the restated and amended credit facility, the Partnership has
available to it a revolving line of credit of $8.0 million (the "Revolver") and
a $45.0 million term loan (the "Term Loan"). The amount available under the
Revolver is subject to a borrowing base which includes a reduction by the amount
of letters of credit issued under Facility A. Advances under the Revolver and
Term Loan bear interest at prime plus 2% and 3%, respectively, payable monthly.
The prime rate was 8.25% as of June 30, 1996. The Term Loan is subject to a
facility fee of 5% per annum effective January 1, 1996 and payable at maturity
which is July 31, 1997. Such fee will be canceled on the completion of the
equity restructuring. The Partnership has pledged substantially all its assets
as collateral. In addition, the General Partners guaranteed the facility and
Pride
C-14
<PAGE> 228
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SGP as guarantor has pledged its assets as collateral for such loans. The
Partnership may elect to prepay the credit facilities without any prepayment
penalty. The fee for the unused portion of the Revolver is one-half of 1% per
annum. At June 30, 1996, the Partnership had no advances outstanding on the
Revolver; the balance outstanding on the Term Loan was $42.9 million. Under the
new credit facility, the Partnership is required to make scheduled principal
payments of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of excess cash, as defined in the credit
agreement, for the preceding quarter. Accordingly, the Partnership has
classified $1.8 million of the Term Loan as current as of June 30, 1996.
Advances under the Revolver are subject to repayment on a daily basis.
Subject to the borrowing base, the Partnership may borrow any amounts previously
paid.
The facility also includes a $2.5 million uncommitted line of credit
("Uncommitted Line"). Advances under the Uncommitted Line are made solely at the
lenders' discretion and bear interest at the prime rate plus 4%. The Uncommitted
Line must be completely paid off for fifteen consecutive days each month. There
were no advances outstanding under the Uncommitted Line at June 30, 1996.
The amended credit facility also requires the Partnership to pay a monthly
fee of $10,000 and restricts the payment of distributions to unitholders
throughout the term of the amended credit agreement. Future distributions will
be dependent on payment in full of bank debt, expiration of all liabilities for
letters of credit, and the termination of the credit agreement.
The Partnership has a nonrecourse loan from Diamond Shamrock with an
outstanding principal balance of $5.8 million at June 30, 1996, bearing interest
at 8% per annum with monthly principal and interest payments. The assets of
Pride Borger, Inc., a wholly owned subsidiary of the Partnership, which owns 50%
of the Texas Plains Pipeline System, are pledged as collateral. Pride Borger,
Inc. has also guaranteed the note. Monthly principal payments are made to
Diamond Shamrock based on the number of throughput barrels for the prior month
in the Texas Plains Pipeline System. Current maturities are estimated to be
$158,000 at June 30, 1996. In 1996, the Partnership acquired the other 50%
interest in the Texas Plains System from Scurlock Permian.
Pride SGP has made unsecured loans to the Partnership in the principal
amount of $2.5 million bearing interest at prime plus 2%. The loans mature July
31, 1997.
During 1995, the Partnership converted non-interest bearing accounts
payable to the United States Government related to pricing adjustments which had
been accrued since 1993 to a $2.4 million installment loan. The principal
balance was $1.8 million at June 30, 1996. The note bears interest based on the
rate set by the Secretary of the Treasury. This rate was 5.875% as of June 30,
1996. The note requires monthly payments of $84,000. The note matures June 1,
1998. The Partnership has classified $922,000 of the note as current as of June
30, 1996.
On January 9, 1995, the Partnership executed a note to a local bank related
to the renovation and refinancing of its administrative offices in Abilene.
Previously, the Partnership leased additional office space from a third party.
The note bears interest at prime plus one-half of 1% and had an outstanding
principal balance of $381,000 at June 30, 1996. The note matures January 9,
2000. The Partnership has classified $16,000 of the note as current as of June
30, 1996.
6. PREFERRED AND COMMON UNITS
At June 30, 1996, 4,700,000 Preferred Units were outstanding, representing
an approximate 46.3% limited partner interest in the Partnership. The Preferred
Units are cumulative, entitled to a minimum quarterly distribution of $0.65 per
unit through the Initial Conversion Date which is the first day of the third
calendar quarter in which the payment of all cumulative arrearages to Preferred
Unitholders have been paid,
C-15
<PAGE> 229
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and all arrearages must be paid before the Common Unitholders may receive
distributions. The Preferred Units are convertible into Common Units on the
Initial Conversion Date. The Common Units are also cumulative and entitled to a
quarterly distribution of $0.65 per unit; however, no Common Unit arrearages
will be paid after the Initial Conversion Date, and any such accumulated
arrearages then existing will be canceled. The general partners are entitled to
2% of all distributions. At June 30, 1996, cumulative arrearages were $13.00 per
Common Unit which totaled $68.3 million and $11.35 per Preferred Unit which
totaled $53.3 million.
Under the terms of the Partnership's credit agreement, the bank restricted
the payment of distributions to unitholders throughout the term of the credit
agreement. Future distributions will be dependent on payment in full of the bank
debt, expiration of all liabilities for letters of credit, and the termination
of the credit agreement.
C-16
<PAGE> 230
APPENDIX D
<PAGE> 231
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SCHEDULES
OF PRIDE COMPANIES, L.P.
(AUDITED)
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... D-2
Balance Sheets at December 31, 1995 and 1994.......................................... D-3
Statements of Operations for the years ended December 31, 1995, 1994 and 1993......... D-4
Statements of Changes in Partners' Capital for the years ended December 31, 1995, 1994
and 1993............................................................................ D-5
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993......... D-6
Notes to Financial Statements......................................................... D-7
</TABLE>
All schedules are omitted because they are not applicable or the required
information is shown elsewhere in this report.
D-1
<PAGE> 232
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of the
Managing General Partner
We have audited the accompanying balance sheets of Pride Companies, L.P. as
of December 31, 1995 and 1994, and the related statements of operations, changes
in partners' capital, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with 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 Pride Companies, L.P. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1993 the Partnership
changed its method of accounting for inventories.
ERNST & YOUNG LLP
Fort Worth, Texas
February 14, 1996, except for Note 4, as to
which the date is March 27, 1996
D-2
<PAGE> 233
BALANCE SHEETS
PRIDE COMPANIES, L.P.
AT DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................ $ 288 $ 35
Accounts receivable, less allowance for doubtful accounts of $187 and
$271, respectively -- Note 6...................................... 16,205 14,900
Inventories -- Note 2................................................ 14,248 17,667
Prepaid expenses..................................................... 1,606 1,868
-------- --------
TOTAL CURRENT ASSETS......................................... 32,347 34,470
PROPERTY, PLANT AND EQUIPMENT, net -- Note 3........................... 104,837 110,884
OTHER ASSETS........................................................... 1,122 1,198
-------- --------
$138,306 $146,552
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable..................................................... $ 34,631 $ 31,408
Accrued payroll and related benefits................................. 1,568 2,044
Accrued taxes........................................................ 3,797 3,793
Other accrued liabilities............................................ 2,807 2,590
Current portion of long-term debt.................................... 3,447 6,626
-------- --------
TOTAL CURRENT LIABILITIES.................................... 46,250 46,461
LONG-TERM DEBT, including $2,450 and $2,000 at December 31, 1995 and
1994, respectively, to a related party -- Note 4..................... 53,053 52,264
DEFERRED INCOME TAXES -- Note 7........................................ 2,718 2,827
OTHER LONG-TERM LIABILITIES............................................ 272 370
COMMITMENTS AND CONTINGENCIES -- Note 5
PARTNERS' CAPITAL -- Notes 4 and 9
Preferred units (5,025,000 units authorized, 4,700,000 units
outstanding)...................................................... 17,739 21,729
Common units (5,250,000 units authorized and outstanding)............ 18,022 22,476
General partners' interest........................................... 252 425
-------- --------
36,013 44,630
-------- --------
$138,306 $146,552
======== ========
</TABLE>
See accompanying notes.
D-3
<PAGE> 234
STATEMENTS OF OPERATIONS
PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues -- Note 6:
Refinery and Products System............................ $ 235,136 $ 220,610 $ 253,008
Crude Gathering System.................................. 527,212 553,847 609,772
Intersegment and other.................................. (201,735) (184,551) (205,518)
--------- --------- ---------
560,613 589,906 657,262
Cost of sales and operating expenses, excluding
depreciation -- Note 8.................................. 543,425 570,877 636,102
Marketing, general and administrative expenses -- Note
8....................................................... 10,274 11,059 12,834
Depreciation.............................................. 7,006 6,546 5,881
--------- --------- ---------
OPERATING INCOME (LOSS)......................... (92) 1,424 2,445
Other income (expense):
Interest expense........................................ (6,575) (5,191) (3,707)
Credit and loan fees.................................... (2,172) (1,651) (1,138)
Other -- net............................................ 175 28 252
--------- --------- ---------
(8,572) (6,814) (4,593)
--------- --------- ---------
LOSS before income taxes and cumulative effect
of change in accounting principle............. (8,664) (5,390) (2,148)
Income tax benefit........................................ 47 -- --
--------- --------- ---------
LOSS before cumulative effect of change in
accounting principle.......................... (8,617) (5,390) (2,148)
Cumulative effect of change in accounting principle....... -- -- (3,605)
--------- --------- ---------
NET LOSS........................................ $ (8,617) $ (5,390) $ (5,753)
========= ========= =========
Loss allocable to Unitholders before cumulative effect of
a change in accounting principle:
Preferred Units......................................... $ (3,990) $ (2,496) $ (995)
Common Units............................................ (4,454) (2,786) (1,110)
General partners' interest.............................. (173) (108) (43)
Cumulative effect allocable to Unitholders of changing to
LIFO from FIFO:
Preferred Units......................................... $ -- $ -- $ (1,669)
Common Units............................................ -- -- (1,864)
General partners' interest.............................. -- -- (72)
Loss per Unit before cumulative effect:
Preferred Units......................................... $ (0.85) $ (0.53) $ (0.21)
Common Units............................................ (0.85) (0.53) (0.21)
Cumulative effect of changing to LIFO per Unit:
Preferred Units......................................... $ -- $ -- $ (0.36)
Common Units............................................ -- -- (0.36)
--------- --------- ---------
Net loss per Unit:
Preferred Units......................................... $ (0.85) $ (0.53) $ (0.57)
Common Units............................................ $ (0.85) $ (0.53) $ (0.57)
========= ========= =========
</TABLE>
The proforma amounts of net loss, net loss applicable to unitholders and
net loss per unit, assuming LIFO method is applied retroactively, is equal to
the amounts shown above as before cumulative effect.
<TABLE>
<S> <C> <C> <C>
Weighted average Units outstanding:
Preferred Units..................................................... 4,700 4,700 4,700
Common Units........................................................ 5,250 5,250 5,250
</TABLE>
See accompanying notes.
D-4
<PAGE> 235
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL
PREFERRED COMMON PARTNERS'
UNITS UNITS INTEREST
--------- ------- ---------
<S> <C> <C> <C>
Balance at December 31, 1992...................................... $ 26,889 $28,236 $ 648
Net loss.......................................................... (2,664) (2,974) (115)
------- ------- -----
Balance at December 31, 1993...................................... 24,225 25,262 533
Net loss.......................................................... (2,496) (2,786) (108)
------- ------- -----
Balance at December 31, 1994...................................... 21,729 22,476 425
Net loss.......................................................... (3,990) (4,454) (173)
------- ------- -----
Balance at December 31, 1995...................................... $ 17,739 $18,022 $ 252
======= ======= =====
</TABLE>
See accompanying notes.
D-5
<PAGE> 236
STATEMENTS OF CASH FLOWS
PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (8,617) $ (5,390) $ (5,753)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation......................................... 7,006 6,546 5,881
Deferred tax benefit................................. (109) -- --
Other................................................ 11 (223) (220)
Cumulative effect of change in accounting
principle......................................... -- -- 3,605
Changes in current assets and current liabilities:
Accounts receivable.................................. 1,095 (2,094) 9,157
Inventories.......................................... 3,419 (1,382) 307
Prepaid expenses..................................... 262 (292) (246)
Accounts payable..................................... 3,223 1,571 (8,039)
Accrued liabilities.................................. (255) 877 644
-------- --------- ---------
Total adjustments................................. 14,652 5,003 11,089
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES...................................... 6,035 (387) 5,336
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (1,224) (2,812) (12,319)
Proceeds from disposal of property, plant and equipment... 262 161 379
Other..................................................... 68 182 (367)
-------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (894) (2,469) (12,307)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit facilities.................. 45,706 106,249 114,251
Payments on debt and credit facilities.................... (50,496) (103,442) (108,201)
Other..................................................... (98) (399) (496)
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... (4,888) 2,408 5,554
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 253 (448) (1,417)
Cash and cash equivalents at beginning of the period...... 35 483 1,900
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD.................................................... $ 288 $ 35 $ 483
======== ========= =========
</TABLE>
See accompanying notes.
D-6
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS: Pride Companies, L.P., a Delaware
limited partnership (the "Partnership"), owns and operates a modern simplex
petroleum refinery facility; a crude oil gathering system, that gathers,
transports, and resells and redelivers crude oil; and certain product pipelines.
The Partnership's operations are considered a single industry segment -- the
refining of crude oil and the sale of the resulting petroleum products. The
primary purpose of the crude oil gathering system is to supply the refinery with
crude oil. In that connection, it purchases and resells crude oil in order to
provide a supply of the appropriate grade of crude oil at strategic locations
for input into the refinery. The crude gathering system consists of a series of
gathering lines and a fleet of trucks which transport crude into third party
pipelines and into the system's primary asset, a common carrier pipeline which
delivers crude to and terminates at the refinery. The product pipelines
originate at the refinery and terminate at the Partnership's marketing
terminals. The Partnership's operations are conducted primarily in the State of
Texas.
Pride SGP, Inc. ("Pride SGP") serves as special general partner of the
Partnership and owns a 0.1% general partner interest and the 5,250,000 common
units ("Common Units"). Pride Refining, Inc. serves as the managing general
partner of the Partnership and owns a 1.9% general partner interest (the
"Managing General Partner"). In accordance with the Amended and Restated
Agreement of Limited Partnership of Pride Companies, L.P. ("Partnership
Agreement"), the Managing General Partner conducts, directs and exercises
control over substantially all of the activities of the Partnership. The
Partnership has no directors or officers; however, directors and officers of the
Managing General Partner are employed by the Partnership to function in this
capacity.
The financial statements of the Partnership include all of its majority
owned subsidiaries including limited partnership interests where the Partnership
has significant control through related parties. All intercompany transactions
have been eliminated and minority interest has been provided where applicable.
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.
OPERATING ENVIRONMENT: The Partnership's operations have generated losses
in each of the last five years, current ratios of less than one to one in each
of the last three years and a net use of cash from operations in 1994. These
financial results are primarily a result of depressed refining margins along
with increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. However, by selectively improving the sales mix of
certain products, the Partnership was able to improve refining margins slightly
in 1994 over 1993, but it was not sufficient to offset the other negative trends
mentioned above. As a result of an extremely mild winter, losses continued into
the first quarter of 1995. The Partnership's refining margins improved
throughout 1995 over those realized in the first quarter of 1995. Deliveries
under contracts with the U. S. Government to supply JP8 and LSJP8 to various
military bases in Texas, which began May 1, 1995 were consummated at higher
volumes and prices than the contract covering the period from April 1, 1994
through April 30, 1995. The Partnership recently received a new contract,
beginning April 1, 1996 and ending March 31, 1997. Under the new contract, the
Partnership will supply more fuel than it will supply under the current
contract; however, the prices awarded under this contract are lower than those
in the current contract. Since 1993, the Partnership has been able to achieve
continuous reductions in marketing, general and administrative expenses. The
move of the Partnership's corporate offices has resulted in a cost reduction
since the beginning of 1995. Also, during 1995, certain initiatives were taken
to reduce crude gathering costs. Interest expense and related fees, as well as
depreciation expense, continued to increase in 1995, however.
The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins, as well as continued cost control initiatives.
Management believes the extension of the existing credit facility to January 1,
1997, sufficiently alleviates any
D-7
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
short-term threats to the liquidity of the Partnership. Though management has
and will continue to pursue options regarding increasing volumes and margins and
reducing costs, including limiting any significant capital expenditures, these
improvements will be gradual and, in many cases, will take sustained periods of
time to implement in order to achieve profitability. The most significant and
urgent need of the Partnership is to effect a complete restructuring and
recapitalization of the Partnership's debt and equity. To that end, the
Partnership has reached a tentative agreement with its lenders to restructure
the existing bank debt. The tentative agreement is made up of three phases.
Phase one ("Phase One") contemplates a new loan agreement being executed between
the banks and the Partnership. In phase two ("Phase Two"), the Unitholders will
vote on a change in the equity structure of the Partnership. If Phase Two is
approved by the Unitholders, the banks will convert a portion of their Term Loan
(see Note 4) into notes, lower certain interest rates and credit and loan fees
and extend the maturity. In phase three ("Phase Three"), the Partnership plans
to refinance with additional third party creditors the letter of credit
facility, the Revolver (see Note 4), the Term Loan and a portion of the notes
set up in Phase Two. The portion of the notes not refinanced would be converted
to a preferred equity security. During 1995, the Partnership expensed $873,000
related to this proposed restructuring of its credit facility. The Managing
General Partner is hopeful Phase One will be completed by April 30, 1996, Phase
Two will be completed during the third quarter of 1996 and Phase Three will be
completed in either the fourth quarter of 1996 or first quarter of 1997. There
can be no assurance the Partnership will be able to complete each of the phases
outlined. If the Partnership fails to complete them, it will have to pursue
other means of effecting a restructuring and recapitalization prior to the
maturity of its credit facility on January 1, 1997. If the Partnership is
successful in arranging a complete restructuring and recapitalization of the
Partnership, the Managing General Partner believes it will enhance the
Partnership's financial strength, flexibility and future access to capital
markets as well as lowering interest expense.
REVENUE RECOGNITION: Revenue is recognized from the sale of crude oil and
refined products at the time of delivery to the customer. Transportation fees
are recognized when the crude oil or products are delivered to the contracted
destination.
NET LOSS PER UNIT: Net loss per unit is calculated using the weighted
average number of units outstanding during each quarter divided into the
Partnership's net income (loss) after adjusting for general partner allocations.
INVENTORIES: Inventories are stated at the lower of cost or market value.
Crude oil and refined product exchanges are accounted for on the inventory
method.
Effective January 1, 1993, the Partnership adopted the last-in, first-out
(LIFO) method of costing petroleum inventories. Previously, the first-in,
first-out (FIFO) method was used. Management believes that the LIFO method
better matches current costs with current revenues and minimizes the effects of
price changes on inventories. In addition, the LIFO method is the predominant
method used in the refining industry. The effect of the change in 1993 was to
reduce the loss before cumulative effect of a change in accounting principle by
approximately $4,013,000 ($0.40 per unit). The negative cumulative effect of
$3,605,000 to apply the LIFO method retroactively to the Partnership's
inception, March 29, 1990, is included in income for 1993.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost or at the carryover basis of the Partnership's predecessor which was
historical cost. Depreciation is computed by the straight-line method for
financial reporting purposes based upon the estimated useful lives of the
various assets.
Maintenance, repairs, minor renewals and replacements are charged to
expense when incurred. Betterments, major renewals and replacements are
capitalized. Repairs and maintenance expense for the years ended December 31,
1995, 1994 and 1993 was $3,539,000, $3,503,000 and $3,422,000, respectively.
INCOME TAXES: As a limited partnership, the Partnership is not a taxable
entity for federal income tax purposes and any federal income taxes are the
direct responsibility of the individual partners. Accordingly, no federal income
tax provision is made in the accompanying statement of operations related to the
operations of
D-8
<PAGE> 239
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Partnership itself. The Partnership's tax bases in assets and liabilities
(other than D-S Pipeline which is included with Pride Borger) are less than the
bases for financial reporting purposes by approximately $17.2 million.
The Partnership's subsidiaries, Pride Borger, Inc. ("Pride Borger") and
Pride Marketing of Texas, are corporations which are separate taxable entities.
As separate taxable entities, Pride Borger's and Pride Marketing of Texas'
operating results are subject to federal income taxes. The carryover tax bases
of D-S Pipeline assets acquired by Pride Borger (see Note 7) are significantly
less than the purchase price. As a result, a deferred tax liability was
established as part of the purchase price allocation.
RETIREMENT PLAN: The Employees' 401(k) Retirement Plan and Trust ("Plan"),
is a defined contribution plan covering substantially all full-time employees.
Under the Plan, the Partnership must make a mandatory contribution equal to 3%
of a participant's compensation and may make discretionary matching
contributions of up to an additional 3% of a participant's compensation. The
Partnership's contributions vest over a seven year period, subject to immediate
vesting upon retirement. Retirement plan expense for the years ended December
31, 1995, 1994 and 1993 was $485,000, $475,000 and $469,000, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash
equivalents approximates fair value. Interest rates associated with
substantially all the Partnership's long-term debt are linked to the prime rate.
These rates and the rates associated with standby letters of credit approximate
current market rates. As a result, management believes that the carrying amount
approximates the fair value of the Partnership's credit facilities which are
linked to the prime rate. A portion of the Partnership's debt is at stated rates
below current market rates. This includes the notes, in the original principal
amounts of $6,000,000 and $2,400,000, discussed in Note 4. The carrying amount
of such debt at December 31, 1995 is $8,137,000 and the estimated fair value is
$7,104,000. The fair value is estimated using discounted cash flow analyses,
based on the Partnership's current incremental borrowing rates for similar types
of borrowing arrangements.
STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows,
management considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The adoption of SFAS 121 in the first
quarter of 1996 is not expected to have any effect on the Partnership's
financial statements, based on current conditions.
NOTE 2 -- INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Crude oil........................................................ $10,981 $10,337
Refined products and blending materials.......................... 5,589 7,873
------- -------
16,570 18,210
LIFO reserve..................................................... (3,426) (1,776)
------- -------
Petroleum inventories............................................ 13,144 16,434
Spare parts and supplies......................................... 1,104 1,233
------- -------
$14,248 $17,667
======= =======
</TABLE>
At December 31, 1995 and 1994, petroleum inventories valued using the LIFO
method were less than current cost determined using the FIFO method by
$3,426,000 and $1,776,000, respectively.
D-9
<PAGE> 240
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Refinery and related facilities................................ $ 70,840 $ 70,141
Pipelines and related facilities............................... 53,974 53,736
Transportation and terminal equipment.......................... 9,798 9,651
Marketing facilities and equipment............................. 860 918
Administrative facilities and equipment........................ 1,871 1,862
Construction-in-progress....................................... 435 621
-------- --------
137,778 136,929
Less accumulated depreciation.................................. 32,941 26,045
-------- --------
$104,837 $110,884
======== ========
</TABLE>
NOTE 4 -- DEBT AND CREDIT FACILITIES
Subsequent to December 31, 1995, the Partnership amended its credit
agreement to extend the maturity to January 1, 1997. The agreement calls for
monthly interest and fee payments and grants the Partnership a $6,500,000
standby letter of credit facility for general corporate purposes and the
purchase of crude oil and other refinery feedstocks ("Facility A"), a
$45,000,000 standby letter of credit facility for the purchase of crude oil
("Facility B"), an $8,000,000 revolving credit facility ("Revolver"), a
$2,500,000 uncommitted line of credit ("Uncommitted Line") and a term loan
("Term Loan") of $45,000,000. The amended credit agreement requires the
Partnership to pay a monthly fee of $10,000 and requires maintenance of a
specified level of net worth and a borrowing base as defined in the credit
agreement. The Partnership must also maintain compliance with current ratio and
fixed charge coverage covenants, as defined in the credit agreement. In
addition, it contains restrictive covenants including, among other things,
provisions concerning additional indebtedness and commitments, distributions to
partners, capital expenditures, sale of property, investments and affiliate
transactions. Distributions to partners are prohibited under the terms of the
Partnership's amended credit agreement. The agreement is guaranteed by Pride SGP
and the Managing General Partner and secured by substantially all of the assets
of the Partnership.
As of December 31, 1995, the Partnership had $721,000 in outstanding
Facility A standby letters of credit. At December 31, 1995, outstanding Facility
B standby letters of credit were $44,049,000. The Partnership pays fees of 1 and
1/2% per annum on all outstanding letters of credit and a commitment fee of
1/2 of 1% for the unused portion of the facility.
The amount available under the Revolver is reduced by the Facility A
standby letters of credit. The unused portion of the Revolver carries a 1/2 of
1% commitment fee. Outstanding advances of the Revolver accrue interest at a
rate equivalent to the prime rate (8.5% at December 31, 1995) plus 2%. Based on
the amended credit agreement, advances under the Revolver are subject to
repayment on a daily basis. As a result, the full amount outstanding at December
31, 1995 has been included in the current portion of long-term debt. Subject to
the borrowing base, the Partnership may borrow any amounts previously repaid.
Advances under the Uncommitted Line are made solely at the lenders'
discretion and bear interest at the prime rate plus 4%. The Uncommitted Line
must be completely paid off for fifteen consecutive days each month. There were
no advances under the Uncommitted Line at December 31, 1995.
The Term Loan bears interest at a rate equivalent to the prime rate plus
3%. It also contains a facility fee of approximately 5% per annum which is based
on the outstanding balance of the facility commencing January 1, 1996 and such
facility fee is payable at maturity. Under the commitment, the Partnership is
required to make quarterly principal payments of 95% of any excess cash flow, as
defined in the credit
D-10
<PAGE> 241
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreement, until January, 1996. Thereafter, the Partnership will pay monthly
principal payments in the amount of 95% of available cash flow for the second
preceding month.
The Partnership has outstanding indebtedness to Pride SGP, due January 1,
1997, with an outstanding balance of $2,450,000 at December 31, 1995, bearing
interest at a rate equivalent to the prime rate plus 2%.
Other installment loans include a $6,000,000 nonrecourse note, due 2014,
payable monthly with interest at 8% and a balance of $5,900,000 at December 31,
1995. The note is supported by a minimum throughput agreement. The assets of
Pride Texas Plains are pledged as collateral and the note is guaranteed by Pride
Borger (see Note 7). Monthly principal payments are based on the number of
throughput barrels.
The Partnership converted certain non-interest bearing accounts payable to
the U. S. Government Defense Fuel Supply Center (netted against accounts
receivable from the same entity at December 31, 1994) to a $2,400,000
installment loan, payable in monthly installments of $84,000, with a balance of
$2,300,000 at December 31, 1995. Two installment payments were made on this note
in 1995. The note bears interest based on the rate set semi-annually by the
Secretary of the Treasury. This rate was 6.375% as of December 31, 1995.
Amounts outstanding under these credit facilities at December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Revolver....................................................... $ 1,230 $ 5,750
Term Loans..................................................... 44,299 44,938
Related Party Loans............................................ 2,450 2,000
Other Installment Loans........................................ 8,521 6,202
------- -------
56,500 58,890
Less current portion........................................... 3,447 6,626
------- -------
$53,053 $52,264
======= =======
</TABLE>
Approximate debt maturities for the next five years are expected as
follows: 1996 -- $3,447,000; 1997 -- $46,642,000; 1998 -- $547,000;
1999 -- $137,000; and 2000 -- $436,000.
Interest paid for the years ended December 31, 1995, 1994 and 1993 was
$6,345,000, $5,097,000 and $3,822,000, respectively. Interest capitalized for
the year ended December 31, 1993 was $476,000.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
At December 31, 1995, the Partnership is committed to operating leases
which require fixed monthly rentals for administrative office space,
transportation equipment, computers and related equipment and other
miscellaneous equipment, some of which contain residual value guarantees.
Excluding rentals paid to Pride SGP (see Note 8) for certain pipeline segments,
rental expense for the years ended December 31, 1995, 1994 and 1993 was
$3,039,000, $3,186,000 and $3,213,000, respectively. The minimum future rentals
under noncancelable operating leases at December 31, 1995, excluding Pride SGP,
are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................... $ 3,633
1997............................................... 2,637
1998............................................... 2,012
1999............................................... 1,047
2000............................................... 484
Thereafter......................................... 207
-------
$10,020
=======
</TABLE>
D-11
<PAGE> 242
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1994, the Partnership outsourced its information systems department
and entered into a five year service agreement. Fees are dependent primarily on
central processing unit utilization which management estimates will approximate
$68,000 per month.
The Partnership is involved in various claims and routine litigation
incidental to its business for which damages are sought. Management believes
that the outcome of all claims and litigation will not have a material effect on
the Partnership's financial position or results of operations.
During 1993, the Partnership received an administrative complaint and
compliance order from the United States Environmental Protection Agency (EPA).
The principal violations alleged by the EPA include failure to properly monitor
ground water and to implement a ground water monitoring program. The complaint
seeks penalties of $553,000 and fulfillment of the compliance order at an
unspecified cost. Management believes that the Partnership has complied or is
complying with the matters specified by the EPA and does not believe that the
likelihood of a material loss is probable at this time.
In order to comply with future compliance requirements of the Texas Water
Commission and other agencies, certain expenditures will have to be incurred
during 1996, 1997 and 1998. Management's estimates of the costs of compliance
are approximately $724,000.
The Partnership has filed a substantial claim against the U. S. Government
Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over
a period of several years from the Partnership. The ultimate outcome of this
matter cannot presently be determined.
NOTE 6 -- MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
One of the Partnership's major customers is the U. S. Government Defense
Fuel Supply Center ("DFSC"). Revenues from the DFSC comprised 10% in 1995, 9% in
1994 and 10% in 1993 of total revenues. Substantially all other customers are
engaged in various aspects of the petroleum industry, one of which accounted for
13% of total revenues in 1995, 11% in 1994 and 11% in 1993.
At December 31, 1995, the Partnership had $2,124,000 receivable from the
DFSC and $2,287,000 receivable from one petroleum industry customer. In some
cases, the Partnership requires letters of credit from customers. Historically,
the Partnership's credit losses have been insignificant.
NOTE 7 -- ACQUISITION OF D-S PIPELINE AND FORMATION OF PRIDE TEXAS PLAINS
In December 1994, Pride Borger, a wholly owned subsidiary of the
Partnership, purchased 100% of the stock of D-S Pipeline and immediately
contributed all of D-S Pipeline's assets (a 50% interest in a crude and heavy
products pipeline from Hawley, Texas to Borger, Texas) to a newly formed limited
partnership, Pride Texas Plains. Pride Refining, Inc., the Partnership's
Managing General Partner, is also the managing general partner of Pride Texas
Plains and owns .1%. An entity owned by certain officers of the Managing General
Partner serves as a general partner of Pride Texas Plains and owns 1.9%. Pride
Borger is the limited partner and owns 98%. Pride Texas Plains has succeeded D-S
Pipeline as the operator of the pipeline which will serve as the Partnership's
principal mode of transporting crude oil and vacuum gas oil to the seller, a
significant customer of the Partnership. The purchase price for D-S Pipeline was
$6,050,000 with the seller financing $6,000,000 of the purchase price. The
transaction was treated as a purchase by Pride Borger. Operations of D-S
Pipeline, which are immaterial to the Partnership's operations, are included in
the Partnership's financial statements from the date of acquisition.
NOTE 8 -- RELATED PARTY TRANSACTIONS
The Partnership has an agreement with Pride SGP to lease defined segments
of the Crude Gathering System pipeline until 2000, with an option to extend the
lease through March 2013, as long as certain minimum throughput levels are
maintained. If such throughput levels are not maintained during the extended
term, the lease is cancelable by Pride SGP with ninety days notice. As
consideration for this lease, the
D-12
<PAGE> 243
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Partnership has agreed to perform all routine and emergency maintenance and
repair operations to the pipelines as well as pay all taxes, insurance, etc. The
Partnership also agreed to pay Pride SGP $0.20 per barrel additional rental for
use of a section of this pipeline which was idle prior to 1992. While management
is not able to determine if the terms of the lease are comparable to those which
could have been obtained by unaffiliated parties, management believes such terms
are fair and reasonable given the importance to the Partnership of this segment
of pipeline. The rental under the lease was determined based upon the revenue
generated from the expected throughput, which management believes represents a
fair return on the value of the pipeline as appraised by a consultant. Rentals
accruing to Pride SGP during 1995, 1994 and 1993 totaled $873,000, $1,058,000,
and $1,069,000, respectively. The Partnership has the option to purchase these
pipeline segments for $10,000,000. Beginning in August 1995, payments to Pride
SGP were suspended pursuant to the terms of an amendment to the Partnership's
credit agreement. Approximately $351,000 and $88,000 are included in accounts
payable at December 31, 1995 and December 31, 1994, respectively, related to
unpaid rentals.
During the year ended December 31, 1993, the Partnership purchased crude
oil for $4,539,000 from leases directly or indirectly operated by certain
stockholders of the general partners. The terms of the crude oil purchase
transactions were arranged by or between common management. Because of the
potential conflicts of interest involved with crude oil purchases from these
entities and, at the request of certain affiliates of Pride SGP, the Audit and
Conflicts Committee reviewed the terms of these purchases. As a result of such
review and although prices paid for these purchases were comparable to prices
paid to these related entities by other independent purchasers, they believe the
Partnership paid higher prices for sour crude oil to these entities than it may
have paid if it had purchased sour crude oil from unaffiliated third parties.
Thus, during 1993, these entities refunded the Partnership $750,000 for the
higher prices paid on sour crude and the Partnership ceased buying crude oil
from these entities. Also during 1994, a dispute with one of these shareholders
was settled resulting in the nonpayment of a $300,000 note payable and certain
other payables, net of related receivables to this stockholder.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
sold $3,960,000, $2,809,000 and $1,365,000, respectively, of refined product to
a company in which a stockholder of Pride SGP has a minority interest. The
Partnership had an accounts receivable balance from this customer of $267,000
and $178,000 for the years ended December 31, 1995 and 1994, respectively.
The Partnership leased an airplane from the Managing General Partner
through June 1993 for $24,000 per month. In addition, the Partnership paid pilot
salaries, fuel, maintenance and insurance on the plane and incurred costs of
approximately $207,000 associated with the lease cancellation. The Partnership
now utilizes a smaller plane from time to time, as needed, on a per hour market
rate basis from an entity controlled by two officers of the Managing General
Partner. Payments to this entity totaled $72,000, $84,000 and $28,000 during
1995, 1994 and 1993, respectively.
Through November 1994, the Partnership leased truck tractors from a company
owned by an estate which is a stockholder of Pride SGP for approximately
$6,000-$8,000 per month. The Partnership also leases property from a relative of
one of the officers of the Managing General Partner. Lease payments were
approximately $36,000 in 1995, 1994 and 1993.
Firms associated with a director of the Managing General Partner were paid
$155,000, $17,000 and $24,000 for legal services during 1995, 1994 and 1993,
respectively.
Beginning the latter part of 1995, the Partnership ceased interest payments
on its note payable to Pride SGP. Accrued interest payable at December 31, 1995
amounted to $68,000. At December 31, 1994, the Partnership had a $94,000
receivable from the Managing General Partner and a $126,000 payable to Pride
SGP. The Managing General Partner has a 1.9% interest in the income and cash
distributions of the Partnership, subject to certain adjustments. Certain
members of the management of the Managing General Partner are also members of
the management of Pride SGP, which has a 0.1% general partner interest and 51.7%
limited partner interest in the Partnership. In addition, as discussed in Note
7, the general partner and
D-13
<PAGE> 244
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1.9% owner of Pride Texas Plains is an entity owned by certain officers of the
Managing General Partner. The Managing General Partner owns .1% and manages
Pride Texas Plains. Compensation of directors and officers of the Managing
General Partner and any other expenses incurred on behalf of the Partnership by
the Managing General Partner and Pride SGP are paid by the Partnership.
Certain conflicts of interest, including potential non-arm's-length
transactions, could arise as a result of the relationships described above. The
Board of Directors and management of the Managing General Partner have a duty to
manage the Partnership in the best interests of the Unitholders and,
consequently, must exercise good faith and integrity in handling the assets and
affairs of the Partnership.
NOTE 9 -- PARTNERS' CAPITAL
At December 31, 1995 and 1994, 4,700,000 Preferred Units are outstanding,
representing an approximate 46.3% limited partner interest in the Partnership.
The Preferred Units are cumulative, entitled to a minimum quarterly distribution
of $0.65 per unit through the Initial Conversion Date, which is the first day of
the third calendar quarter in which the payment of all cumulative arrearages to
Preferred Unitholders have been paid, and all arrearages must be paid before the
Common Unitholders may receive distributions. The Preferred Units are
convertible into Common Units on the Initial Conversion Date. The Common Units
are also cumulative and entitled to a quarterly distribution of $0.65 per unit;
however, no Common Unit arrearages will be paid after the Initial Conversion
Date, and any such accumulated arrearages then existing will be cancelled. The
general partners are entitled to 2% of all distributions. Under its present
credit agreement, the Partnership is prohibited from making distributions. At
December 31, 1995, cumulative arrearages were $11.70 per Common Unit which
totaled $61,425,000 and $10.05 per Preferred Unit which totaled $47,235,000.
NOTE 10 -- QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
OPERATING INCOME NET INCOME NET INCOME
QUARTER ENDED NET REVENUES (LOSS) (LOSS) (LOSS) PER UNIT
--------------------------------- ------------ ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
March 31, 1994................... $111,971 $ 2,705 $ 1,226 $ 0.13
June 30, 1994.................... 157,653 (1,279) (2,997) (0.30)
September 30, 1994............... 166,981 (106) (1,678) (0.17)
December 31, 1994................ 153,301 104 (1,941) (0.19)
March 31, 1995................... 150,426 (3,374) (5,558) (0.55)
June 30, 1995.................... 147,589 1,274 26 0.00
September 30, 1995............... 126,920 1,690 (286) (0.03)
December 31, 1995................ 135,678 318 (2,799) (0.27)
</TABLE>
D-14
<PAGE> 245
PRIDE COMPANIES, L.P.
1209 NORTH FOURTH STREET
ABILENE, TEXAS 79601
CONSENT AND VOTE FOR ADOPTION OF
PROPOSED AMENDMENTS TO RESTRUCTURE THE PARTNERSHIP
The undersigned limited partner of Pride Companies, L.P., a Delaware
Limited Partnership, hereby revokes all prior consents given with respect to the
matters covered hereunder, and acknowledges receipt of the Consent Solicitation
Statement dated .
THE PARTNERSHIP UNITS REPRESENTED BY THIS SIGNED CONSENT WILL BE TREATED AS
HAVING CAST AN AFFIRMATIVE VOTE IN ACCORDANCE WITH THE BOX YOU MARK BELOW.
Proposal: to approve and adopt the Second Amended and Restated Partnership
Agreement, a copy of which is included in the accompanying Consent Solicitation
Statement as Appendix A, including the proposed amendments described in the
Consent Solicitation Statement, to be the partnership agreement of Pride
Companies, L.P.
/ / FOR / / AGAINST
THE MANAGING GENERAL PARTNER RECOMMENDS A VOTE FOR THE PROPOSAL.
If no box is marked above, but this Consent is otherwise properly completed and
signed, the Units will be voted "for" the Proposal.
The solicitation of Consents will expire at 5:00 p.m., Central Standard Time, on
November 15, 1996, unless extended. Failure to return this Consent will have the
same effect as a vote against the Proposal.
Dated ________________________, 1996
___________________________________
Signature
___________________________________
Title or Authorization
(if signing in a representative
capacity)
___________________________________
Signature if jointly held
Please execute this consent as your name appears on this form. When the
partnership units are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS CONSENT USING THE ENVELOPE PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
