UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 1-10473
PRIDE COMPANIES, L.P.
(Name of registrant)
Delaware 75-2313597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1209 North Fourth Street, Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 674-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class: Exchange on Which Registered:
Common Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Number of Common Units outstanding as of March 25, 1997:
4,950,000
The aggregate market value of the 4,626,365 Common Units
held by non-affiliates of the Partnership as of March 25, 1997
was approximately $15.6 million, which was computed using the
closing sales price of the Common Units on March 25, 1997.
PART I
Items 1 and 2. Business and Properties
General
Pride Companies, L.P. (the "Partnership"), a Delaware limited
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 products 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. 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 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 products
pipelines which originate at the Refinery and terminate at the
Partnership's marketing terminals.
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. ("Special General Partner" or "Pride SGP") owns a 0.1%
general partner interest in and serves as the special general
partner of the Partnership. The Managing General Partner and the
Special General Partner (collectively the "General Partners")
collectively own a 2% general partner interest. As discussed in
"Submission of Matters to a Vote of Security Holders", the
Partnership adopted certain amendments to its partnership agreement
(the "Amendments"), which were effective December 31, 1996 and
modified the capital structure of the Partnership. In addition to
its general partner interest, the Special General Partner owns a
4.9% interest in the Partnership through ownership of common
limited partner units with terms specified by the Amendments
("Common Units"). Public ownership represented by the remaining
Common Units is 93.1%. Prior to the effectiveness of the
Amendments, the Special General Partner owned a 51.7% limited
partner interest in the Partnership through ownership of common
limited partner units ("Old Common Units"), and the public owned a
46.3% interest in the Partnership through ownership of convertible
preferred limited partner units ("Preferred Units").
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. In addition, the Partnership
owns and operates a crude oil gathering system connected by
pipeline into the Refinery and two common carrier products pipeline
systems, one of which transports products from the Refinery to
Conoco, Inc.'s products terminal near Abilene, to Dyess Air Force
Base ("Dyess") in Abilene, and to the Partnership's products
terminal at San Angelo, Texas, and the other of which transports
products from the Refinery to the Partnership's products terminal
in Aledo, Texas (southwest of Fort Worth, Texas). The Partnership
did operate a 13 mile pipeline segment until January 20, 1997 that
carried military aviation fuel from the Partnership's products
terminal in Aledo, Texas into Naval Air Station Fort Worth located
northwest of Fort Worth (formerly Carswell Air Force Base), but
shut that segment down due to reduced volumes to that base and
other economic considerations. The Partnership will now truck
volumes from the Aledo products terminal to Naval Air Station Fort
Worth.
On December 1, 1994, the Partnership acquired from Diamond
Shamrock Refining and Marketing Company ("Diamond Shamrock") a 50%
interest in the Texas Plains Pipeline System ("Texas Plains
System") which consists of 271 miles of crude oil and vacuum gas
oil pipeline extending from the Partnership's Refinery to Borger,
Texas, which is connected to a pipeline that carries crude oil and
vacuum gas oil feedstock 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
("Scurlock Permian"). See "Partnership Operations and Products"
below.
The Partnership's primary market area for refined products
includes Central and West Texas and is a region that is not
significantly served by the major refining centers of the Gulf
Coast. Fina, Inc. ("Fina"), a competitor of the Partnership,
currently has products pipeline access into Abilene, and the
Partnership is the only supplier with a products pipeline into San
Angelo. In the Partnership's primary market area, product prices
reflect a premium due to transportation costs required to import
gasoline products from supply points outside of the market area.
Naval Air Station Fort Worth, Dyess, and certain other military
installations have been long-time customers for the Partnership's
military aviation fuel. Management anticipates that the
Partnership will continue to bid for these and other military
supply contracts in the future. Gasoline and diesel tankage and
sales facilities at the Partnership's Aledo products terminal allow
the Partnership access to the smaller communities west of the
Dallas-Fort Worth ("DFW") market along Interstate 20 for gasoline
and the DFW market for diesel. See "-Markets and Competition"
below.
Partnership Operations and Products
REFINING. The principal business of the Partnership is crude
oil refining at its Refinery located approximately ten miles north
of Abilene, Texas. The existing plant consists of processing
equipment newly constructed or modernized since 1981. The Refinery
has a throughput capacity of 49,500 barrels per day ("BPD") and is
permitted to process 44,500 BPD. Until the completion of the
expansion of the Refinery in June 1991, which included the addition
of a catalytic reformer unit ("CRU"), the Refinery had been
operated at an average rate of approximately 26,000 BPD from 1986
to 1990, primarily due to competition for military aviation fuel
contracts and the limited product mix capability of the Refinery.
For the year ended December 31, 1996, the Refinery processed crude
oil into refined products at an average rate of approximately
32,600 BPD.
The refining process at the Refinery involves the following
major operations and equipment:
The refinery includes a 34,500 BPD basic atmospheric crude oil
distillation unit and a 15,000 BPD auxiliary atmospheric crude oil
distillation unit (the Crude Units). These units effect the
primary separation of crude oil into its constituent products. On
receipt of crude oil into the refinery, it is first stored in tanks
where water and corrosive salts are removed. The crude oil is then
pumped to the crude oil distillation unit, where it is passed
through a series of heat exchangers. The heat exchangers remove
the heat from the hot products coming from the Crude Units and
transfer such heat to the crude oil feedstock. This process raises
the temperature of the crude oil from approximately 70 degrees to
480 degrees with waste heat. During this process the crude oil is
again washed with water and treated with chemicals to further
eliminate any corrosive materials. The crude oil is then heated in
a gas fired furnace that raises the temperature from 480 degrees to
660 degrees before it is sent into the distillation column. At
this point, the majority of the crude oil vaporizes. Through a
complex process of progressive cooling, the different components of
the vaporized crude oil condense at different levels in the
distillation column and are then drawn off as products of different
boiling ranges.
The residuum remaining in the Crude Units after distillation
of lighter products is routed to a vacuum unit for additional
processing with heat and pressure reduction. The Refinery has a
13,500 BPD vacuum distillation unit, which is capable of
fractionating an additional 75-80% of the Crude Unit's residue into
vacuum gas oil. The remaining product is vacuum residuum, which is
sold to third parties for processing into roofing material and
similar products.
The distillates that emerge from the Crude Units include
atmospheric gas oil for blending with vacuum gas oils, diesel for
sale as motor fuel, kerosene, and heavy and light naphthas.
Kerosene is routed through a Merox Unit to remove corrosive
compounds and then sold as various grades of jet fuel. The light
naphtha is routed to the Debutanizer/Depropanizer (Light Ends
Plant) and is subject to further processing to remove butane and
propane to produce liquefied petroleum gas and the remaining light
naphtha can be used for a gasoline blend stock.
The Refinery is augmented with a CRU which allows heavy
naphtha to be converted into a high octane unleaded gasoline blend
stock. The CRU subjects heavy naphtha compounds to extreme heat in
the presence of a platinum catalyst and hydrogen, with the result
that paraffins and naphthenes are converted to a high octane
unleaded gasoline blend stock. The CRU allows the Refinery to
produce up to 7,500 BPD of unleaded gasoline.
The Refinery is also equipped with a 12,000 BPD distillate
desulfurization unit ("DDU"). The DDU produces diesel fuel that
complies with federal environmental regulations restricting the
amount of sulfur allowed in highway use diesel fuel. Such
regulations became effective in October 1993.
PRODUCTS SYSTEM. The Partnership's primary product delivery
facilities consist of a pipeline that connects the Refinery to the
Partnership's Aledo products terminal (the "Aledo Pipeline") and a
pipeline that connects the Refinery to Conoco, Inc.'s products
terminal near Abilene, Dyess in Abilene, Texas, and the
Partnership's products terminal at San Angelo, Texas (the "San
Angelo Pipeline"). The Partnership did operate a 13 mile segment
of pipeline until January 20, 1997 that carried military aviation
fuel from the Partnership's products terminal in Aledo into Naval
Air Station Fort Worth located northwest of Fort Worth, Texas.
This segment was closed due to reduced volumes to that base and
other economic considerations. The Partnership will now truck
volumes from the Aledo products terminal to Naval Air Station Fort
Worth. 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 products terminal and through the San Angelo
Pipeline to the Partnership's San Angelo products 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, respectively. Diesel fuel is also
delivered to the Aledo and San Angelo products 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.
Military aviation fuel delivered by the San Angelo Pipeline to
Dyess is sold f.o.b. the Refinery with title passing to the
purchaser as the product enters the pipeline. This is the only
pipeline that can deliver jet fuel directly into Dyess.
Sales of military aviation fuel constitute a significant
portion of the Partnership's revenues. See "-Markets and
Competition" below. Such sales are under annual contracts awarded
by the Defense Fuel Supply Center after a bidding process. The
bidding process is conducted on a base-by-base basis and is subject
to the small business set aside program. When the bids are
received, the Defense Fuel Supply Center determines both the lowest
overall bid and the lowest bid submitted by a small refinery
(defined as a refinery with a throughput capacity of less than
75,000 BPD and fewer than 1,500 employees). If the lowest bid was
not submitted by a small refinery, the lowest small-refinery bidder
is offered the opportunity to obtain a contract for a set
percentage of the base's requirements by matching the lowest
overall bid.
The Partnership and its predecessors have been supplying
products to Naval Air Station Fort Worth and Dyess since the early
1960s. Management believes that the military will continue to be
a major customer of the Partnership into the foreseeable future.
Dyess is an Air Combat Command facility, formerly a strategic air
command facility, and the primary training base for the B-1 bomber
crews. In addition, Dyess also has two worldwide deployable
airlift squadrons which fly the C-130 Hercules. Under the contract
that is effective from April 1, 1996 through March 31, 1997, the
Partnership contracted to sell military aviation fuel to Dyess,
Sheppard Air Force Base in Wichita Falls, Texas, Fort Hood Military
Installation in Killeen, Texas, Laughlin Air Force Base in Del Rio,
Texas, Reese Air Force Base in Lubbock, Texas, Naval Air Station
Dallas in Dallas, Texas, E-Systems, Inc. in Greenville, Texas,
Naval Air Station Fort Worth, Lockheed Martin in Fort Worth, Texas,
and AASF in Dallas, Texas. Under the new contract that begins
April 1, 1997 and ends March 31, 1998, the Partnership will supply
military aviation fuel to Dyess, Sheppard Air Force Base, Fort Hood
Military Installation, Naval Air Station Dallas, Tinker Air Force
Base in Oklahoma City, Oklahoma, Naval Air Station Fort Worth, E-
Systems, Inc. and AASF. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Factors and
Trends Affecting Operating Results - Other Factors."
CRUDE OIL GATHERING OPERATIONS. 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 utilize a fleet of 105 trucks 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. As of December 31, 1996, the
Crude Gathering System operated 44 crude oil injection stations
located on various common carrier pipeline systems including the
Amoco, Arco, Chevron, Comyn, Conoco, EOTT, Mobil, Sun, Texaco,
Texas Plains System and other Texas-New Mexico pipeline systems.
The Partnership maintains 20 trucking locations throughout the area
for operation of its truck fleet. In December 1996, the average
length of travel for the Partnership's trucks in its gathering
operations was approximately 72 miles round trip.
As of December 31, 1996, the pipeline assets utilized in the
Crude Gathering System consisted of in excess of 900 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 Texas Plains System consisting of an
additional 242 miles of trunkline and 29 miles of gathering lines.
Ownership of the trunkline segments of the Comyn pipeline system
from Hawley to Comyn, Texas (90 miles), from Hearne to Comyn, Texas
(143 miles), and from Comyn to Ranger, Texas (37 miles) along with
certain related pumping facilities were retained by Pride SGP when
the Partnership was formed. For the years ended December 31, 1996,
1995 and 1994, the crude oil transported through the active segment
of the Comyn pipeline system which is owned by Pride SGP accounted
for approximately 51%, 72% and 80%, respectively, of the total
crude oil received by the Refinery. Twelve miles of the 37-mile
segment noted above are currently inactive. The 143-mile section
from Hearne to Comyn was reactivated as part of the expansion
program at a cost of approximately $13.5 million in August 1992.
The activation of this section enables the Partnership to earn
transportation revenues and to purchase and sell crude oil in the
eastern portion of the Austin Chalk formation for processing in its
Refinery. For the year ended December 31, 1996, the Partnership
transported approximately 8,658 BPD of high quality crude oil to
the Refinery and 3,891 BPD to third parties on exchange through
this pipeline. The crude oil transported through the Comyn
pipeline system is a high quality crude oil that enables the
Refinery to produce refined products which sell at higher margins.
The Partnership and Pride SGP have a lease agreement wherein the
Partnership has been granted the right to use the segments of the
Comyn pipeline owned by Pride SGP. The Partnership is entitled to
use the pipeline sections in exchange for its agreement to provide
maintenance of and repair to such retained assets, the value of
such services are estimated to be approximately $200,000 annually.
In addition, the Partnership pays the taxes, insurance, etc.
Pursuant to the lease agreement, the Partnership will pay Pride SGP
$0.20 per barrel for all crude oil transported by the Partnership,
or third parties with contractual relationships with it, through
the 143-mile section from Hearne to Comyn. Rentals accruing to
Pride SGP from the Partnership for the years ended December 31,
1996, 1995 and 1994 totaled approximately $919,000, $873,000 and
$1.1 million, respectively, for the lease of the pipeline. The
original term of the lease agreement ran through 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. At any time
during the term of the amended lease agreement, the Partnership may
upon 30 days' notice to Pride SGP purchase the Comyn pipeline for
$10 million. See "Certain Relationships and Related Transactions".
The Comyn pipeline is a common carrier pipeline that charges
a transportation fee in accordance with a published tariff schedule
filed with the Texas Railroad Commission. Shipments of crude oil
to the Refinery account for approximately 74% of the crude oil
shipped through the Comyn line. The Comyn pipeline is also allowed
to charge each customer's account with a line loss allowance of
0.25% for each barrel transported in the system.
The Partnership owns Pride Borger, Inc. (Pride Borger), a
wholly-owned subsidiary, which has a 50% interest in the Texas
Plains System. Pride Borger was acquired from Diamond Shamrock for
approximately $6.1 million on December 1, 1994. The acquisition of
the stock was seller-financed with a 20-year nonrecourse note,
payable based on throughput. Further, the note is supported with
a minimum throughput agreement from the seller. The Texas Plains
System is a crude oil/gas oil pipeline system consisting of 271
miles of pipeline extending from Hawley, Texas which is located
near the Partnership's Refinery, to Borger, Texas. The system has
a total capacity of 35,000 BPD and shipped an average of
approximately 31,400 BPD of crude oil and vacuum gas oil for the
year ended December 31, 1996. The Partnership will continue
transporting crude oil and vacuum gas oil through the pipeline to
Diamond Shamrock's refinery in McKee, Texas. The Partnership
presently sells all the vacuum gas oil and a small portion of the
crude oil transported on the line to Diamond Shamrock. On March 1,
1996, the Partnership traded its two New Mexico pipeline systems
for the remaining 50% interest in the Texas Plains System owned by
Scurlock Permian.
In addition to the Comyn pipeline, the Partnership operates
three smaller pipelines in West Texas: Carlsbad in Tom Green
County, East Broadview in Lubbock County and Keystone in Winkler
County.
Crude oil from the Crude Gathering System pipelines can be
delivered to a variety of locations, including the Refinery, tank
storage areas which facilitate trucking to injection stations, and
several different common carrier crude oil pipelines.
The Crude Gathering System is the first purchaser of a portion
of the crude oil it gathers. These first purchase barrels have
traditionally been either resold to other companies or transferred
to the Refinery. The Partnership also gathers crude oil for custom
gathering customers charging gathering fees depending on several
factors (including the transportation distance involved) and
delivers these barrels to an agreed upon location by contract. The
Crude Gathering System assumes title to both first purchase and
custom gathered barrels and the total of the two categories is
considered to be total gathered barrels. The custom gathering area
has been the fastest growing segment of the Crude Gathering System
operations. While first purchase barrels have declined from 39,000
BPD in 1986 to 28,000 BPD for the year ended December 31, 1996,
custom gathered barrels have grown from 5,000 BPD to 31,000 BPD for
the same period. The custom gathered barrels have declined over
the last two years as the Partnership has eliminated some of the
marginal custom gathered contracts.
Markets and Competition
Fina, the Partnership's principal competitor in its primary
market area, operates a products pipeline in the Abilene area. This
competitor's pipeline originates in Big Spring, Texas (105 miles
west of Abilene) and supplies Hawley, Midland, and Wichita Falls,
Texas and the Midcontinent. However, the Partnership has the only
pipeline access to the San Angelo area. Retailers and jobbers who
are not supplied by the Partnership or one of its exchange partners
must truck their products into San Angelo from locations as far
away as 90 to 200 miles. Gulf Coast refiners are not generally
connected to West Texas by pipeline and ship their products
primarily throughout the southeast and central United States.
Total petroleum product demand for the Partnership's market area is
determined by demand for conventional gasoline, diesel, commercial
and military aviation fuel, and kerosene. In the case of each
product, however, demand tends to vary by locality and season.
Aviation fuel consumption is limited to regional military and
civilian air facilities.
Fina and Holly Corp. ("Holly") recently announced a plan to
convert existing crude oil and natural gas pipelines and lay 110
miles of new pipeline to bring additional gasoline and diesel to
West Texas, New Mexico and Arizona. The system will be supplied by
Fina's refineries in Big Spring and Port Arthur, Texas, a pipeline
terminal in Duncan, Oklahoma, and Holly's refinery in Artesia, New
Mexico. Fina has indicated that it believes Gulf Coast supplies
will not be needed for another five years. Other companies are
also considering projects to bring products into West Texas, New
Mexico and Arizona from the Gulf Coast. The Partnership will
continue to assess the impact of these proposals on its competitive
position as more information becomes available.
In addition to its primary market areas in Abilene, Texas and
in San Angelo, Texas for conventional gasoline and diesel, the
Partnership has access to a secondary market in the small
communities west of Dallas-Fort Worth along Interstate 20 for
conventional gasoline and the Dallas-Fort Worth metropolitan area
for diesel. The secondary market is accessible from the Refinery
via the Aledo Pipeline and the Aledo, Texas products terminal. As
a result of the reformulated gasoline requirement for the Dallas-
Fort Worth metropolitan area effective January 1, 1995, most
products terminals are supplying reformulated gasoline with only a
small number having the capability of supplying conventional
gasoline. The Partnership's Aledo products terminal is
strategically located to take advantage of this marketing
opportunity, and the Partnership has entered into supply and
exchange agreements with three major oil companies at that
location. The Partnership's conventional gasoline sales are now
close to the Refinery's maximum production capacity. The San
Angelo market area is accessible from the Refinery via the San
Angelo Pipeline. Market demand for gasoline and diesel in Abilene
and in San Angelo is estimated to be approximately 17,500 BPD and
11,000 BPD, respectively. Market demand for petroleum products in
the Dallas - Fort Worth area is estimated to be approximately
343,000 BPD, with reformulated gasoline, diesel and a limited
amount of conventional gasoline accounting for an aggregate of
195,000 BPD.
The Partnership does not generally sell its products through
its own direct retail distribution system, but 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. Some of the
marketers in the area that purchase or exchange refined products
include Chevron, Citgo, Conoco, Diamond Shamrock, Exxon, Fina,
Phillips, Shell, Star Enterprise and Texaco. The Partnership has
five exchange agreements and three sales agreements with these
companies for products supplied out of the San Angelo products
terminal, one exchange agreement and two sales agreements with
these companies for product supplied out of the Aledo products
terminal, and one exchange agreement and one sales agreement with
these companies for product supplied out of the Refinery. The
exchange agreements have enabled the Partnership to expand its
marketing area to Amarillo, Texas, El Paso, Texas, Lubbock, Texas,
Midland/Odessa, Texas, and Wichita Falls, Texas without incurring
transportation costs to these cities. Management also expects that
the Partnership will continue to sell conventional gasoline and
diesel to jobbers who will own and operate service stations under
the Pride brand. The Partnership entered into a five-year
agreement in late 1990 to supply substantially all of the Skinny's
Convenience Stores ("Skinny's") in the Abilene area with their
conventional gasoline and diesel fuel requirements. The contract
terminated on March 1, 1996. Although the Partnership regrets the
loss of Skinny's business, the Partnership contracted to supply one
of its existing exchange partners with products out of Abilene.
Such volumes are in excess of the volumes supplied under the
Skinny's contract. The Partnership also currently operates six
retail fueling facilities. These facilities are located in Central
and West Texas. Sales by such facilities accounted for less than 1%
of the Partnership's revenues for the year ended December 31, 1996.
Customers
The Partnership delivers a substantial amount of its
production in the form of military aviation fuels to the Defense
Fuel Supply Center. The Partnership also has entered into a three
year agreement with Diamond Shamrock to supply them with vacuum gas
oil for use in Diamond Shamrock's refining operations. The
Partnership's revenues pursuant to the military aviation fuel
supply contracts and the Diamond Shamrock agreement accounted for
11% and 19%, respectively, of its total revenues for the year ended
December 31, 1996.
Employees
As of December 31, 1996, the Partnership had 437 employees, of
which 201 were employed in the Refinery and Products System and 236
were employed in the Crude Gathering System. The Partnership has
not experienced any significant personnel problems. None of the
Partnership's employees are subject to collective bargaining or
similar agreements.
Environmental Matters
The Partnership's activities involve the transportation,
storage, handling and processing of crude oil and petroleum
products that constitute or contain substances regulated under
certain federal and state environmental laws and regulations. The
Partnership is also subject to federal, state and local laws and
regulations relating to air emissions and disposal of wastewater as
well as other environmental laws and regulations, including those
governing the handling, release and cleanup of hazardous materials
and wastes. The Partnership has from time to time expended certain
resources, both financial and managerial, to comply with
environmental regulations and permit requirements and anticipates
that it will continue to be required to expend financial and
managerial resources for this purpose in the future. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors and Trends Affecting Operating
Results" and "Legal Proceedings."
Forward Looking Statements
This Form 10-K contains certain forward looking statements.
Such statements are typically punctuated by words or phrases such
as "anticipate," "estimate," "projects," "should," "may,"
"management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that may have a
direct bearing on the Partnership's results of operations and
financial conditions are: (i) the rate of utilization of the
Refinery, (ii) the margins between the prices of the Partnership's
refined petroleum products and the cost of crude oil, (iii) the
volume throughput on and margins from the transportation and resale
of crude oil from the Partnership's Crude Gathering System, (iv)
the impact of current and future laws and governmental regulations
affecting the refining industry in general and the Partnership's
operations in particular, and (v) the ability of the Partnership to
effect a restructuring and recapitalization prior to the maturity
of its credit facility.
Item 3. Legal Proceedings
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 $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 an adequate ground
water monitoring program. The Partnership has agreed to settle the
complaint for $92,000 in penalties payable in three installments
with the last payment due in 1999.
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.
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
is either adequately insured or will not have a material adverse
effect on the Partnership's financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Certain amendments ("Amendments") to the Agreement of Limited
Partnership ("Partnership Agreement") for the Partnership were
submitted to the preferred unitholders, common unitholders and the
Special General Partner for a vote by a Consent Solicitation
Statement dated October 7, 1996.
The primary purpose of the Amendments was to modify the
capital structure of the Partnership. Generally, the Amendments
provided for the Partnership's Preferred Units and the
Partnership's Old Common Units to be treated as a single class of
limited partner units with identical rights and privileges, and the
elimination of certain existing contingent distribution preferences
of the General Partners. The Amendments resulted in the
elimination of the respective cumulative distribution arrearages of
both the currently outstanding Preferred and Old Common Units and
the elimination of distribution and liquidation preferences
currently attributable to the Preferred Units. The Amendments also
provided that the currently outstanding Old Common Units would be
subject to a 1 for 21 reverse unit split. The Amendments to the
Preferred and Old Common Units were conditioned upon the approval
for listing of the single class of Common Units on the New York
Stock Exchange.
The Amendments also included certain other changes to the
Partnership Agreement including the terms of certain new
convertible preferred equity securities which are to 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. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition - Financial Resources
and Liquidity."
The consent solicitation period ended at the close of business
on November 15, 1996. Adoption of the Amendments required the
consent of limited partners holding 66-2/3% in interest of each of
the Preferred Units and the Old Common Units, as separate classes,
and the approval of the Special General Partner. A total of
3,247,452 of the 4,700,000 outstanding Preferred Units voted in
favor of adoption of the Amendments and the Partnership received
unanimous approval from the common unitholders for adoption of the
Amendments. The Special General Partner also gave approval in its
capacity as special general partner. The Amendments became
effective at the close of business on December 31, 1996.<PAGE>
PART II
Item 5. Market for Partnership's Preferred Units, Common Units,
and Related Unitholder Matters
As discussed in "Submission of Matters to a Vote of Security
Holders", the Partnership adopted certain amendments to its
partnership agreement (the "Amendments") which were effective at
the close of business on December 31, 1996 and modified the capital
structure of the Partnership. Prior to the effectiveness of the
Amendments, the Partnership had 4,700,000 Preferred Units listed on
the New York Stock Exchange under the symbol "PRF". On January 2,
1997, the Common Units began trading on the New York Stock Exchange
under the same symbol. 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.
No distributions were made with respect to the Preferred Units or
the Old Common Units during the past two fiscal years. Information
with respect to accumulated arrearages has been omitted from the
following table since the Amendments cancelled those arrearages as
of the close of business on December 31, 1996.
<TABLE>
<CAPTION>
1995 HIGH LOW
____ ____ ___
<S> <C> <C>
First Quarter $ 5-5/8 $ 3-5/8
Second Quarter 6 3-7/8
Third Quarter 4-1/4 3-1/2
Fourth Quarter 3-3/4 1-7/8
1996
____
First Quarter $ 3-1/2 $ 2-1/8
Second Quarter 5-1/8 2-3/4
Third Quarter 4-1/2 3-3/8
Fourth Quarter 5-3/8 3-3/8
</TABLE>
Based on information received from its transfer agent and
servicing agent, the Partnership estimates the number of beneficial
common unitholders of the Partnership as of December 31, 1996 to be
approximately 4,700.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition -
Financial Resources and Liquidity" for a discussion of certain
restrictions imposed by the Partnership's commercial banks on the
payment of distributions to unitholders throughout the term of the
Partnership's credit facility with such banks which terminates on
January 1, 1998.
Item 6. Selected Financial Data
The following table sets forth, for the periods and at the
dates indicated, selected financial data for the Partnership. The
table is derived from the financial statements of the Partnership
and should be read in conjunction with those financial statements.
The summary income statement data for each of the five years in the
period ended December 31, 1996, as well as the summary balance
sheet data for December 31, 1992, 1993, 1994, 1995, and 1996 are
all extracted from the audited financial statements of the
Partnership. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations."<PAGE>
(The following table should be printed on 14" x 8.5" paper)
<TABLE>
Selected Financial Data
(In thousands, except per unit amounts)
<CAPTION>
Year Ended December 31,
_________________________________________________________________
1992
1993 1994 1995 1996
----
- ---- ---- ---- ----
<S> <C> <C>
<C> <C> <C>
Income Statement Data:
Revenues
Refinery and Products Systems $ 281,439 $253,008
$ 220,610 $ 235,136 $ 294,328
Crude Gathering System 619,319 609,772
553,847 527,212 597,425
Intrasystem and other (232,042)
(205,518) (184,551) (201,735) (276,550)
________ ________
________ ________ ________
Total revenues 668,716 657,262
589,906 560,613 615,203
________ ________
________ ________ ________
Costs of sales and operating
expenses, excluding depreciation 656,708 636,102
570,877 543,425 596,841
Marketing, general and administrative
expenses 13,615 12,834
11,059 10,274 10,111
Depreciation 4,759 5,881
6,546 7,006 6,976
________ ________
________ ________ ________
Operating income (loss) (6,366) 2,445
1,424 (92) 1,275
________ ________
________ ________ ________
Other net (755)<F1> 252
28 175 179
Interest expense (750)
(3,707) (5,191) (6,575) (5,808)
Credit and loan fees <F2> (883)
(1,138) (1,651) (2,172) (2,109)
________ ________
________ ________ ________
Loss before income taxes and
cumulative effect of change in
accounting principle (8,754)
(2,148) (5,390) (8,664) (6,463)
Income tax benefit -
- - - 47 48
________ ________
________ ________ ________
Loss before cumulative effect
of change in accounting principle (8,754)
(2,148) (5,390) (8,617) (6,415)
Cumulative effect of change in
accounting principle -
(3,605)<F3> - - -
________ ________
________ ________ ________
Net loss $ (8,754) $
(5,753) $ (5,390) $ (8,617) $ (6,415)
Before conversion <F5>:
Loss per Unit before
cumulative effect:
Preferred Units $ (0.86) $
(0.21) $ (0.53) $ (0.85) $ (0.63)
Old Common Units $ (0.86) $
(0.21) $ (0.53) $ (0.85) $ (0.63)
Cumulative effect on prior years of
changing to LIFO per Unit <F3>:
Preferred Units - $
(0.36) - - -
Old Common Units - $
(0.36) - - -
Net loss per Unit:
Preferred Units $ (0.86) $
(0.57) $ (0.53) $ (0.85) $ (0.63)
Old Common Units $ (0.86) $
(0.57) $ (0.53) $ (0.85) $ (0.63)
After conversion <F5>:
Loss per Common Unit before
cumulative effect $ (1.73) $
(0.43) $ (1.07) $ (1.71) $ (1.27)
Cumulative effect on prior years of
changing to LIFO per Common
Unit <F3> - $
(0.71) - - -
Net loss per Common Unit $ (1.73) $
(1.14) $ (1.07) $ (1.71) $ (1.27)
Cash Distributions per Unit <F4>:
Preferred Units $ 1.00 $ 0.00
$ 0.00 $ 0.00 $ 0.00
Old Common Units $ 0.00 $ 0.00
$ 0.00 $ 0.00 $ 0.00
Partnership Units <F5>:
Preferred Units 4,700 4,700
4,700 4,700 -
Old Common Units 5,250 5,250
5,250 5,250 -
Common Units - -
- - 4,950
Balance Sheet Data (at end of period):
Net property, plant and equipment $ 99,753 $106,032
$ 110,884 $ 104,837 $ 99,554
Total assets 146,156 138,562
146,552 138,306 139,716
Long-term debt (including current
maturities) <F6> 44,100 50,383
58,890 56,500 56,933
Equity 55,773 50,020
44,630 36,013 29,598
Operating Data (BPD):
Refinery
Crude oil throughput 32,765 32,215
30,483 29,806 32,555
Products refined 32,703 31,883
29,815 29,031 31,681
Products System
Transportation volumes 13,147 12,719
13,722 15,585 13,509
Crude Gathering System
Crude oil gathered 68,827 77,875
74,676 66,869 58,775
<FN>
<F1>
Other net for the year ended December 31, 1992 includes a
settlement with the Oklahoma Tax Commission of
($1,133,000).
<F2>
Credit and loan fees include costs associated with the
restructuring of $873,000 and $1,064,000 for 1995 and 1996,
respectively.
<F3>
This is the cumulative effect on prior years of the change in
accounting method for inventory from the First-in/First-
out method to the Last-in/First-out method.
<F4>
Cash distributions are paid in the quarter immediately succeeding
the quarter for which they are declared. For
additional information regarding the Partnership's cash
distributions, see "Item 5. Market for Partnership's Preferred
Units, Common Units and Related Unitholder Matters."
<F5>
On December 31, 1996 after the market closed, the Preferred Units
were converted to Common Units on a one-for-one basis.
At the same time, the Old Common Units were converted to Common
Units on a one-for-twenty-one reverse unit split. The
"Before Conversion" section reflects the per unit information based
on both the outstanding Preferred Units and Old Common
Units, whereas the "After Conversion" section reflects the pro
forma per unit information based on the outstanding Common
Units. (See "Submission of Matters to a Vote of Security
Holders.")
<F6>
At December 31, 1992, 1993, 1994, 1995, and 1996 current maturities
were $10,000,000, $300,000, $6,626,000, $3,447,000 and
$6,516,000, respectively.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
General
The following is a discussion of the financial condition and
results of operations of the Partnership. This discussion should
be read in conjunction with the financial statements included in
this report.
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 military aviation
fuel prices are influenced by these trends since the pricing for
military aviation fuel is based on Jet A, a kerosene-based product,
and the price of diesel and heating fuels affect the price of
kerosene.
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 addition, starting in 1995, the intrasystem pricing of
crude oil between the Refinery and the Crude Gathering System is
based on a spot price above posting for such crude oil. An
increase in the spot price above posting for crude oil will have a
negative impact on the Refinery and have a positive impact on the
Crude Gathering System. On the other hand, a decrease in the spot
price above posting for crude oil will have a positive impact on
the Refinery and a negative impact on the Crude Gathering System.
During 1996, the average spot price above posting for crude oil was
$2.46 for the year ended December 31, 1996 compared to $1.84 for
the year ended December 31, 1995; thus, negatively affecting the
Refinery and positively affecting the Crude Gathering System.
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 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
expenses per barrel, excluding depreciation.
Year ended December 31, 1996 compared with year ended
December 31, 1995
GENERAL. Net loss for the year ended December 31, 1996
decreased to $6.4 million as compared to $8.6 million for the year
ended December 31, 1995. The improvement was a result of improved
operations and lower non-operating expenses. Non-operating
expenses decreased $834,000 for the year ended December 31, 1996
over the same period in 1995 due primarily to decreased interest
expense and credit and loan fees. Of the decrease, $767,000 is
related to lower interest expense which is attributable to a lower
average prime rate in 1996 compared to the 1995 average and the
lowered interest rates in the new credit agreement. Also, the
credit and loan fees for the year ended December 31, 1996 have been
reduced by a one-time nonrecurring reversal of an accrual for
facility fees of $534,000 for periods prior to 1996 compared to a
$234,000 reversal in 1995 for periods prior to 1995. Such fees
were eliminated by the Partnership's principal creditors concurrent
with the amendments to the credit agreements in November, 1996 and
August, 1995. For the year ended December 31, 1996, the
Partnership expensed $1.1 million related to the restructuring
compared to $873,000 for the same period in 1995. Depreciation
expense was $7.0 million for both the years ended December 31, 1996
and 1995.
Operating income for the year ended December 31, 1996
increased to $1.3 million as compared to an operating loss of
$92,000 for the year ended December 31, 1995. The improved results
for the year ended December 31, 1996 were due to significantly
stronger crude gathering margins resulting from the higher spot
price above posting for crude oil. This was partially offset by
weak refining margins. Operating income, excluding depreciation,
increased for the year ended December 31, 1996 to $8.3 million as
compared to $6.9 million for the year ended December 31, 1995.
REFINERY AND PRODUCTS SYSTEM. Operating loss for the Refinery
and Products System was $7.7 million for the year ended December
31, 1996 compared to an operating loss of $3.9 million for the year
ended December 31, 1995. Depreciation expense for the Refinery and
Products System was $5.0 million for both the year ended December
31, 1996 and for the year ended December 31, 1995. Operating loss,
excluding depreciation, of the Refinery and Products System was
$2.7 million for the year ended December 31, 1996 compared to
operating income, excluding depreciation, of $1.1 million for the
year ended December 31, 1995.
Operating loss for the Refinery alone was $8.9 million for the
year ended December 31, 1996 compared to an operating loss of $5.6
million for the same period in 1995. Depreciation expense for the
Refinery was $4.1 million for both the year ended December 31, 1996
and for the year ended December 31, 1995. Operating loss,
excluding depreciation, of the Refinery alone was $4.8 million for
the year ended December 31, 1996 compared to operating loss,
excluding depreciation, of $1.5 million for the year ended December
31, 1995.
Refinery gross margin per barrel was $1.09 for the year ended
December 31, 1996 compared to $1.42 for the year ended December 31,
1995. The decrease in the gross margin reflects the increased spot
price above posting for crude oil, the decreased margin on the
military aviation fuel sold to the government under the contract
that began April 1, 1996, and the increased residuum yield
experienced in 1996. The increased residuum yield negatively
affects the Partnership since the value of residuum is
substantially lower than other refined products that the
Partnership sells. The residuum increased in 1996 as a result of
the Refinery running a slightly heavier slate of crude. Towards
the end of 1996, the Partnership began running a lighter slate of
crude which has resulted in a decreased residuum yield. Refinery
throughput averaged 32,555 BPD during the year ended December 31,
1996 compared to 29,806 BPD for the year ended December 31, 1995.
The Partnership was able to operate the refinery at a higher
throughput for the year ended December 31, 1996 due to the new gas
oil contract signed in early 1996. Operating expenses per barrel,
excluding depreciation, increased to $1.09 for the year ended
December 31, 1996 from $1.07 for the year ended December 31, 1995
due to increased utility costs and maintenance costs during 1996.
Operating income for the Products System decreased to $1.2
million for the year ended December 31, 1996 from $1.7 million for
the year ended December 31, 1995. Depreciation expense for the
Products System increased to $880,000 for the year ended December
31, 1996 from $874,000 for the year ended December 31, 1995.
Operating income, excluding depreciation, for the Products System
decreased to $2.1 million for the year ended December 31, 1996 from
$2.6 million for the year ended December 31, 1995 resulting from
decreased transportation volumes. Transportation volumes decreased
to 13,509 BPD for the year ended December 31, 1996 from 15,585 BPD
for the year ended December 31, 1995.
CRUDE GATHERING SYSTEM. Operating income for the Crude
Gathering System was $8.9 million for the year ended December 31,
1996 compared to $3.8 million for the year ended December 31, 1995.
Depreciation expense for the Crude Gathering System decreased to
$2.0 million for the year ended December 31, 1996 from $2.1 million
for the year ended December 31, 1995. Operating income, excluding
depreciation, for the Crude Gathering System increased to $10.9
million for the year ended December 31, 1996 from $5.8 million for
the year ended December 31, 1995. Due to the elimination of
several marginal contracts, the volume of crude oil gathered by the
Crude Gathering System decreased to 58,775 BPD for the year ended
December 31, 1996 from 66,869 BPD for the year ended December 31,
1995. For the year ended December 31, 1996, net margin increased
to $0.42 per barrel from $0.15 per barrel for the year ended
December 31, 1995 resulting from the higher spot price above
posting for crude oil for the year ended December 31, 1996.
Year ended December 31, 1995 compared with year ended
December 31, 1994
GENERAL. Net loss for the year ended December 31, 1995
increased to $8.6 million as compared to $5.4 million for the year
ended December 31, 1994. Non-operating expenses increased for the
year ended December 31, 1995 due to increased interest expense and
credit and loan fees of $1.9 million over the same period in 1994.
Of the increase, $1.4 million is related to increased interest
costs which are attributable to a higher average prime rate in 1995
compared to the 1994 average and the debt related to the purchase
of Diamond Shamrock's pipeline. In addition, the Partnership
incurred $873,000 in expenses associated with a proposed
restructuring. The credit and loan fees for the year ended
December 31, 1995 have been reduced by a one-time nonrecurring
reversal of an accrual for facility fees of $234,000 for periods
prior to 1995. Such fees were eliminated by the Partnership's
principal creditors concurrent with the amendment to the credit
agreement in August, 1995. Depreciation expense increased to $7.0
million for the year ended December 31, 1995 from $6.5 million for
the year ended December 31, 1994 as a result of the Texas Plains
System acquisition.
Operating loss for the year ended December 31, 1995 decreased
to $92,000 as compared to operating income of $1.4 million for the
year ended December 31, 1994. The results for the year ended
December 31, 1995 were lower due to weak refining margins in the
first quarter of 1995 and higher depreciation expense for the Crude
Gathering System which was partially offset by a $785,000 reduction
in marketing, general and administrative expenses in 1995.
Marketing, general and administrative expenses declined due to the
relocation of the corporate offices in late 1994 and reduced
professional fees in 1995. Operating income, excluding
depreciation, decreased for the year ended December 31, 1995 to
$6.9 million as compared to $8.0 million for the year ended
December 31, 1994.
REFINERY AND PRODUCTS SYSTEM. Operating loss for the Refinery
and Products System was $3.9 million for the year ended December
31, 1995 compared to an operating loss of $1.6 million for the year
ended December 31, 1994. Depreciation expense for the Refinery and
Products System increased to $5.0 million for the year ended
December 31, 1995 from $4.9 million for the year ended December 31,
1994. Operating income, excluding depreciation, of the Refinery
and Products System was $1.1 million for the year ended December
31, 1995 compared to $3.3 million for the year ended December 31,
1994.
Operating loss for the Refinery alone was $5.6 million for the
year ended December 31, 1995 compared to an operating loss of $2.9
million for the same period in 1994. The weak first quarter of
1995 caused average refining margins to be lower in 1995 than those
realized in 1994, but 1995 margins improved significantly
throughout the remainder of 1995. Depreciation expense for the
Refinery was $4.1 million for both the year ended December 31, 1995
and for the year ended December 31, 1994. Operating loss,
excluding depreciation, of the Refinery alone decreased to $1.5
million for the year ended December 31, 1995 compared to operating
income of $1.2 million for the year ended December 31, 1994.
Refinery gross margin per barrel was $1.42 for the year ended
December 31, 1995 compared to $1.85 for the year ended December 31,
1994. The decrease in the gross margin reflects the weaker
products margins for the Partnership in the first quarter of 1995
compared to the first quarter of 1994. Refinery throughput
averaged 29,806 BPD during the year ended December 31, 1995
compared to 30,483 BPD for the year ended December 31, 1994.
Operating expenses per barrel, excluding depreciation, decreased to
$1.07 for the year ended December 31, 1995 from $1.25 for the year
ended December 31, 1994 due to lower utility costs, environmental
compliance, and maintenance costs during 1995.
Operating income for the Products System increased to $1.7
million for the year ended December 31, 1995 compared to $1.3
million for the year ended December 31, 1994. Depreciation expense
for the Products System increased to $874,000 for the year ended
December 31, 1995 from $848,000 for the year ended December 31,
1994. Operating income, excluding depreciation, for the Products
System increased to $2.6 million for the year ended December 31,
1995 from $2.1 million for the year ended December 31, 1994
resulting from increased transportation volumes and lower operating
expenses. Transportation volumes increased to 15,585 BPD for the
year ended December 31, 1995 from 13,722 BPD for the year ended
December 31, 1994.
CRUDE GATHERING SYSTEM. Operating income for the Crude
Gathering System was $3.8 million for the year ended December 31,
1995 compared to $3.0 million for the year ended December 31, 1994.
Depreciation expense for the Crude Gathering System increased to
$2.1 million for the year ended December 31, 1995 from $1.6 million
for the year ended December 31, 1994 reflecting the acquisition of
the Texas Plains System. Operating income, excluding depreciation,
for the Crude Gathering System increased to $5.8 million for the
year ended December 31, 1995 from $4.7 million for the year ended
December 31, 1994. Due to the elimination of several marginal
contracts, the volume of crude oil gathered by the Crude Gathering
System decreased to 66,869 BPD for the year ended December 31, 1995
from 74,676 BPD for the year ended December 31, 1994. For the year
ended December 31, 1995, net margin increased to $0.15 per barrel
from $0.11 per barrel for the year ended December 31, 1994.
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 requirements, industry trends, price
of crude oil, inventory prices, and seasonality and weather. The
Managing General Partner 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. In response to
environmental regulations that became effective in October 1993,
the Partnership constructed a DDU at the Refinery that permits the
Refinery to reduce the sulfur content of highway use diesel fuel.
See "Business and Properties -- Environmental Matters." In
addition, the Partnership plans to spend approximately $957,000 in
1997, 1998 and 1999 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 Environment Protection Agency
("EPA") filed an administrative complaint and compliance order
against the Partnership. The complaint initially 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
properly monitor ground water and to implement an adequate ground
water monitoring program. The Partnership has agreed to settle the
complaint for $92,000 in penalties payable in three installments
with the last payment due in 1999.
OTHER REGULATORY REQUIREMENTS. The Partnership is 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. In the last three years, the posting price for WTI crude
oil has varied from approximately $12.25 to $24.75 per barrel.
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 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. LIFO
minimizes 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 in the first quarter
of 1995, diesel prices do not trend up as in colder, longer
winters. The Refinery's military aviation fuel prices are
influenced by these trends since the pricing for military aviation
fuel 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 entered into five exchange
agreements and three sales agreements with major oil companies in
the Abilene, San Angelo and Aledo markets. These exchange
agreements have allowed Pride to expand into Amarillo, Texas, El
Paso, Texas, Lubbock, Texas, Midland/Odessa, Texas, and Wichita
Falls, Texas without incurring transportation costs to these
cities.
In January of 1996, the Partnership signed a three year
contract with Diamond Shamrock to supply it with vacuum gas oil for
use in its refining operations. The new contract is for higher
volumes of vacuum gas oil than the previous contract thus allowing
the Partnership to operate its refinery at a higher throughput
level.
The United States Government awarded the Partnership the right
to supply 103,007,000 gallons of military aviation fuel for the
contract period beginning April 1, 1997 and ending March 31, 1998.
The award, which is at slightly higher prices than the prior
contract, is for deliveries to Dyess, Sheppard Air Force Base in
Wichita Falls, Texas, Fort Hood Military Installation in Killeen,
Texas, Naval Air Station Dallas in Dallas, Texas, Tinker Air Force
Base in Oklahoma City, Oklahoma, Naval Air Station Fort Worth,
E-Systems in Greenville, Texas, and AASF in Dallas, Texas.
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 have a material adverse impact on
the Partnership's operations.
Financial Resources and Liquidity
The Partnership receives payments from the United States
Government, major oil companies, and other 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 14 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.
The Partnership's credit facility was amended and restated on
August 13, 1996. On March 31, 1997, the Partnership's credit
facility was amended to extend the maturity date to January 1,
1998. Under the credit facility at December 31, 1996, the
Partnership had a $6.5 million standby letter of credit facility
for general corporate purposes and the purchase of crude oil and
other refinery feedstocks ("Facility A") and a $45.0 million
standby letter of credit facility for the purchase of crude oil
("Facility B"). On February 25, 1997, at the request of
management, the credit agreement was amended and the amount
available under Facility B was reduced to $42.5 million in exchange
for an incremental $2.5 million of availability on an uncommitted
line of credit. 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 standby letter of credit
facility, the Partnership did have approximately $721,000 and $44.8
million, respectively, in outstanding standby letters of credit at
December 31, 1996. The credit agreement also provides, at the
banks' discretion, an additional $8.0 million 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 is 3% per annum. There is no
commitment fee for the unused portion of the Special LC Facility.
The Partnership had approximately $6.3 million outstanding under
the Special LC Facility as of December 31, 1996. As a result of
the decline in crude oil prices in the first two months of 1997 and
management's expectations for lower average crude oil prices for
the remainder of the year compared with 1996, the Partnership
believes its current letter of credit facilities, supplemented by
the Special LC Facility, are adequate.
Under the credit facility prior to its amendment in August
1996, the Partnership had available to it a revolving line of
credit of $8.0 million ("Revolver") and a $45.0 million term loan.
Under the amended facility, the Partnership still had an $8.0
million revolving line of credit (the "New Revolver") and a $45.0
million term loan (the "Term Loan"). However, when the Amendments
to recapitalize the Partnership were adopted effective December 31,
1996, the lenders under the credit facility reduced the Term Loan's
existing outstanding balance of $41.8 million to $25.0 million (as
reduced, the "New Term Loan") in exchange for the issuance by the
Partnership to the bank lenders of a total of $16.8 million in
three series of convertible senior secured notes (collectively the
"Senior Secured Notes"). At December 31, 1996, the balances
outstanding on the New Revolver, New Term Loan and the Senior
Secured Notes were $5.1 million, $25.0 million and $16.8 million,
respectively. Under the amended credit facility, the Partnership
is required to make quarterly principal payments on the New Term
Loan in the amount of excess cash, as defined in the credit
agreement, for the preceding quarter. The Partnership has
classified $360,000 of the New Term Loan as current as of December
31, 1996.
Advances under the New Revolver and New Term Loan bear
interest at prime plus 1 and 1/2% and 2%, respectively, payable
monthly. The prime rate was 8 and 1/4% as of December 31, 1996.
Under the prior credit facility, the Term Loan was subject to a
facility fee of approximately 5% per annum commencing January 1,
1996. This fee was forgiven in connection with the adoption of the
Amendments. The Senior Secured Notes issued to the lenders under
the credit facility consist of $2.5 million in Convertible Senior
Secured Series A Promissory Notes ("Note A"), $9.3 million in
Convertible Senior Secured Series B Promissory Notes ("Note B"),
and $5.0 million in Convertible Senior Secured Series C Promissory
Notes ("Note C"). The Senior Secured Notes bear interest at prime
plus 1% payable monthly, and have the same maturity as the credit
facility. Under certain circumstances, the Senior Secured Notes
are convertible at the holders' election into Common Units. The
entire amount outstanding under the Senior Secured Notes has been
classified as long-term as of December 31, 1996.
The Partnership has pledged substantially all its assets as
collateral for the credit facility and the Senior Secured Notes.
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.
Advances under the New Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at December
31, 1996 has been included in the current portion of long-term
debt. Subsequent to December 31, 1996, the credit agreement was
amended to provide a $12.0 million revolving line of credit
("Revised Revolver"). A total of $8.5 million of the Revised
Revolver is subject to a borrowing base which includes a reduction
by the amount of letters of credit issued under Facility A.
Subject to the borrowing base on $8.5 million of the Revised
Revolver, the Partnership may borrow any amounts previously repaid.
The remaining $3.5 million of the Revised Revolver does not require
a borrowing base and, accordingly, is available at all times. The
Partnership may borrow any amounts previously repaid under this
portion of the Revised Revolver. The fee for the unused portion of
the Revolver is one-half of 1% per annum. The credit facility also
requires the Partnership to pay a monthly fee of $10,000.
Prior to the March 31, 1997 amendment of the credit facility,
it included an uncommitted line of credit ("Uncommitted Line"). On
February 25, 1997, the Uncommitted Line was increased from $2.5
million to $5.0 million as a result of losses generated in the
fourth quarter of 1996 and January 1997 and due to a decline in
inventory values, both of which negatively affected the
Partnership's borrowing base for purposes of advances under the New
Revolver. On March 31, 1997, the revolving facility was increased
$4.0 million and the Uncommitted Line was eliminated. Advances
under the Uncommitted Line were made solely at the lenders'
discretion and bore interest at the prime rate plus 4%. The
Uncommitted Line was required to be completely paid off for fifteen
consecutive days each month. There were no advances under the
Uncommitted Line at December 31, 1996.
During the year ended December 31, 1996, the Partnership had
drawn up to approximately $7.3 million on the Revolver and New
Revolver (collectively, the "Revolvers") and $2.0 million on the
Uncommitted Line. The weighted average amount outstanding under
the Revolvers and Uncommitted Line was approximately $1.1 million
and $21,000, respectively. The weighted average interest rate
during the 1996 period for these facilities was approximately 10.5
percent. During the year ended December 31, 1995, the Partnership
had drawn up to approximately $5.8 million on the Revolver and $2.0
million on the Uncommitted Line; the weighted average amount
outstanding under the Revolver and Uncommitted Line was
approximately $2.5 million and $50,000, respectively. The weighted
average interest rate during the 1995 period for these facilities
was approximately 10.8 percent.
The Partnership has two outstanding financing agreements to
fund working capital with Pride SGP which were entered into on
March 26, 1993 and September 7, 1995. Pride SGP made the unsecured
loans to the Partnership in the principal amount of $2.5 million
bearing interest at prime plus 1%. The prime rate was 8 and 1/4%
at December 31, 1996. The loans mature January 1, 1998.
The Partnership also has a nonrecourse loan from Diamond
Shamrock with an outstanding balance of $5.8 million at December
31, 1996, bearing interest at 8% per annum with monthly interest
payments. The assets of Pride Borger, which owns 50% of the Texas
Plains System, are pledged as collateral. Pride Borger also
guarantees 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 $104,000 at December 31, 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
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 $373,000 as of December 31, 1996. The note
matures January 9, 2000. The Partnership has classified $17,000 of
the note as current as of December 31, 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 $1.4 million as of
December 31, 1996. The note bears interest based on the rate set
by the Secretary of the Treasury. This rate was 7.0% as of
December 31, 1996. The note requires monthly payments of $84,000
and matures June 1, 1998. The Partnership has classified $951,000
of the note as current as of December 31, 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. For the year ended December 31, 1996, cash
was provided by increases in accounts payable (resulting from
higher crude oil prices). This was partially offset by an increase
in inventory (resulting from an increase of volumes on hand) and
increases in accounts receivable (resulting from the higher crude
oil prices and refined product prices). 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.
For the year ended December 31, 1994, cash was used for inventories
(resulting from the increase in the price of crude oil purchased to
replace existing volumes) and increases in accounts receivable.
The Partnership's operations have generated losses in each of
the last six years, current ratios of less than one to one in each
of the last four 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 through 1995. Crude gathering
volumes have decreased in each of the last three years. The net
loss for the year ended December 31, 1996 was smaller than in 1995
as a result of stronger crude gathering margins; this was partially
offset by weak refining margins during 1996. Under the new jet
fuel contract with the U. S. Government which begins on April 1,
1997 and ends on March 31, 1998, the Partnership will supply
approximately 2.5% less military aviation fuel than it supplied
under the previous contract; however, the prices awarded compared
to the base reference price net of transportation under this
contract have improved approximately 0.9 cents per gallon from the
prices in the previous contract, which will more than offset the
impact of the reduced volumes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors
and Trends Affecting Operating Results - Other Factors." 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 began to decline in 1996.
The Partnership's return to profitability is principally
dependent upon restructuring its credit facility, increased volumes
and/or improved profit margins, as well as continued cost control
initiatives. However, the return to profitability could be
affected if refined products are brought into West Texas from the
Gulf Coast via pipeline by a competitor. See "Business and
Properties - Markets and Competition". The Partnership's long-term
viability is dependent upon its effecting a restructuring and
recapitalization. Although no assurances can be given, management
believes the extension of the existing facility to January 1, 1998
alleviates 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. As a result,
Management is also reviewing other strategic alternatives,
including redeployment of its operating assets, possible asset
sales and alliances with other companies.
The most significant and urgent need of the Partnership is to
effect a restructuring and recapitalization of the Partnership's
debt and equity. On August 13, 1996, the Partnership completed the
first of three phases ("Phase One") which called for the execution
of documents with the banks' lenders. Phase Two ("Phase Two") was
completed effective December 31, 1996 when the Unitholders adopted
amendments to the Partnership Agreement. The amendment included
the conversion of the outstanding Preferred Units and Old Common
Units into Common Units and the cancellation of all preferred and
common unit arrearages. See "Business and Properties - General."
As part of Phase Two, the banks converted a portion of their Term
Loan into Senior Secured Notes, lowered certain interest rates and
credit and loan fees and extended the maturity. In phase three
("Phase Three"), the Partnership plans to refinance with additional
third party creditors the letter of credit facility, the Revolver,
the Term Loan and a portion of the Senior Secured Notes. The
portion of Note B and Note C of the Senior Secured Notes not
refinanced would automatically convert to a preferred convertible
equity security. During 1996 and 1995, the Partnership expensed
$1.1 million and $873,000, respectively, related to the
restructuring of the Limited Partnership Agreement and its credit
facility and recapitalization. On March 31, 1997, the Partnership
reached an agreement with the bank lenders whereby they agreed to
extend the maturity date of the credit facility to January 1, 1998,
waive non-compliance with certain restrictive covenants and amend
certain restrictive covenants thereafter. In addition, the bank
lenders increased the revolving line of credit $4.0 million and
eliminated the $5.0 million Uncommitted Line. In exchange for such
amendments, the Partnership agreed to pay $80,000.
The Managing General Partner had originally hoped to complete
Phase Three by the end of the first quarter of 1997. The Managing
General Partner and its advisors, with the concurrence of the bank
lenders, concluded that conditions were not optimal to pursue the
Phase Three financing as originally contemplated. At this time,
the Managing General Partner cannot predict when, or if, Phase
Three will be completed. 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 lower interest expense. However, if
the Partnership fails to complete Phase Three, it will have to
pursue other means of effecting a restructuring and
recapitalization, including redeployment of assets, asset sales and
strategic alliances, prior to the maturity of its credit facility
on January 1, 1998.
Capital Expenditures
Maintenance capital expenditures additions totaled $1.9
million for the year ended December 31, 1996 compared to $1.2
million for the year ended December 31, 1995.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Partnership, together with the
report thereon of Ernst & Young LLP, appear on pages F-2 through F-
14 of this report. See the Index to Financial Statements on page
F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.<PAGE>
PART III
Item 10. Directors and Executive Officers of the Partnership
Set forth below is certain information concerning the
executive officers and directors of the Managing General Partner as
of December 31, 1996 who are responsible for the operations of the
Partnership. All directors of the Managing General Partner are
elected by its shareholders. All officers of the Managing General
Partner serve at the discretion of the board of directors of the
Managing General Partner.
POSITION WITH THE
NAME AGE MANAGING GENERAL PARTNER
____ ___ ________________________
E. Peter Corcoran 68 Chairman of the Board
Brad Stephens 46 Chief Executive Officer, Treasurer,
and Director
D. Wayne Malone 53 President, Chief Operating Officer
and Director
Douglas Y. Bech 51 Director
Clark Johnson 51 Director
Robert Rice 74 Director
Craig Sincock 44 Director
Dave Caddell 47 Vice President and General Counsel
George Percival 37 Chief Financial Officer
Judy Sharrow 37 Secretary
E. Peter Corcoran. Mr. Corcoran served as a director of Pride
Pipeline Company, an affiliate of the Partnership, from 1985 to
1990 and became a director of the Managing General Partner in 1990.
In March 1994, he became Chairman. In 1991, Mr. Corcoran retired
from Lazard Freres & Co., having been a limited partner thereof
since 1983 and a general partner from 1968 until 1983. Mr.
Corcoran serves as a member of the Audit and Conflicts Committee of
the Board of Directors of the Managing General Partner.
Brad Stephens. Mr. Stephens served as Vice President of one
of the predecessor companies of the Partnership ("Predecessor
Companies") from 1988 until June 1989, when he became Executive
Vice President and Chief Financial Officer. In March 1994, he
became Chief Executive Officer. Prior to 1988, Mr. Stephens was
President of Independent Bankshares and First State Bank of
Abilene, where he had been employed since 1978. Mr. Stephens is a
Certified Public Accountant and prior to 1978, he was employed by
the accounting firm of Deloitte Haskins & Sells.
D. Wayne Malone. Mr. Malone has been associated with the
Predecessor Companies since 1979 and has been an officer, director,
and shareholder of the various companies since 1981. Mr. Malone
became President of Pride Pipeline Company in 1980, President of
Pride Marketing of Texas, Inc. in 1984 in charge of retail,
wholesale, and aviation fuel sales, and President of a predecessor
of Pride SGP in March 1988, adding the responsibilities of refining
and product trucking. Mr. Malone also served as President of
Carswell Pipeline Company. In March 1994, he became President and
Chief Operating Officer.
Douglas Y. Bech. Mr. Bech became a director of the Managing
General Partner in 1993. He is a partner in the Houston office of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. and a managing director
of Raintree Capital Company, L.L.C., a merchant banking firm.
Prior to joining the law firm in October, 1994, he was a partner in
the Houston office of Gardere & Wynne, L.L.P. From 1970 to 1993,
he was associated with and a senior partner of the law firm of
Andrews & Kurth, L.L.P. Mr. Bech is also a director of Wainoco Oil
Corporation and Jetfax, Inc. Mr. Bech serves as a member of the
Compensation Committee of the Board of Directors of the Managing
General Partner.
Clark Johnson. Mr. Johnson became a director of the Managing
General Partner in 1993. He is President and CEO of Frontier Oil
Corporation, a refining and marketing company which is a subsidiary
of Wainoco Oil Corporation. He also serves as Senior Vice
President of Wainoco Oil. Prior to those positions, he held the
positions of Executive Vice President and Chief Operations Officer
of Kerr-McGee Refining Corporation, and senior management positions
with Coastal Corporation and Tenneco Oil Company. Mr. Johnson
serves as a member of the Audit and Conflicts Committee and as
Chairman of the Compensation Committee of the Managing General
Partner.
Robert Rice. Mr. Rice became a director of the Managing
General Partner in 1990. He is an independent investor and
corporate director. He is Chairman of First Olsen Tankers, Ltd.,
a director of ATCO Ltd., Hvide Marine Corporation and several other
corporations. Mr. Rice serves as Chairman of the Audit and
Conflicts Committee and as a member of the Compensation Committee
of the Board of Directors of the Managing General Partner.
Craig Sincock. Mr. Sincock became a director of the Managing
General Partner in February, 1994. He is President and a director
of Avfuel Corporation, a privately held corporation and independent
supplier of aviation fuel headquartered in Ann Arbor, Michigan. He
has been associated with Avfuel Corporation since the early 1980's
and is an active real estate investor. Mr. Sincock serves as a
member of the Audit and Conflicts Committee of the Board of
Directors of the Managing General Partner.
Dave Caddell. Mr. Caddell is Vice President and General
Counsel. He practiced general corporate law from November, 1992 to
March, 1994. Previously, he served as Vice President and General
Counsel of the Predecessor Companies and the Partnership from 1985
to October, 1992.
George Percival. Mr. Percival, a Certified Public Accountant,
came to the Partnership in June, 1990, and has served as Chief
Financial Officer since August of 1994. Prior to joining the
Partnership, he was with Computer Language Research (d.b.a. Fast-
Tax), where he had been the Senior Tax Manager since 1987. Prior
to that he was employed by the accounting firms of Coopers &
Lybrand (1984 to 1987), and Fox and Company (1981 to 1984).
Judy Sharrow. Ms. Sharrow has served as Secretary of the
Managing General Partner since October 1992. In addition, she is
Manager of Investor Relations for the Partnership. Ms. Sharrow has
been associated with the Predecessor Companies since 1983.
Item 11. Executive Compensation
(a) Compensation of the General Partners. In respect of their
general partner interests in the Partnership, the General Partners
are allocated an aggregate of 2% of the income, gains, losses and
deductions arising from the Partnership's operations and receive an
aggregate of 2% of any distributions. For the year ended December
31, 1996, the General Partners did not receive any distributions in
respect of their 2% general partner interest in the Partnership.
The compensation set forth below under "Officers' Compensation" is
in addition to any 2% distribution to the General Partners. The
General Partners are not required to make any contributions to the
capital of the Partnership, beyond those made upon formation of the
Partnership, to maintain such 2% interest in allocations and
distributions of the Partnership. The General Partners do not
receive, as general partners of the Partnership, any compensation
other than amounts attributable to their 2% general partner
interest in the Partnership. Additionally, the Special General
Partner is allocated a portion of the income, gains, losses and
deductions arising from the Partnership's operations in respect of
its Common Units.
Effective December 31, 1996, the special participation
interest of the Special General Partner and the incentive interests
of the Managing General Partner were eliminated as a result of the
adoption of the Second Amended and Restated Agreement of Limited
Partnership. For the year ended December 31, 1996, the Special
General Partner did not receive any distributions in respect of the
Old Common Units or its special participation interest in the
Partnership and the Managing General Partner has not received any
distributions attributable to its incentive interests in the
Partnership. The Partnership reimburses the General Partners for
all their direct and indirect costs (including general and
administrative costs) allocable to the Partnership.
(b) Summary Officers' Compensation Table. The following table
sets forth certain compensation paid during fiscal 1996 by the
Partnership to the executive officers of the Managing General
Partner:<PAGE>
(The following table should be printed on 11" x 8.5" paper)
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Unit
Appreciation All Other
Year Salary Bonus Rights <F7>
Compensation<F1>
---- -------- ------- ------------
- ------------
<S> <C> <C> <C> <C> <C>
Brad Stephens <F2> 1996 $225,000 $ - 70,000 $ 8,500
Chief Executive Officer 1995 242,000<F6> - - 8,000
1994 185,000 - - 8,000
D. Wayne Malone <F2> 1996 225,000 - 70,000 8,500
Chief Operating Officer 1995 242,000<F6> - - 8,000
1994 185,000 - - 8,000
Dave Caddell <F3> 1996 165,000 - 40,000 7,300
Vice President/General 1995 178,000<F6> - - 7,000
Counsel 1994 104,000 - - 6,000
Robert Cagle <F4> 1996 114,500 27,500 - -
Vice President-Refining 1995 130,000 6,000 - 5,000
1994 50,000 - - 37,000
George Percival <F5> 1996 100,000 20,000 20,000 4,200
Chief Financial Officer 1995 100,000 15,000 - 5,000
1994 93,000 10,400 - 4,000
<FN>
<F1>
In this column is the Partnership's contribution to the Section 401(k) Plan for
each officer
and reimbursement of income taxes on certain perquisites with the exception of Mr.
Cagle in
1994. For Mr. Cagle, this column in 1994 also includes $35,000 for reimbursement
of costs
associated with his relocation. See "-Benefit Plans - Section 401(k) Plan" below.
<F2>
Prior to March, 1994, Messrs. Stephens and Malone held the position of Office of
the
President.
<F3>
Mr. Caddell was elected Vice President and General Counsel in March, 1994, a
position he had
previously held up until October 1992.
<F4>
Mr. Cagle joined the Partnership in August 1994 as Vice President-Refining. Mr.
Cagle
resigned in October 1996.
<F5>
Prior to August 1994, Mr. Percival served as Manager of Finance.
<F6>
Messrs. Stephens, Malone and Caddell received a salary increase on August 1, 1994,
from the
Board of Directors, but chose to defer such increase. Such deferred amounts were
paid in
1995.
<F7>
The Partnership implemented a Unit Appreciation Rights Plan under which certain
key employees
of the Partnership received unit appreciation rights ("UARs"). This column
represents the
number of UARs granted to each of the officers listed in the table. See "-(c)
Benefit Plans
- - Unit Appreciation Rights".
</FN>
/TABLE
<PAGE>
(c) Benefit Plans. In order to attract, retain and motivate
officers and other employees who provide administrative and
managerial services, 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.
Unit Appreciation Rights. During 1996, the Partnership
implemented a Unit Appreciation Rights Plan under which certain key
employees of the Partnership receive UARs, which entitle such key
employees, upon exercise of such rights, to either receive cash or
Common Units 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 UARs were granted. It is anticipated that UARs
aggregating approximately 10% of the total units will be reserved
for issuance to key employees. However, no Common Units are
expected to be issued under this plan. The employees to whom
awards are made and the number of UARs awarded are subject to the
discretion of the board of directors of the Managing General
Partner.
On December 9, 1996, four officers and twelve employees were
awarded a total of 292,760 UARs at a grant price of $3.75 per unit.
Since the fair market value of the UARs did not exceed the grant
price at December 31, 1996, no compensation expense has been
accrued.<PAGE>
(This page should be printed on 11x8.5" paper)
<TABLE>
UNIT APPRECIATION RIGHTS ("UARs")
GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates
of
Unit Price
Appreciation
Individual Grants for UAR
Term<F1>
______________________________________________________________
______________________
% of Total
UARs
Granted to
UARs Employees Grant
Granted In Fiscal Price Expiration
Name (#) Year ($/Unit) Date 5%($) 10%($)
_______________ _______ __________ ________ __________ ________ _________
<S> <C> <C> <C> <C> <C> <C>
Brad Stephens 70,000 24% $ 3.75 12/09/06 $27,000 $ 55,000
D. Wayne Malone 70,000 24% 3.75 12/09/06 27,000 55,000
Dave Caddell 40,000 14% 3.75 12/09/06 15,000 32,000
George Percival 20,000 7% 3.75 12/09/06 8,000 16,000
<FN>
<F1>
Assumes Messrs. Stephens, Malone, Caddell and Percival exercised such UARs at the
end of two
years when they become fully vested. The plan allows an individual the right to
exercise
such UARs at any time after becoming fully vested through the year 2006.
</FN>
/TABLE
<PAGE>
As of December 31, 1996, one-third of the officer and employee UARs
could be exercised, however, none were exercised. The rights will
fully vest on December 31, 1998.
A one-time award was made in 1996 to non-employee directors.
As of December 31, 1996, five directors had been awarded a total of
70,000 UARs at a grant price of $3.75 which will fully vest on
December 31, 1997. At December 31, 1996, one-half of the non-
employee directors' UARs could be exercised, however, none were
exercised.
Section 401(k) Plan. Participants in the Partnership's
Section 401(k) Plan (formerly the Employees' Pension Plan) may make
contributions to such plan in amounts ranging from 1% to 15% of
their salary. The Partnership will make mandatory contributions
each year in an amount equal to 3% of compensation and will match
dollar for dollar up to 3% of an employee's contribution depending
on the Partnership's cash flow for such year. The employee's
contribution to the plan may not exceed $9,500 in 1996. The
Partnership's contributions under the Section 401(k) Plan will vest
over a seven-year period, subject to immediate vesting upon
retirement. The Summary Officers' Compensation Table above
includes amounts contributed to the plan by the Partnership on
behalf of the five most highly compensated executive officers in
the column titled "All Other Compensation."
The Partnership also has in effect, for the benefit of its
employees, a Long-term Disability Plan, a Safety Incentive Plan,
Accidental Death and Dismemberment Insurance, Life Insurance, Group
Hospitalization Insurance, Dental Plan, Cancer Plan, Medical
Reimbursement Plan and Dependent Care Plan.
(d) Compensation of Directors. The Chairman of the Managing
General Partner receives an annual retainer of $42,000, $2,000 for
each board meeting attended and is reimbursed for travel and
lodging expenses incurred to attend board meetings. Members of
the board of directors of the Managing General Partner receive an
annual retainer of $12,000, $2,000 for each board meeting attended
and are reimbursed for travel and lodging expenses incurred to
attend board meetings. Directors have also received UARs as
discussed under Benefit Plans.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a) Security Ownership of Certain Beneficial Owners as of
February 28, 1997.
The following table sets forth certain information with
respect to each person known by the Partnership to own
beneficially 5% or more of the Common Units as of February 28,
1997. All of such securities are held directly.
Percent
of
Title of Class Name and Address Amount Class
______________ ________________ ______ _______
Common Units James B. Stovell 930,000 18.8%
Mountain Lake
Lake Wales, FL 33859
Common Units Pride SGP, Inc. 250,000 5.1%
1209 North Fourth Street
Abilene, TX 79601
b) Security Ownership of Management
The following table sets forth certain information, as of
February 28, 1997, concerning the beneficial ownership of Common
Units by each director of the Managing General Partner and by all
directors and officers of the Managing General Partner as a
group.
Percentage of
Name Number of Common Units (1) Class
____ ______________________ _____________
E. Peter Corcoran 64,100 1.3%
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 -
George Percival - -
Judy Sharrow - -
------ -----
All directors and officers
as a group 73,635 1.5%
(10 persons)
(1) Unless otherwise indicated, the persons named above have
sole voting and investment power over the Common Units
reported.
(2) Each of these directors of the Managing General Partners
owned beneficially, as of February 28, 1997, less than 1% of the
Common Units outstanding on such date.
Item 13. Certain Relationships and Related Transactions
The Partnership is managed by the Managing General Partner
pursuant to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership. See "Business and Properties -
General" and "Executive Compensation - Compensation of the General
Partners" for certain information related to compensation and
reimbursement of the General Partners. 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, 34% by trusts established for the
relatives of certain deceased members of management, and 11% 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 at the age of 65.
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 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. In
addition, the Partnership pays the taxes, insurance, etc. The
Partnership also agreed to pay Pride SGP $0.20 per barrel
additional rental on the Hearne to Comyn segment of the pipeline
which was activated in August 1992. For the year ended December
31, 1996, the Partnership transported 8,658 BPD of high quality
crude oil to the Refinery and 3,891 BPD to third parties on
exchange through this pipeline. For the years ended December 31,
1996, 1995 and 1994, rentals accruing to Pride SGP were
approximately $919,000, $873,000, and $1.1 million, respectively,
for the lease of the pipeline. Between August 1995 and November
1996, payments to Pride SGP were suspended pursuant to the terms of
an amendment to the then existing credit agreement. Approximately
$1,201,000 and $351,000 are included in accounts payable at
December 31, 1996 and December 31, 1995, respectively, related to
unpaid rentals. 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, as discussed under "Business and Properties --
Partnership Operations and Products -- Crude Oil Gathering
Operations," 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 period from January 1, 1996 through July 19, 1996
and the years ended December 31, 1995 and 1994, the Partnership
sold approximately $3.8 million, $4.0 million and $2.8 million,
respectively, of refined product to Dunigan Fuels. Mike Dunigan
was a minority shareholder of Dunigan Fuels and is also a
beneficiary of two trusts that own stock in Pride SGP. On July 19,
1996, Dunigan Fuels was sold to a third party; therefore, Dunigan
Fuels is no longer considered to be a related party to the
Partnership. The Partnership had an accounts receivable balance
from Dunigan Fuels of $267,000 for the year ended December 31,
1995.
The Partnership utilizes a 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 approximately $62,000,
$72,000 and $84,000 during 1996, 1995 and 1994, 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. The
Partnership also leases property from a relative of Mr. Stephens.
Lease payments related to this property were approximately $36,000
in 1996, 1995, and 1994.
Firms associated with Mr. Bech, a current director of the
Managing General Partner, were paid $208,000, $155,000 and $17,000
for legal services during 1996, 1995 and 1994, respectively.
<PAGE>
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 4.9% 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
aggregate 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 1%. The prime rate was 8
and 1/4% at December 31, 1996. The loans mature January 1, 1998
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 then existing credit agreement. Accrued interest payable at
December 31, 1996 and 1995 amounted to $320,000 and $68,000,
respectively.
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.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements and (2) Financial Statement
Schedules: See Index to Financial Statements on page F-1 for
financial statements and financial statement schedules filed as a
part of this Report.
(3) Exhibits: See Index to Exhibits on page E-1 for a
description of the exhibits filed as a part of this Report.
(b) Reports on Form 8-K filed during the quarter ended
December 31, 1996:
NONE<PAGE>
SIGNATURES
Pride Companies, L.P., pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIDE COMPANIES, L.P.
(Registrant)
By: Pride Refining, Inc.
as Managing General Partner
By: /Brad Stephens/
Brad Stephens
Chief Executive Officer, Treasurer, and Director
DATED: March 31, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Brad Stephens
and D. Wayne Malone and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any or all amendments in connection
herewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report and power of attorney has been signed below
by the following persons on behalf of the Partnership and in the
capacities and on the date indicated.
<PAGE>
PRIDE REFINING, INC.
Signature Title Date
_________ _____ ____
E. Peter Corcoran Chairman and Director March 31, 1997
Brad Stephens Chief Executive Officer, March 31, 1997
Treasurer, and Director
D. Wayne Malone President, Chief Operating March 31, 1997
Officer, and Director
Douglas Y. Bech Director March 31, 1997
Clark Johnson Director March 31, 1997
Robert Rice Director March 31, 1997
Craig Sincock Director March 31, 1997
Dave Caddell Vice President and March 31, 1997
General Counsel
George Percival Chief Financial Officer March 31, 1997
(Principal Financial Officer)
Judy Sharrow Secretary March 31, 1997
Bob Lee Controller (Principal March 31, 1997
Accounting Officer)<PAGE>
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Fort Worth, Texas
February 19, 1997, except for
Note 4, as to which the date
is March 31, 1997<PAGE>
<TABLE>
BALANCE SHEETS
PRIDE COMPANIES, L.P.
At December 31, 1996 and 1995
(In thousands, except unit amounts)
<CAPTION>
1996 1995
____ ____
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 472 $ 288
Accounts receivable, less allowance
for doubtful accounts of $142 and
$187, respectively--Note 6 18,163 16,205
Inventories--Note 2 19,171 14,248
Prepaid expenses 1,286 1,606
-------- --------
TOTAL CURRENT ASSETS 39,092 32,347
PROPERTY, PLANT AND EQUIPMENT, net--Note 3 99,554 104,837
OTHER ASSETS 1,070 1,122
-------- --------
$139,716 $138,306
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable $ 33,517 $ 26,241
Accrued payroll and related benefits 1,498 1,568
Accrued taxes 4,805 3,797
Other accrued liabilities 2,095 2,807
Current portion of long-term debt 6,516 3,447
-------- --------
TOTAL CURRENT LIABILITIES 48,431 37,860
LONG-TERM DEBT, including $2,450
at December 31, 1996 and 1995,
respectively, to a related party--Note 4 50,417 53,053
DEFERRED INCOME TAXES--Note 7 2,590 2,718
OTHER LONG-TERM LIABILITIES 8,680 8,662
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
Common units (5,250,000 units
authorized and outstanding) 29,474 18,022
General partners' interest 124 252
-------- --------
29,598 36,013
-------- --------
$139,716 $138,306
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF OPERATIONS
PRIDE COMPANIES, L.P.
Years ended December 31, 1996, 1995 and 1994
(In thousands, except per unit amounts)
<CAPTION>
1996 1995 1994
____ ____ ____
<S> <C> <C> <C>
Revenues--Note 6:
Refinery and Products System $ 294,328 $ 235,136 $ 220,610
Crude Gathering System 597,425 527,212 553,847
Intrasystem and other (276,550) (201,735) (184,551)
-------- -------- --------
615,203 560,613 589,906
Cost of sales and operating expenses,
excluding depreciation--Note 8 596,841 543,425 570,877
Marketing, general and administrative
expenses--Note 8 10,111 10,274 11,059
Depreciation 6,976 7,006 6,546
-------- -------- --------
OPERATING INCOME (LOSS) 1,275 (92) 1,424
Other income (expense):
Interest expense (5,808) (6,575) (5,191)
Credit and loan fees (2,109) (2,172) (1,651)
Other - net 179 175 28
-------- -------- --------
(7,738) (8,572) (6,814)
-------- -------- --------
LOSS before income taxes (6,463) (8,664) (5,390)
Income tax benefit 48 47 -
-------- -------- --------
NET LOSS $ (6,415) $ (8,617) $ (5,390)
Before Conversion (Note 9):
Loss allocable to Unitholders:
Preferred Units $ (2,970) $ (3,990) $ (2,496)
Old Common Units (3,317) (4,454) (2,786)
General partners' interest (128) (173) (108)
Net loss per Unit:
Preferred Units $ (0.63) $ (0.85) $ (0.53)
Old Common Units $ (0.63) $ (0.85) $ (0.53)
Weighted average Units outstanding:
Preferred Units 4,700 4,700 4,700
Old Common Units 5,250 5,250 5,250
After Conversion (Note 9):
Loss allocable to Unitholders:
Common Units $ (6,287) $ (8,444) $ (5,282)
General Partner (128) (173) (108)
Net loss per Common Unit $ (1.27) $ (1.71) $ (1.07)
Weighted average Common Units
outstanding 4,950 4,950 4,950
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
PRIDE COMPANIES, L.P.
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
General
Preferred Common Partners'
Units Units Interest
_________ ______ _________
<S> <C> <C> <C>
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
Net Loss (2,970) (3,317) (128)
Conversion of Preferred Units
into Common Units (14,769) 14,769 -
--------- --------- ---------
Balance at December 31, 1996 $ - $ 29,474 $ 124
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
PRIDE COMPANIES, L.P.
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,415) $ (8,617) $ (5,390)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Noncash charges(credits) to earnings:
Depreciation 6,976 7,006 6,546
Deferred tax benefit (128) (109) -
Other (40) 11 (223)
Changes in current assets and
current liabilities:
Accounts receivable (1,958) 1,095 (2,094)
Inventories (4,923) 3,419 (1,382)
Prepaid expenses 320 262 (292)
Accounts payable 7,566 3,223 1,571
Accrued liabilities 226 (255) 877
------- ------- -------
Total adjustments 8,039 14,652 5,003
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,624 6,035 (387)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (1,944) (1,224) (2,812)
Proceeds from disposal of property,
plant and equipment 61 262 161
Other 13 68 182
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,870) (894) (2,469)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit
facilities 47,799 45,706 106,249
Payments on debt and credit facilities (47,366) (50,496) (103,442)
Other (3) (98) (399)
------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 430 (4,888) 2,408
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 184 253 (448)
Cash and cash equivalents at beginning
of the period 288 35 483
------- ------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 472 $ 288 $ 35
See accompanying notes.
/TABLE
<PAGE>
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 an approximate 4.9%
limited partner interest as of December 31, 1996. 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 significant
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 six years, current ratios of less than one to one in each of
the last four 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
through 1995. Crude gathering volumes also decreased in each of the last
three years. Refining margins continued to be weak throughout 1996.
However, this was offset by stronger crude gathering margins in 1996 than in
prior years. Deliveries under contracts with the U. S. Government to supply
jet fuel to various military bases in Texas, which began April 1, 1996 were
consummated at higher volumes and lower prices than the contract covering the
period from May 1, 1995 through March 31, 1996. In the first quarter of
1997, the Partnership received a new contract, beginning April 1, 1997 and
ending March 31, 1998. Under the new contract, the Partnership will supply
approximately 2.5% less fuel than it will supply under the current contract;
however, the prices awarded compared to the base reference price net of
transportation under this contract are approximately 0.9 cents per gallon
higher than the prices in the previous 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.
The Partnership's return to profitability is principally dependent upon
restructuring its credit facility, increased volumes and/or improved profit
margins, as well as continued cost control initiatives. However, the return
to profitability could be affected if refined products are brought into West
Texas from the Gulf Coast via pipeline by a competitor. The Partnership's
long-term viability is dependent upon its effecting a restructuring and
recapitalization. Although no assurances can be given, Management believes
the extension of the existing credit facility to January 1, 1998 alleviates
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. As a result, Management is also reviewing other strategic
alternatives including redeployment of its operating assets, possible asset
sales and alliances with other companies.
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 of three
phases ("Phase One") which called for the execution of documents with the
Partnership's bank lenders. Phase two ("Phase Two") was completed effective
December 31, 1996 when the Unitholders adopted amendments to the Partnership
Agreement. The amendment included conversion of the outstanding preferred
units into common units and the cancellation of all preferred and common unit
arrearages. As part of Phase Two of the restructuring plan, the banks
converted a portion of their Term Loan (see Note 4) into notes, lowered
certain interest rates and credit and loan fees and extended 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.
Upon successful refinancing, the portion of the notes not refinanced would be
converted to a preferred equity security. During 1996 and 1995,
respectively, the Partnership expensed $1.1 million and $873,000 related to
this proposed restructuring. On March 31, 1997, the Partnership reached an
agreement with the bank lenders whereby they agreed to extend the maturity
date of the credit facility to January 1, 1998, waive non-compliance with
certain restrictive covenants and amend certain restrictive covenants
thereafter. In addition, the bank lenders increased the revolving line of
credit $4,000,000 and eliminated the $5,000,000 Uncommitted Line. In
exchange for such amendments, the Partnership agreed to pay $80,000 in fees
to the bank lenders.
The Managing General Partner had originally hoped to complete Phase
Three by the end of the first quarter of 1997. The Managing General Partner
and its advisors, with the concurrence of the bank lenders, concluded that
conditions were not optimal to pursue the Phase Three financing as originally
contemplated. At this time, the Managing General Partner can not predict
when, or if, Phase Three will be completed. 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 lower interest expense. However, if the Partnership fails
to complete Phase Three, it will have to pursue other means of effecting a
restructuring and recapitalization, including redeployment of assets, asset
sales and strategic alliances.
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 (See Note 9).
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. Cost is determined using the last-in, first-out (LIFO) method.
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.
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, 1996, 1995 and 1994 was $4,115,000, $3,539,000 and $3,503,000,
respectively.
Other Long-Term Liabilities: In connection with its crude gathering system
operations, as first purchaser of crude oil and as a service to its custom
gathering customers, the Partnership makes distributions of payments to the
various revenue and royalty interest owners. Often, the legal rights of the
interest owners are unclear or the owners cannot be located for long periods
of time. When such is the case, the Partnership retains the liability for
the payments until the ownership interest is clarified or the owners located,
at which time payment is made. When an owner cannot be located, state
statutes generally require that the unpaid amounts be escheated to the state
after the passage of a specified number of years. Because such liabilities
take years to be resolved and paid, an estimate has been made of the amounts
expected to be paid during the next year and classified as current accounts
payable, with the remainder classified as other long-term liabilities.
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 the Partnership itself. The Partnership's tax
bases in assets and liabilities (other than Pride Borger, Inc. ("Pride
Borger")) are less than the bases for financial reporting purposes by
approximately $13.7 million at December 31, 1996.
The Partnership's subsidiaries, 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
certain 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, 1996, 1995 and 1994 was $217,000, $485,000 and $475,000,
respectively.
Incentive Compensation Plan: The Partnership has elected to follow
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its Unit
Appreciation Rights ("Rights"). Under APB 25, if the exercise price of the
Rights equals or exceeds the market of the underlying units on the date of
grant, no compensation expense is recognized at the date of grant. To the
extent the price of the Partnership's units increase above that at the grant
date, such excess value to be paid upon exercise is charged to operations
over the respective vesting period.
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, 1996 is $7,204,000 and the estimated fair value is $6,437,000.
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.
Changes in Presentation: Certain prior year amounts have been reclassified
to conform to the 1996 presentation.
NOTE 2--INVENTORIES
Inventories consist of (in thousands):
1996 1995
------- -------
Crude oil $ 14,543 $ 10,981
Refined products and blending materials 12,002 5,589
------- -------
26,545 16,570
LIFO reserve (8,381) (3,426)
------- -------
Petroleum inventories 18,164 13,144
Spare parts and supplies 1,007 1,104
------- -------
$ 19,171 $ 14,248
At December 31, 1996 and 1995, petroleum inventories valued using the
LIFO method were less than current cost determined using the FIFO method by
$8,381,000 and $3,426,000, respectively.
NOTE 3--PROPERTY PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
1996 1995
-------- -------
Refinery and related facilities $ 71,006 $ 70,840
Pipelines and related facilities 52,387 53,974
Transportation and terminal equipment 9,940 9,798
Marketing facilities and equipment 1,202 860
Administrative facilities and equipment 1,855 1,871
Construction-in-progress 388 435
------- -------
136,778 137,778
Less accumulated depreciation 37,224 32,941
------- -------
$ 99,554 $104,837
NOTE 4--DEBT AND CREDIT FACILITIES
On March 31, 1997, the Partnership amended its credit agreement to
extend the maturity to January 1, 1998. 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
additional $8,000,000 standby letter of credit facility for the purchase of
crude oil and other refinery feedstocks ("Special LC Facility"), and a
$12,000,000 revolving credit facility ("Revolver"). On February 25, 1997, at
the request of management, the credit agreement was amended and the Facility
B letter of credit facility was reduced to $42,500,000 in exchange for an
incremental $2.5 million of availability on an uncommitted line of credit.
On March 31, 1997, the uncommitted line ("Uncommitted Line") of $5,000,000
was eliminated and the Revolver was increased from $8,000,000 to $12,000,000.
On December 31, 1996, the term loan ("Term Loan") was reduced from
$41,800,000 to $25,000,000 and three series of convertible notes were created
for the remaining $16,800,000 of the previously outstanding term loan (See
Note 9). The Term Loan bears interest at a rate equivalent to the prime rate
plus 2%. Under the amended credit facility as it relates to the Term Loan,
the Partnership is required to make quarterly principal payments in the amount
of excess cash flow, as defined in the credit agreement, for the preceding
quarter. The Partnership has classified $360,000 of the Term Loan as current
as of December 31, 1996. Under the prior credit facility, the Term Loan was
subject to a facility fee of approximately 5% per annum commencing
January 1, 1996. This fee was forgiven in connection with the adoption of
the amendments to the Partnership Agreement. The three series of convertible
notes include $2,500,000 in Convertible Senior Secured Series A
Promissory Notes ("Series A Notes"), $9,300,000 in Convertible Senior Secured
Series B Promissory Notes ("Series B Notes") and $5,000,000 in Convertible
Senior Secured Series C Promissory Notes ("Series C Notes"). The series of
notes bear interest at a rate equivalent to the prime rate plus 1% payable
monthly and have the same maturity as the credit facility. The entire amount
outstanding under the convertible senior secured notes has been classified as
long-term as of December 31, 1996.
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. At December 31, 1996 the Partnership was in violation of
certain financial covenants of the credit agreement which were subsequently
waived by the lender in connection with the March 31, 1997 amendment.
As of December 31, 1996, the Partnership had $721,000 in outstanding
Facility A standby letters of credit. Outstanding Facility B and Special LC
Facility standby letters of credit were $44,800,000 and $6,300,000,
respectively, at December 31, 1996. The Partnership pays fees of 1 and 1/2%
per annum on all outstanding Facility A and Facility B letters of credit and
a commitment fee of 1/2 of 1% for the unused portion of the facility. The
issuance of letters of credit under the Special LC Facility is subject to the
banks' discretion and the Partnership pays fees of 3% per annum on all
outstanding Special LC Facility letters of credit. There is no commitment
fee for the unused portion of the Special LC Facility.
The amount available under the Revolver is reduced by any outstanding
Facility A standby letters of credit. The unused portion of the Revolver
carries a 1/2 of 1% commitment fee. Outstanding advances under the Revolver
accrue interest at a rate equivalent to the prime rate (8.25% at December 31,
1996) plus 1 and 1/2%. 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, 1996 has been included in the current
portion of long-term debt. Subject to the borrowing base on $8,500,000 of
the Revolver, the Partnership may borrow any amounts previously repaid. The
remaining $3.5 million of the Revolver does not require a borrowing base and,
accordingly, will be available at all times. The Partnership may borrow any
amounts previously repaid under this portion of the Revolver.
Prior to the March 31, 1997 amendment, the credit facility also included
the Uncommitted Line which advances under this facility were made solely at
the lenders' discretion and bore interest at the prime rate plus 4%. The
Uncommitted Line was required to be completely paid off for fifteen
consecutive days each month. There were no advances under the Uncommitted
Line at December 31, 1996. In connection with the amendment on February 25,
1997, the Uncommitted Line was increased in February 1997 from $2,500,000 to
$5,000,000 as a result of losses generated in the fourth quarter of 1996 and
January 1997 as well as a decline in inventory values, both of which
negatively affected the Partnership's borrowing base for purposes of advances
under the Revolver. As previously discussed, on March 31, 1997 the revolving
facility was increased $4,000,000 and the Uncommitted Line was eliminated.
The Partnership has outstanding unsecured indebtedness to Pride SGP, due
January 1, 1998, with an outstanding balance of $2,450,000 at December 31,
1996, bearing interest at a rate equivalent to the prime rate plus 1%.
Other installment loans include a $6,000,000 nonrecourse note, due 2014,
payable monthly with interest at 8% and a balance of $5,800,000 at December
31, 1996 ($5,900,000 at December 31, 1995). The note is supported by a
minimum throughput agreement. The assets of Pride Borger are pledged as
collateral. 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 $1,400,000 at December 31, 1996 ($2,300,000 at December 31, 1995). The
note bears interest based on the rate set semi-annually by the Secretary of
the Treasury. This rate was 7.0% as of December 31, 1996.
Amounts outstanding under these credit facilities at December 31 (in
thousands):
1996 1995
------ -------
Revolver $ 5,085 $ 1,230
Term Loans 25,000 44,299
Series A Notes 2,500 -
Series B Notes 9,322 -
Series C Notes 5,000 -
Related Party Loans 2,450 2,450
Other Installment Loans 7,576 8,521
------ -------
56,933 56,500
Less current portion 6,516 3,447
------ ------
$50,417 $53,053
Approximate debt maturities for the next five years are expected as
follows: 1997-$6,516,000; 1998-$44,503,000; 1999-$169,000; 2000-$467,000; and
2001-$149,000.
Interest paid for the years ended December 31, 1996, 1995 and 1994 was
$5,944,000, $6,345,000 and $5,097,000, respectively.
NOTE 5--COMMITMENTS AND CONTINGENCIES
At December 31, 1996, 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, 1996, 1995 and 1994
was $3,187,000, $3,039,000 and $3,186,000, respectively. The minimum future
rentals under noncancelable operating leases at December 31, 1996, excluding
Pride SGP, are as follows (in thousands):
1997 $ 3,057
1998 2,068
1999 937
2000 402
2001 54
Thereafter 2
------
$ 6,520
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 is $68,000 per month and is included in the amounts above.
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 initially proposed an assessment of $553,000 in
penalties and fulfillment of the compliance order at an unspecified cost.
The Partnership has agreed to settle the complaint and compliance order for
$92,000 in penalties payable in three installments with the last payment due
in 1999.
In order to comply with known future compliance requirements of the
Texas Water Commission and other agencies, certain expenditures will have to
be incurred during 1997, 1998 and 1999. Management's estimates of the costs
of compliance aggregate approximately $957,000.
The Partnership has filed a substantial claim against the U. S.
Government Defense Fuel Supply Center (DFSC) 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 DFSC. Revenues from the
DFSC comprised 11% in 1996, 10% in 1995 and 9% in 1994 of total revenues.
Substantially all other customers are engaged in various aspects of the
petroleum industry, one of which accounted for 19% of total revenues in 1996,
13% in 1995 and 11% in 1994.
At December 31, 1996, the Partnership had $1,590,000 receivable from the
DFSC and $8,246,000 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. 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 Pride Borger, which are immaterial to the Partnership's
operations, are included in the Partnership's financial statements from the
date of acquisition. Pride Borger was subsequently merged into D-S Pipeline
and D-S Pipeline was renamed Pride Borger. During 1995, all of D-S
Pipeline's assets (a 50% interest in a crude and heavy products pipeline from
Hawley, Texas to Borger, Texas) were contributed 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%. In 1996, Pride
Texas Plains was liquidated. As a result, Pride Borger now owns the 50%
interest in those assets again. On March 1, 1996, the Partnership exchanges
its two New Mexico pipeline systems for the remaining 50% interest in the
Texas Plains System which was owned by Scurlock Permian Corporation.
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 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 1996, 1995 and 1994 totaled
$919,000, $873,000 and $1,058,000, respectively. The Partnership has the
option to purchase these pipeline segments for $10,000,000. Between August
1995 and November 1996, payments to Pride SGP were suspended pursuant to the
terms of an amendment to the Partnership's credit agreement. Approximately
$1,201,000 and $351,000 are included in accounts payable at December 31, 1996
and December 31, 1995, respectively, related to unpaid rentals.
During 1994, a dispute with a certain stockholder of the general
partners was settled resulting in the nonpayment of a $300,000 note payable
and certain other payables, net of related receivables from this stockholder.
During the period from January 1, 1996 through July 19, 1996 and the
years ended December 31, 1995 and 1994, the Partnership sold $3,800,000,
$3,960,000 and $2,809,000, respectively, of refined product to a company in
which a stockholder of Pride SGP had a minority interest. On July 19, 1996,
the company was sold to a third party; therefore, the company is no longer
considered to be a related party to the Partnership. The Partnership had an
accounts receivable balance from this customer of $267,000 at December 31,
1995.
The Partnership utilizes an airplane 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 $62,000, $72,000
and $84,000 during 1996, 1995 and 1994, 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 1996, 1995 and 1994.
Firms associated with a director of the Managing General Partner were
paid $208,000, $155,000 and $17,000 for legal services during 1996, 1995 and
1994, 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, 1996 and 1995 amounted to $320,000 and $68,000, respectively.
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
4.9% limited partner interest in the Partnership as discussed in Note 9.
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
Effective December 31, 1996, the Preferred Units were converted into
newly issued common units ("Common Units") on a one-to-one basis pursuant to
the amendment to the limited partnership agreement. The 4,700,000 of Common
Units held by the previously existing preferred unitholders represent an
approximate 93.1% limited partner interest in the Partnership. The
previously outstanding common units were converted to 250,000 Common Units in
a reverse 21-for-1 stock split.
Prior to the amendment to the limited partnership agreement, the units
were cumulative and entitled to a minimum quarterly distribution of $0.65 per
unit. However, all arrearages were cancelled under the amendment as of
December 31, 1996. Arrearages cancelled were $14.30 per previously
outstanding common unit which totaled $75,075,000 and $12.65 per preferred
unit which totaled $59,455,000. The general partners are entitled to 2% of
all distributions.
If the Partnership is successful in completing Phase Three of the
restructuring plan, the banks have agreed to convert the Series B and C Notes
into convertible preferred equity security. The Series A Note, if not
refinanced, can be converted to equity at the bank's election.
NOTE 10--UNIT APPRECIATION RIGHTS
During 1996, the Partnership implemented an incentive compensation plan
for officers and key employees. Under the plan, individual employees can be
granted unit appreciation rights ("Rights") whereby the holder of the Rights
is entitled to receive in cash or in Common Units the increase, if any,
between the grant price, as determined by the board of directors of the
Managing General Partner at the date of grant, and the fair market value on
the exercise date. The employees awarded and the number of Rights awarded to
the employees are subject to the discretion of the board of directors of the
Managing General Partner. The term of all awards is for ten years from the
grant date.
As of December 31, 1996, four officers and twelve employees had been
awarded a total of 292,760 Rights on December 9, 1996 at a grant price of
$3.75 per unit, none of which were exercised in 1996. Since the fair market
value of the Rights did not exceed the grant price at December 31, 1996, no
compensation expense has been accrued. The Rights will fully vest on
December 31, 1998 (97,586 were exercisable at December 31, 1996).
A one-time award was made in 1996 to non-employee directors. As of
December 31, 1996, five directors had been awarded a total of 70,000 Rights
at a grant price of $3.75 which will fully vest on December 31, 1997 (35,000
were exercisable at December 31, 1996, none of which were exercised in 1996).
Pro forma information regarding net income and earnings per unit is
required by Statement 123, and has been determined as if the Partnership had
accounted for its Rights under the fair value method of that Statement. The
fair value for these Rights was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for the 1996 Rights granted: risk-free interest rates of 5.86%; distribution
yields of zero; volatility factors of the expected market price of the
Partnership's units of 0.61; and a weighted-average expected life of the
Rights of two years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected unit price volatility. Because the Partnership's Rights have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employees' Rights.
For purposes of pro forma disclosures, the estimated fair value of the
Rights is amortized to expense over the Rights' vesting period. The proforma
effect of the 1996 Rights granted is not material to the operations of the
Partnership for 1996; however, the proforma effect will not be fully
reflected until 1997.
The weighted average fair value of the 1996 Rights granted is
approximately $1.40 per Right.
NOTE 11--QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Net
Net Operating Net Income(Loss)
Quarter Ended Revenues Income(Loss) Income(Loss) per Unit
------------- -------- ----------- ----------- -----------
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)
March 31, 1996 150,364 2,758 508 0.05
June 30, 1996 154,422 739 (1,356) (0.13)
September 30, 1996 145,884 (982) (3,185) (0.31)
December 31, 1996 164,533 (1,240) (2,382) (0.24)<PAGE>
INDEX TO EXHIBITS TO REPORT ON FORM 10-K
Exhibit Number
(Reference to
Item 601 of
Regulation S-K) Description
_______________ ___________
3.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-
10473)).
3.2 Second Amended and Restated Agreement of Limited
Partnership of the Partnership.
4.1 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File
No. 1-10473)).
4.2 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference
to Exhibit 4.2 of the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.3 Form of Depositary Receipt for Preferred Units of Pride
Companies, L.P. (included as Exhibit A to the Deposit
Agreement, which is incorporated by reference to
Exhibit 4.1 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.4 Form of Depositary Receipt for Old Common Units of Pride
Companies, L.P. (included as Exhibit B to the Deposit
Agreement, which is incorporated by reference to
Exhibit 4.1 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P.
10.1 Pipeline Lease Agreement by and between the Partnership
and Pride SGP, Inc. (incorporated by reference to
Exhibit 10.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
10.2 Amendment 1 to Pipeline Lease Agreement by and between
the Partnership and Pride SGP, Inc. (incorporated by
reference to Exhibit 10.3 of the Partnership's Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 (Commission File No. 1-10473)).
10.3 Registration Rights Agreement dated March 30, 1990, by
and between the Partnership and Pride SGP, Inc.
(incorporated by reference to Exhibit 10.5 of the
Partnership's Registration Statement on Form S-1
(Commission File No. 33-42115), as amended).
10.4 Consulting Agreement dated February 4, 1993 between the
Partnership and Stevens Consulting, Inc. (incorporated
by reference to Exhibit 10.13 of the Partnership's
Annual Report on Form 10K for the fiscal year ended
December 31, 1992 (Commission File No. 1-10473)).
10.5 Promissory Note between Pride SGP, Inc. ("Lender") and
the Partnership ("Borrower") dated March 26, 1993
(incorporated by reference to Exhibit 10.14 of the
Partnership's Annual Report on Form 10K for the fiscal
year ended December 31, 1992 (Commission File No. 1-
10473)).
10.6 Amendment 2 to Pipeline Lease Agreement by and between
the Partnership and Pride SGP, Inc. (incorporated by
reference to Exhibit 10.16 of the Partnership's Annual
Report on Form 10K for the fiscal year ended December
31, 1992 (Commission File No. 1-10473)).
10.7 Partnership Agreement for Desulfur Partnership, dated
as of August 10, 1993, which is 99% owned by the
Partnership and 1% owned by Pride Marketing of Texas, a
wholly-owned subsidiary of the Partnership
(incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the
quarter ended September 30, 1993 (Commission File No.
1-10473)).
10.8 Bill of Sale, dated as of August 10, 1993, for the sale
of the desulfurization unit by the Partnership to the
Desulfur Partnership, a subsidiary of the Partnership
(incorporated by reference to Exhibit 28.2 of the
Partnership's Quarterly Report on Form 10Q for the
quarter ended September 30, 1993 (Commission File No.
1-10473)).
10.9 Promissory Note, dated as of August 10, 1993, related
to the sale of the desulfurization unit by the
Partnership ("Payee") to the Desulfur Partnership
("Maker") (incorporated by reference to Exhibit 28.3 of
the Partnership's Quarterly Report on Form 10Q for the
quarter ended September 30, 1993 (Commission File No.
1-10473)).
10.10 Master Lease Agreement, dated as of August 10, 1993,
between the Partnership (Lessee) and the Desulfur
Partnership (a subsidiary partnership) (Lessor), for
the lease of the desulfurization unit (incorporated by
reference to Exhibit 28.4 of the Partnership's
Quarterly Report on Form 10Q for the quarter ended
September 30, 1993 (Commission File No. 1-10473)).
10.11 Letter, dated November 10, 1993, from Ernst & Young
(the Partnership's independent auditors) to the
Partnership concerning the change to the LIFO method of
accounting for inventories (incorporated by reference
to Exhibit 28.7 of the Partnership's Quarterly Report
on Form 10Q for the quarter ended September 30, 1993
(Commission File No. 1-10473)).
10.12 Stock Purchase Agreement, dated as of September 1,
1994, between Pride Refining, Inc. (Purchaser), Diamond
Shamrock Refining and Marketing Company (Seller), and
D-S Pipeline Corporation (Acquired Company)
(incorporated by reference to Exhibit 10.15 of the
Partnership's Annual Report on Form 10K for the fiscal
year ended December 31, 1994 (Commission File No. 1-
10473)).
10.13 First Amendment to Stock Purchase Agreement between
Pride Refining, Inc. (Purchaser), Diamond Shamrock
Refining and Marketing Company (Seller), and D-S
Pipeline Corporation (Acquired Company) (incorporated
by reference to Exhibit 10.16 of the Partnership's
Annual Report on Form 10K for the fiscal year ended
December 31, 1994 (Commission File No. 1-10473)).
10.14 Limited Partnership Agreement of Pride Texas Plains,
L.P. (Partnership) dated as of January 12, 1995, by and
among Pride Refining, Inc. and Pride Texas Plains GP,
LLC (the General Partners) and Pride Borger, Inc.
(Limited Partner) (incorporated by reference to Exhibit
10.17 of the Partnership's Annual Report on Form 10K
for the fiscal year ended December 31, 1994 (Commission
File No. 1-10473)).
10.15 Promissory Note dated as of January 9, 1995, between
United Bank & Trust ("Lender") and the Partnership
("Borrower") related to the renovation and refinancing
of the Partnership's administrative offices
(incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the
quarter ended June 30, 1995 (Commission File No. 1-
10473)).
10.16 Promissory Note between Pride SGP, Inc. ("Lender") and
the Partnership ("Borrower") dated September 7, 1995
(incorporated by reference to Exhibit 28.2 of the
Partnership's Quarterly Report on Form 10Q for the
quarter ended September 30, 1995 (Commission File No.
1-10473)).
10.17 Promissory Note, dated January 18, 1996, between the
Defense Finance and Accounting Service ("Lender") and
the Partnership ("Borrower") related to certain pricing
adjustments (incorporated by reference to Exhibit 10.22
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (Commission File No.
1-10473)).
10.18 Exchange Agreement between Scurlock Permian Corporation
and the Partnership dated February 21, 1996 (incorporated
by reference to Exhibit 10.23 of the Partnership's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995 (Commission File No. 1-10473)).
10.19 Award Contract dated March 15, 1996, issued to the
Partnership by the United States Defense Fuel Supply
Center (incorporated by reference to Exhibit 10.24 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 (Commission File No. 1-
10473)).
10.20 Fifth Restated and Amended Credit Agreement dated August 13,
1996, among the Partnership ("Borrower"), Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., and Pride Borger, Inc.
(collecively Guarantors), and NationsBank of Texas, N.A. as
Agent, and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as Lenders (incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the quarter
ended June 30, 1996 (Commission File No. 1-10473)).
10.21 Note Agreement dated August 13, 1996, among the Partnership
("Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and
Pride Borger, Inc. (collectively Guarantors), and NationsBank
of Texas, N.A. as Agent, and NationsBank of Texas, N.A. and
Bank One Texas, N.A. as Lenders (incorporated by reference to
Exhibit 28.2 of the Partnership's Quarterly Report on Form 10Q
for the quarter ended June 30, 1996 (Commission File No. 1-
10473)).
10.22 First Amendment to Loan Agreement, dated as of August 27,
1996, among the Partnership ("Borrower"), Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., and Pride Borger, Inc.
(collectively Guarantors), and NationsBank of Texas, N.A. as
Agent, and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as Lenders (incorporated by reference to Exhibit 28.1 of the
Partnership's Quarterly Report on Form 10Q for the quarter
ended September 30, 1996 (Commission File No. 1-10473)).
10.23 Agreement, dated as of November 14, 1996, among the
Partnership ("Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (collectively Guarantors),
and NationsBank of Texas, N.A. as Agent, and NationsBank of
Texas, N.A. and Bank One Texas, N.A. as Lenders (incorporated
by reference to Exhibit 28.2 of the Partnership's Quarterly
Report on Form 10Q for the quarter ended September 30, 1996
(Commission File No. 1-10473)).
10.24 Second Amendment to Loan Agreement dated as of February 25,
1997, among the Partnership ("Borrower"), Pride Refining,
Inc., Pride SGP, Inc., Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., and Pride Borger, Inc.
(collectively Guarantors), and NationsBank of Texas, N.A. as
Agent, and NationsBank of Texas, N.A. and Bank One Texas, N.A.
as Lenders.
10.25 Third Amendment to Loan Agreement, dated as of March 31, 1997,
among the Partnership ("Borrower"), Pride Refining, Inc.,
Pride SGP, Inc., Desulfur Partnership, Pride Marketing of
Texas (Cedar Wind), Inc., and Pride Borger, Inc. (collectively
Guarantors), and NationsBank of Texas, N.A. as Agent, and
NationsBank of Texas, N.A. and Bank One Texas, N.A. as
Lenders.
10.26 Unit Appeciation Rights Plan.
11.1 Statement regarding computation of per unit earnings
(included on page F-8 of this Report).
25.1 Power of Attorney (included on the signature page of
this Report).
27.1 Financial Data Schedule.<PAGE>
EXHIBIT 3.2
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
A-4
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
A-25
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.
A-31
(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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<PAG
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.
A-36
(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.
A-95
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
A-96
<PAGE>
EXHIBIT 4.5
TRANSFER OF FULL RIGHTS OF OWNERSHIP OF COMMON UNITS REPRESENTED BY
THIS DEPOSITARY RECEIPT MAY BE MADE ONLY TO PERSONS WHO PROPERLY
EXECUTE A TRANSFER APPLICATION. SEE PARAGRAPHS 3 AND 6 HEREOF AND
THE TRANSFER APPLICATION ON THE REVERSE SIDE.
NUMBER UNITS
DXC_____________ ____________________
CUSIP 741537 30 2
DEPOSITARY RECEIPT FOR COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS IN
PRIDE COMPANIES, L.P.
(A Limited Partnership under the laws of Delaware)
THIS DEPOSITARY RECEIPT IS TRANSFERABLE IN
DALLAS, TEXAS OR NEW YORK, NEW YORK
1. The undersigned depositary ("Depositary") hereby certifies
that
is the registered owner of COMMON UNITS,
consisting of Common Units representing limited partner interests
in Pride Companies, L.P., a Delaware limited partnership ("Common
Units"), on deposit with the Depositary pursuant to the Deposit
Agreement dated as of March 29, 1990, among the Partnership, the
Depositary and Pride Refining, Inc., as attorney-in-fact for the
holders from time to time of Common Units and Depositary Receipts.
2. DEPOSITARY RECEIPTS, DEPOSIT AGREEMENT. Depositary
Receipts, of which this Depositary Receipt is one, are issued upon
the terms and conditions set forth in the Deposit Agreement. The
Deposit Agreement and the Partnership Agreement under which the
Partnership was formed and is existing, copies of which are on file
at the Depositary's Corporate Office, set forth the rights of
holders of Common Units and Depositary Receipts, each of whom
becomes a party to the Deposit Agreement by acceptance of a
Depositary Receipt, and the rights and duties of the Depositary in
respect of the Common Units and all other property and cash from
time to time held pursuant to the Deposit Agreement. The
statements made on the face and the reverse of this Depositary
Receipt are summaries of certain provisions of the Deposit
Agreement and are subject to the detailed provisions thereof, to
which reference is hereby made for all purposes.
3. TRANSFERS, SPLIT-UPS, COMBINATIONS. The Common Units
represented by this Depositary Receipt are transferable on the
books of the Depositary or a Transfer Agent upon surrender of this
Depositary Receipt by the Record Holder hereof, in person or by
such Record Holder's duly authorized attorney, to the Depositary at
the Corporate Office. This Depositary Receipt shall be properly
endorsed or accompanied by a properly executed instrument of
transfer and accompanied by a properly executed Transfer
Application. Upon such transfer the Depositary shall issue or
cause to be issued and shall deliver a new Depositary Receipt to or
upon the order of the Person entitled thereto, subject to the
provisions of the Deposit Agreement and the Partnership Agreement.
This Depositary Receipt may be split into other Depositary Receipts
or combined with other Depositary Receipts into one Depositary
Receipt, in each case evidencing the same aggregate number of
Common Units as the Depositary Receipts surrendered.
4. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER, SPLIT-UP,
COMBINATION, SURRENDER AND EXCHANGE. As a condition precedent to
the execution and delivery, transfer, split-up, combination,
surrender or exchange of this Depositary Receipt or the Common
Units evidenced hereby, the Depositary, any Transfer Agent or any
Depositary's Agent may require (a) payment of a sum sufficient for
reimbursement of any tax or other governmental charge with respect
thereto (including any such tax or charge with respect to
Certificates or Common Units being deposited or withdrawn), (b)
proof satisfactory as to the identity and genuineness of any
signature or as to the due authorization to execute the appropriate
documents and (c) compliance with such regulations as it may
reasonably establish pursuant to the Deposit Agreement. Any
Depositor or any Record Holder may be required to execute such
certificates, and to make such representations and warranties, as
the Depositary may request.
5. REFUSAL OF DEPOSIT, TRANSFER, ETC. The deposit of
Certificate or the transfer of Common Units may be refused and the
delivery, surrender or exchange of this Depositary Receipt may be
suspended, during any period when any register of Record Holders is
closed, or if such action is reasonably deemed necessary or
advisable by the Depositary, any Depositary's Agent or the
Partnership at any time or from time to time because of any
applicable law or regulation, the rules and regulations of any
securities exchange upon which the Common Units are listed or
admitted to trading, any government or governmental body or
commission of any provision of the Deposit Agreement.
6. EFFECT OF ACCEPTANCE AND TRANSFER OF DEPOSITARY RECEIPTS.
A Record Holder shall have the authority to convey to a transferee
who does not properly execute and deliver a Transfer Application
only (a) the right to assign the Common Units to a purchaser or
other transferee and (b) the right to transfer the right to request
admission as a Limited Partner in respect of such Common Units. A
transferee, by acceptance of this Depositary Receipt (x) becomes a
party to the Deposit Agreement, thereby assenting to all of its
provisions, (y) agrees to be bound by the terms and conditions of
this Depositary Receipt and (z) agrees that his transferor's duty
to provide him with any requisite information necessary to obtain
registration of the transfer of Common Units shall exclude any duty
by the transferor to deliver an executed Transfer Application. A
transferee who properly executes a Transfer Application (i)
requests admission to the Partnership as a Limited Partner, (ii)
agrees to comply with and be bound by the terms and conditions of,
and executes, the Deposit Agreement, (iii) represents that such
transferee has authority to enter into the Deposit Agreement and
the Partnership Agreement, (iv) grants a power of attorney to the
General Partners and, if a liquidator shall be appointed, the
liquidator of the Partnership and (v) makes the consents and
waivers maintained in the Partnership Agreement.
7. STATUS OF RECORD HOLDER. The Record Holder of a Common
Unit, unless and until admitted as a Limited Partner pursuant to
the Partnership Agreement, has the rights of an Assignee in respect
of such Common Unit.
8. REQUIREMENTS OF EXECUTION. This Depositary Receipt shall
not be entitled to any benefits under the Deposit Agreement and
shall not be valid or obligatory for any purpose, unless it has
been signed on behalf of the Depositary by the manual signature of
a duly authorized employee of the Depositary, except that such
signature may be a facsimile of a Registrar who is a person other
than the Depositary has been appointed and the Depositary Receipt
is countersigned by the manual signature of a duly authorized
employee of the Registrar.
9. SURRENDER OF DEPOSITARY RECEIPTS AND WITHDRAWAL OF COMMON
UNITS. Upon surrender of this Depositary Receipt to the Depositary
at its Corporate Office and subject to the terms and conditions of
the Deposit Agreement and the Partnership Agreement, a Record
Holder of this Depositary Receipt who is a Limited Partner is
entitled to delivery of a nontransferable Certificate evidencing
the Common Units evidenced hereby.
10. GOVERNMENTAL CHARGES. If any tax or other governmental
charge becomes payable with respect to this Depositary Receipt or
the Common Units evidenced hereby, such tax or governmental charge
shall be payable by the holder of this Depositary Receipt or by the
transferor hereof in the case of a transfer. Transfer or
withdrawal of the Common Units evidenced hereby may be refused
until such payment is made, and any cash or other distribution may
be withheld and applied to payment of such tax or other
governmental charge, with the holder or transferee hereof to remain
liable for any deficiency.
11. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. Each Person
depositing a Certificate under the Deposit Agreement shall be
deemed thereby to represent and warrant that (a) such Person is, or
is duly authorized to act for, a Limited Partner and (b) such
person is the owner of such Certificates, or is duly authorized by
the owner thereof to make the deposit.
12. AMENDMENT. Any provision of the Deposit Agreement,
including the form of Depositary Receipt and the Transfer
Application, may at any time and from time to time be amended by
agreement between the Partnership and the Depositary in any respect
deemed necessary or desirable by them, subject to the fiduciary
responsibility of the General Partners as set forth in the
Partnership Agreement. A Record Holder at the time any amendment
to the Deposit Agreement becomes effective shall be deemed, by
continuing to hold Common Units, to consent to the amendment and to
agree to be bound by the Deposit Agreement as amended thereby.
Notwithstanding the foregoing, no amendment shall impair the right
of a Limited Partner described in Paragraph 9. The Depositary will
give written notice of any material amendment to the Deposit
Agreement to all Record Holders and Assignees.
13. CHARGES OF DEPOSITARY. The Partnership shall pay all
charges, fees and reimbursement of the Depositary, except for (a)
taxes and other governmental charges and (b) such telegram, telex,
delivery and other charges as are expressly provided in the Deposit
Agreement to be paid by other Persons.
14. TITLE TO DEPOSITARY RECEIPTS. The Common Units evidenced
hereby are transferable in accordance with the laws governing
transfer of investment securities. It is a condition of this
Depositary Receipt, and every successive holder hereof by
acceptance hereof consents and agrees that, until a Common Unit has
been transferred on the books of the Depositary or a Transfer Agent
pursuant to the Deposit Agreement, the Depositary, any Transfer
Agent and the Partnership, notwithstanding any notice to the
contrary or any notation or other writing on the Depositary
Receipt, may treat the Record Holder at such time as the absolute
owner of the Common Unit for all purposes.
15. DISTRIBUTIONS. Whenever the Depositary receives from the
Partnership any cash distributable to Record Holders, the
Depositary shall, subject to the provisions of the Deposit
Agreement, make such distribution to the Record Holders on the
Record Date based upon the number of Common Units registered in
such Record Holder's name; provided that the amounts distributed
may be reduced by any amount required to be withheld by the
Partnership or the Depositary on account of taxes.
16. REPORTS. The Depositary shall make available for
inspection by Record Holders at its Corporate Office during normal
business hours any report, financial statement or communication of
or from the Partnership that is both received by the Depositary in
its capacity as depositary and made generally available to Limited
Partners or Record Holders.
17. TRANSFER BOOKS. The Depositary shall keep books at its
Corporate Office for the transfer of Common Units. Such books
shall be open at all reasonable times for inspection by the Record
Holders with the consent of the Managing General Partner; provided
that such inspection shall not be for the purpose of communicating
with Record Holders in the interest of a business or object other
than the business of the Partnership or a matter related to the
Deposit Agreement or the Common Units. With the consent of the
Managing General Partner, a Record Holder shall have the right,
upon notifying the Depositary of a proper purpose related to such
Record Holder's interest in the Partnership, to have furnished to
such Record Holder at such Record Holder's expense a list of names
and addresses of all Record Holders.
18. LIABILITY OF DEPOSITARY, DEPOSITARY'S AGENTS, GENERAL
PARTNERS AND PARTNERSHIP. None of the Depositary, any Depositary's
Agent, the General Partners or the Partnership shall incur any
liability to any holder of this Depositary Receipt if, by reason of
any present or future law or regulation thereunder of the federal
government or any other governmental authority (or, in the case of
the Depositary or any Depositary's Agent, by reason of any
provision, present or future, of the Partnership Agreement), or by
reason of any act of God, war or other circumstance beyond its
control, the Depositary, any Depositary's Agent, either of the
General Partners or the Partnership is prevented or forbidden from
doing or performing any act or thing required by the terms of the
Deposit Agreement to be done or performed; nor shall the
Depositary, any Depositary's Agent, either of the General Partners
or the Partnership incur any liability to the holder of this
Depositary Receipt by reason of any nonperformance or delay caused
as aforesaid in the performance of any act or thing required by the
terms of the Deposit Agreement to be done or performed, or by
reason of any exercise of, or failure to exercise, any discretion
provided for in the Deposit Agreement.
19. IMMUNITIES OF DEPOSITARY, DEPOSITARY'S AGENTS, GENERAL
PARTNERS AND PARTNERSHIP. None of the Depositary, any Depositary's
Agent, either of the General Partners, or the Partnership (a)
assumes any obligation or shall be subject to any liability under
the Deposit Agreement to any holder of this Depositary Receipt
other than a duty to use its best judgment and good faith in the
performance of such duties as are expressly set forth in the
Deposit Agreement, (b) shall be under any obligation to appear in,
prosecute or defend any action, suit or other proceeding in respect
of this Depositary Receipt that in its opinion may involve expense
or liability, unless indemnity satisfactory to it against such
expense and liability has been furnished, or (c) shall be liable
for any action or nonaction by it in reasonable reliance upon the
advice of or information from legal counsel, accounts, any
Depositor, any holder of this Depositary Receipt or any other
person believed by it to be competent to give such advice or
information. The Depositary, any Depositary's Agent, the General
Partners and the Partnership may rely and shall be protected in
acting upon any written notice, request, direction or other
document believed by them to be genuine and to have been signed or
presented by the proper Person.
20. INDEMNIFICATION. The Depositary shall indemnify the
General Partners and the Partnership (and their respective
shareholders, partners, directors, officers, employees and agents)
against, and hold each of them harmless from, all claims,
liabilities, losses, damages, judgments, fines, settlements, costs
and expenses (including all legal costs and expenses relating
thereto, including reasonable attorneys' fees) arising out of acts
performed or omitted in respect of the Deposit Agreement by the
Depositary or any Depositary's Agent (other than an Affiliate of
the Partnership) due to the negligence, gross negligence, bad faith
or intentional misconduct of the Depositary or such Depositary's
Agent. The Partnership shall indemnify the Depositary and any
Depositary's Agent (other than an Affiliate of the Partnership)
against, and hold each of them harmless from, all claims,
liabilities, losses, damages, judgments, fines, settlements, costs
and expenses (including all legal costs and expenses relating
thereto, including reasonable attorneys' fees) arising out of (a)
acts performed or omitted in respect of the Deposit Agreement by
the Depositary or any such Depositary's Agent, except for any such
claim, liability, loss, damage, judgment, fine settlement, cost or
expense due to the negligence, gross negligence, bad faith or
intentional misconduct of the Depositary or such Depositary's
Agent, or (b) the breach by the Partnership of its representations,
warranties and covenants set forth in the Deposit Agreement.
21. RESIGNATION AND REMOVAL OF DEPOSITARY. The Depositary
may at any time (a) resign as depositary under the Deposit
Agreement by written notice delivered to the Partnership, effective
upon the appointment of a successor depositary and its acceptance
of such appointment, or (b) be removed as depositary under the
Deposit Agreement by the Partnership, effective upon the
appointment of a successor depositary and its acceptance of such
appointment.
22. TERMINATION OF DEPOSIT AGREEMENT. Whenever directed by
the Partnership, the Depositary shall terminate the Deposit
Agreement by mailing notice of termination to the Record Holders at
least 30 days before the date fixed in such notice for termination.
The Depositary shall then discontinue all functions and be
discharged from all obligations with respect to the Deposit
Agreement, except as specifically provided therein. Upon
termination of the Deposit Agreement, the Partnership shall be
discharged from any obligation thereunder, except for its
obligations to the Depositary with respect to indemnification,
charges and expenses.
23. APPLICABLE LAW. The Deposit Agreement, and the rights,
duties, obligations and immunities of the Depositary thereunder or
in respect of the Depositary Receipts, shall be governed by and
construed in accordance with the laws of the State of Texas.
24. DEFINED TERMS. Any capitalized term not defined herein
shall have the meaning assigned it in the Deposit Agreement.
DATED:
_____________________________________
Wayne Malone
President and Chief Operating Officer
_____________________________________
Brad Stephens
Chief Executive Officer
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(Dallas, Texas)
Depositary, Transfer Agent and Registrar
By:__________________________________
Authorized Signature
_________________________________
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Depositary Receipt, shall be construed as follows
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - ______________ Custodian _______________
(Minor) under Uniform Gifts to Minors Act _____________ (Texas)
Additional abbreviations may also be used though not in the above
list.
______________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
Social Security or Other
Identifying Number of Assignee
______________________________
_________________________________________________________________
Print or Type Name and Address of Assignee
_________________________________________________________________
the within Depositary Receipt and all rights and interests
represented thereby, and irrevocably constitutes and appoints
____________________________________________________ his attorney,
to transfer the same on the books of the Depositary, with full
power of substitution in the premises.
Dated:_______________ Signature_______________________________
Signature Guaranteed:
_________________________________
NOTE: The signature to any endorsement hereon must correspond with
the name as written upon the face of the Depositary Receipt, in
every particular, without alteration or enlargement or any change
whatsoever. If the endorsement is executed by an attorney,
executor, administrator, trustee or guardian, the person executing
the endorsement must give his full title in such capacity, and
proper evidence of authority to act in such capacity, if not on
file with the Depositary, must be forwarded with this Depositary
Receipt. The signature must be guaranteed by an authorized
employee of a bank, trust company or member of a national
securities exchange.
______________________________
No transfer of the Common Units evidenced by this Depositary
Receipt will be registered on the books of the Depositary or of the
Partnership unless an Application for Transfer of Units has been
executed by a transferee either (a) on the form set forth below or
(b) on a separate application that the Depositary or the
Partnership will furnish on request without charge. A transferor
of the Common Units evidenced by this Depositary Receipt has no
duty to a transferee to deliver an executed transfer application in
order for such transferee to obtain registration of the transfer of
such Common Units evidenced by this Depositary Receipt.
APPLICATION FOR TRANSFER OF UNITS
The undersigned ("Assignee") hereby applies for transfer to
the name of the Assignee of the Common Units evidenced by this
Depositary Receipt.
The Assignee (a) agrees to comply with and be bound by the
terms and conditions of, and hereby executes, the Deposit
Agreement, (b) requests admission as a substituted Limited Partner
and agrees to comply with and be bound by the terms and conditions
of, and hereby executes, the Amended and Restated Agreement of
Limited Partnership of Pride Companies, L.P. (the "Partnership"),
as amended or restated to the date hereof (the "Partnership
Agreement"), (c) represents and warrants that the Assignee has all
right, power and authority and, if an individual, the capacity
necessary to enter into the Deposit Agreement and the Partnership
Agreement, (d) appoints the Managing General Partner and, if a
liquidator shall be appointed, the Liquidator of the Partnership as
his attorney to execute, swear to, acknowledge and file any
document, including the Partnership Agreement, any amendment of the
Partnership Agreement and the Certificate of Limited Partnership of
the Partnership, necessary or appropriate for the Assignee's
admission as a substituted Limited Partner and as a party to the
Partnership Agreement and the Deposit Agreement, (e) gives the
powers of attorney provided for in the Partnership Agreement and
the Deposit Agreement and (f) makes the consents and waivers and
gives the approvals contained in the Partnership Agreement and the
Deposit Agreement. Capitalized terms not defined herein have the
meanings assigned to such terms in the Partnership Agreement.
Dated:____________________ ___________________________________
Signature of Assignee
__________________________ ___________________________________
Social Security or other Print or Type Name and Address
identifying number of of Assignee
Assignee
__________________________
Purchase price (including
commissions, if any)
Type of entity (check one): __Individual __Partnership
__Corporation __Trust __Other (specify)________________________
Nationality (check one): __U.S. Citizen, Resident or Domestic
Entity __Foreign Corporation, or __Non-resident alien
If the U.S. Citizen, Resident or Domestic Entity box is
checked, the following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code, the
Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign
person. To inform the Partnership that no withholding is required
with respect to the undersigned interest-holder's interest in it,
the undersigned hereby certifies the following (or, if applicable,
certifies the following on behalf of the interest-holder)
Complete Either A or B.
A. Individual Interest-Holder
1. I am not a non-resident alien for purposes of U.S. income
taxation,
2. My U.S. taxpayer identifying number (social security
number) is ____________________________; and
3. My home address is_____________________________________.
B. Partnership, Corporate or Other Interest-Holder
1. _____(Name of Interest-Holder)___ is not a foreign
corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the
Internal Revenue Code and Income Tax Regulations).
2. The interest-holder's U.S. employer identification number
is _______________________.
3. The interest-holder's office___________________________
and place of incorporation (if applicable) is__________.
The interest-holder understands that this
certification may be disclosed to the Internal
Revenue Service by the Partnership and that any
false statement contained herein could be
punishable by fine, imprisonment or both. Under
penalties of perjury, I declare that I have
examined this certification and to the best of my
knowledge and belief it is true, correct and
complete and (if applicable) I further declare that
I have authority to sign this document on behalf of
__________________________________________________
(Name of Interest-Holder)
__________________________________________________
Signature and Date
__________________________________________________
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust
company, clearing corporation, other nominee holder or an agent of
any of the foregoing, and is holding for the account of any other
Person, this application should be completed by an officer thereof,
or in the case of a broker or dealer, by a registered
representative who is a member of a registered national securities
exchange or a member of the National Association of Securities
Dealers, Inc., or, in the case of any other nominee holder, a
Person performing a similar function. If the Assignee is a broker,
dealer, bank, trust company, clearing corporation, other nominee
holder or an agent of any of the foregoing, the above certification
as to any Person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
Note: This Transfer Application may be executed on behalf of
a transferee by an attorney, executor, administrator, personal
representative, trustee or guardian, and, if so executed, the
person executing this Transfer Application must give his or her
full title in such capacity, and proper evidence of authority to
act in such capacity, if not on file with the Depositary, must be
forwarded with this Receipt. All capitalized terms used herein
have the meanings set forth in the Partnership Agreement.
<PAGE>
EXHIBIT 10.24
SECOND AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT
AGREEMENT (herein called the "Amendment") made as of the 25th day
of February, 1997, by and among Pride Companies, L.P., a Delaware
limited partnership ("Borrower"), Pride Refining, Inc., a Texas
corporation ("Pride Refining"), Pride SGP, Inc. a Texas corporation
("Pride SGP"), Desulfur Partnership, a Texas general partnership
("Desulfur Partnership"), Pride Marketing of Texas (Cedar Wind,
Inc., a Texas corporation ("Pride Marketing"), Pride Borger,Inc. ,
a Delaware corporation ("Pride Borger"), NationsBank of Texas,
N.A., a national banking association, as Agent ("Agent"), and
Lenders named on Schedule 1 to the original Agreement ("Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Pride Refining, Pride SGP, Desulfur
Partnership, Pride Marketing, Pride Borger, Agent and Lenders have
entered into that certain Fifth Restated and Amended Credit
Agreement dated as of August 13, 1996 as amended by that certain
First Amendment to Fifth Restated and Amended Credit Agreement
dated as of August 17, 1996 (as so amended, the "Original
Agreement") for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as
therein provided;
WHEREAS, Borrower has notified Agent and Lenders that Borrower
is in Default under Section 6.02(c) and 6.02(d) of the Original
Agreement; and
WHEREAS, Borrower has requested Agent and Lenders to increase
the amount of the Uncommitted Line Notes and Agent and Lenders have
agreed to do so, subject to the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original
Agreement and in consideration if the loans which may hereafter be
made by Lenders to Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement. Unless
the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall
have the meanings assigned to them in this Section 1.2.
"Amendment" shall mean this Second Amendment to Fifth Restated
and Amended Credit Agreement.
"Credit Agreement" shall mean the original Agreement as amended
hereby.
"Renewal Notes" has the meaning given it in Section 3.1.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definition of "Facility B
Letter of Credit Cap" in Section 1.1 of the Original Agreement is
hereby amended in its entirety to read as follows:
"`Facility B Letter of Credit Cap' shall mean $42,500,000."
Section 2.2. Exhibits. Exhibit M to the Original Agreement is
hereby amended in its entirety to read as set forth in Exhibit M
attached hereto.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when,
(i) Agent shall have received, at Agent's office, a counterpart of
this Amendment executed and delivered by Borrower and each Lender,
(ii) Borrower shall have issued and delivered to Agent, for
subsequent delivery to each Lender, an Uncommitted Line Note with
appropriate insertions in the form attached hereto as Exhibit M
(such Uncommitted Line Notes herein called the "Renewal Notes") ,
duly executed on behalf of Borrower and dated the date hereof, and
(iii) Borrower shall have executed and delivered to Pride SGP a
notice in the form attached hereto as Exhibit A, regarding a
blockage on the payment of Rentals, and Pride SGP shall have
evidenced its agreement thereto.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In
order to induce each Lender to enter into this Amendment, Borrower
represents and warrants to each Lender that:
(a) The representations and warranties contained in Article V
of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.
(b) Each Related Person is duly authorized to execute and
deliver this Amendment, and Borrower is and will continue to be
duly authorized to borrow monies and to perform its obligations
under the Credit Agreement. Each Related Person has duly taken all
corporate and partnership action necessary to authorize the
execution and delivery of this Amendment and to authorize the
performance of the obligations of such Related Person hereunder.
(c) The execution and delivery by each Related Person of this
Amendment, the performance by each Related Person of its
obligations hereunder and the consummation of the transactions
contemplated hereby do not and will not conflict with any provision
of law, statute, rule or regulation or of the partnership
agreement, articles of incorporation and bylaws of any Related
Person, or of any material agreement, judgment, license, order or
permit applicable to or binding upon any Related Person, or result
in the creation of any lien, charge or encumbrance upon any assets
or properties of any Related Person. Except for those which have
been obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in
connection with the execution and delivery by each Related Person
of this Amendment or to consummate the transactions contemplated
hereby.
(d) When duly executed and delivered, this Amendment will be a
legal and binding obligation of each Related Person, enforceable
in accordance with its terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and by equitable principles of
general application.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original
Agreement as hereby amended is hereby ratified and confirmed in all
respects. Any reference to the Credit Agreement in any Loan
Document shall be deemed to be a reference to the Original
Agreement as hereby amended. Any reference to the Uncommitted Line
Notes in any Loan Document shall be deemed to be a reference to the
Renewal Notes. The execution, delivery and effectiveness of this
Amendment and the Renewal Notes shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy
of Lenders under the Credit Agreement, the Notes, or any other Loan
Document nor constitute a waiver of any provision of the Credit
Agreement, the Notes or any other Loan Document nor constitute a
waiver of any Default or Event of Default, including without
limitation, the Defaults described in the recitals of this
Amendment.
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of the Related Person herein
shall survive the execution and delivery of this Amendment and the
performance hereof, including without limitation the making or
granting of the Loans, and shall further survive until all of the
obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any Related
Person hereunder or under the Credit Agreement to any Lender shall
be deemed to constitute representations and warranties by, and/or
agreements and covenants of, Borrower under this Amendment and
under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document,
and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by
and construed in accordance the laws of the State of Texas and any
applicable laws of the United States of America in all respects,
including construction, validity and performance.
Section 5.5. Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
THIS AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
Section 5.6. Uncommitted Line. The parties hereto acknowledge
and represent that as provided in the Original Agreement,
notwithstanding any course of dealing between Borrower or any
Lender or any Prior Special Advance made by a Lender, and
notwithstanding anything contained in this Amendment, the Original
Agreement or any other Loan Document to the contrary, , no Lender
has any obligation or commitment whatsoever to make any Special
Advance made by a Lender shall he made solely in the discretion of
such Lender.<PAGE>
EXHIBIT A
PRIDE COMPANIES, L.P.
1209 N. 4th
Abilene, Texas 79601
Pride SGP, Inc.
1209 N. 4th
Abilene, Texas 79601
Re: Rentals pursuant to the Pipeline Agreement dated as of
March 29, 1990 (as heretofore amended, the "Pipeline
Agreement"), between Pride SGP, Inc. ("Pride SGP") and Pride
Companies, L.P. ("Pride Companies")
Gentlemen:
Effectively immediately, Pride Companies will not make, and
Pride SGP will not accept, any further rental payments under the
Pipeline Agreement. This suspension may not be amended or revoked
except by written notice to you executed by both Pride Companies
and NationsBank of Texas, N.A., as Agent under the Fifth Amended
and Restated Credit Agreement dated August 13, 1996. The rights of
Pride SGP to receive pipeline rental payments in cash, as provided
in the Agreement of Pride SGP dated August 13, 1996 (up to six
monthly payments not to exceed $500,000 in the aggregate) is not
terminated, but is suspended until such time as the suspension of
the rental payments is revoked by written notice of Pride Companies
and NationsBank of Texas, N.A., as Agent.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: ____________________________________
Brad Stephens
Chief Executive Officer
AGREED TO AS OF THE
DATE FIRST WRITTEN ABOVE
PRIDE SGP, INC.
By: __________________________
Name:
Title:<PAGE>
EXHIBIT "M"
UNCOMMITTED LINE NOTE
[$_______________] Date: ______________, 1997
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P.
("Borrower"), hereby promises to pay to the order of
_____________________________________ the principal amount of
_____________________________________ _____________ as provided in
the Credit Agreement (as defined below). All capitalized terms
used herein shall have the meaning set forth in the Credit
Agreement.
Borrower promises to pay interest on the unpaid principal
balance until the principal balance is paid in full, at the
interest rate, and payable at such times, as specified in the
Credit Agreement. Both principal and interest are payable in
lawful money of the United States of America to Agent in same day
funds.
This Uncommitted Line Note is an Uncommitted Line Note referred
to in, and is entitled to the benefits of, the Fifth Restated and
Amended Credit Agreement, dated as of August 13, 1996 (as from time
to time amended, supplemented, or restated, the "Credit Agreement")
among Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., and Pride
Borger, Inc. as guarantors, NationsBank of Texas, N.A., as Agent
for Lenders, and NationsBank of Texas, N.A. and Bank One, Texas,
N.A. as Lenders, which, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions
therein specified.
This Uncommitted Line Note is issued in increase, restatement,
extension and renewal of (but not in extinguishment or novation of)
that certain Uncommitted Line Note dated as of August 13, 1996,
made by Borrower to the order of ________________________________,
which Uncommitted Line Note was issued in restatement, extension
and renewal of (but not in extinguishment or novation of ) that
certain Uncommitted Line Note dated as of March 30, 1995, made by
Borrower to the order of ______________________________________.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
Managing General Partner
By: ____________________________________
Brad Stephens
Chief Executive Officer
<PAGE>
EXHIBIT 10.25
THIRD AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO FIFTH RESTATED AND AMENDED CREDIT
AGREEMENT (herein called the "Amendment") made as of the 31st day
of March, 1997, by and among Pride Companies, L.P., a Delaware
limited partnership ("Borrower"), Pride Refining, Inc., a Texas
corporation ("Pride Refining"), Pride SGP, Inc., a Texas
corporation ("Pride SGP"), Desulfur Partnership, a Texas general
partnership ("Desulfur Partnership"), Pride Marketing of Texas
(Cedar Wind), Inc., a Texas corporation ("Pride Marketing"), Pride
Borger, Inc., a Delaware corporation ("Pride Borger"), NationsBank
of Texas, N.A., a national banking association, as Agent ("Agent"),
and Lenders named on Schedule 1 to the Original Agreement
("Lenders"),
W I T N E S S E T H;
WHEREAS, Borrower, Pride Refining, Pride SGP, Desulfur
Partnership, Pride Marketing, Pride Borger, Agent and Lenders have
entered into that certain Fifth Restated and Amended Credit
Agreement dated as of August 13, 1996, as amended by that certain
First Amendment to Fifth Restated and Amended Credit Agreement
dated as of August 17, 1996 and that certain Second Amendment to
Fifth Restated and Amended Credit Agreement dated as of February
25, 1997 (as so amended, the "Original Agreement") for the purpose
and consideration therein expressed, whereby Lenders became
obligated to make loans to Borrower as therein provided;
WHEREAS, Borrower has requested Agent and Lenders to extend the
Maturity Date and to adjust the amortization schedule, and Agent
and Lenders have agreed to do so, subject to the terms and
conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original
Agreement and in consideration of the loans which may hereafter be
made by Lenders to Borrower, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1. Terms Defined in the Original Agreement. Unless
the context otherwise requires or unless otherwise expressly
defined herein, the terms defined in the Original Agreement shall
have the same meanings whenever used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall
have the meanings assigned to them in this Section 1.2.
"Amendment" shall mean this Third Amendment to Fifth Restated
and Amended Credit Agreement.
"Credit Agreement" shall mean the Original Agreement as amended
hereby.
"Original Note" shall mean the "Revolving Notes" referred to and
defined as such in the Original Agreement.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definitions of "Borrowing
Base", "Maturity Date" and "Revolver Commitment" in Section 1.1 of
the Original Agreement are hereby amended in their entirety to read
as follows:
"`Borrowing Base' means the remainder of (A) minus (B) below as
of the date of determination:
(A) the sum of the following as of the date of determination;
(i) an amount equal to one hundred percent of Cash and Cash
Equivalents minus any Cash and Cash Equivalents constituting trust
accounts held for third parties; plus
(ii) an amount equal to one hundred percent (100%) of the Net
Government Accounts; plus
(iii) an amount equal to ninety percent (90%) of the approved
Eligible Receivables; plus
(iv) an amount equal to eighty-five percent (85%) of the Other
Eligible Receivables;
(v) an amount equal to eighty-five percent (85%) of Inventory
valued at fair market value; plus
(vi) $3,500.00.
minus
(B) the sum of the following as of the date of determination;
(i) Crude Purchase Accounts Payable minus the amount of Advance
which is being immediately applied that date to the payment of such
Crude Purchase Accounts Payable; plus
(ii) Pipeline Negative Inventory Accrual; plus
(iii) Net Exchange Accounts Payable minus the amount of Advance
which is being immediately applied that date to the payment of such
Net Exchange Accounts Payable."
"`Maturity Date' shall mean the earlier to occur of January 1,
1998, or the date of any Acceleration."
"`Revolver Commitment' shall mean the aggregate maximum
obligation of each Lender to make Advances under this Agreement (as
each commitment may be reduced pursuant to Section 2.04 or at the
applicable Maturity Date) which obligation shall at no time exceed
$12,000,000."
Section 2.2 Repayment. Section 2.05(a)(ii) of the Original
Agreement is hereby amended in its entirety to read as follows:
"(ii) Term Loans. All accrued and unpaid interest on the Term
Loans shall be due and payable on the fifth day of each Month,
commencing on April 5, 1997, and continuing on the fifth day of
each Month thereafter until the Maturity Date. Beginning on May 5,
1997, and on each February 5, May 5, August 5 and November 5
thereafter, Borrow shall make a payment equal to the Excess Cash of
Borrower calculated as of the last day of the immediately preceding
Calendar Quarter."
Section 2.3. Representations and Warranties. The first
sentence of Section 5.13 of the Original Agreement is hereby
amended in its entirety to read as follows:
"The proceeds of the initial Advances under the Revolving Loans
were used by Borrower to renew and extend the principal amount
outstanding under the Original Revolving Notes; the proceeds of all
subsequent Advances under the Revolving Loans will be used by
Borrower in the ordinary course of its business for general working
capital purposes."
Section 2.4. Financial Covenants. Sections 6.02(a), 6.02(b),
6.02(c) and 6.02(d) of the Original Agreement are hereby amended in
their entirety to read as follows:
"(a) Current Ratio. Borrower shall maintain a Current Ratio of
not less than 0.40 to 1.00. In accordance with Section 6.01(a)(iv),
Borrower shall deliver to Lenders a calculation of the Current
Ratio thirty (30) days after the end of each Month.
(b) Adjusted Current Ratio. Borrower shall maintain at all
times an Adjusted Current Ratio of not less than 0.55 to 1.00. In
accordance with Section 6.01(a)(iv), Borrower shall deliver to
Lenders a calculation of the Adjusted Current Ratio thirty days
after the end of each Month.
(c) Tangible Net Worth. Borrower shall maintain at all times a
Tangible Net Worth of at least $20,000,000 which shall be tested as
of the end of each Month; provided that such amount shall be
increased by fifty percent (50%) of the Borrower's net income after
taxes determined for each Calendar Quarter.
(d) Fixed Charge Coverage. Borrower shall maintain a Fixed
Charge Coverage of at least (i) .35 to 1.0 for the four fiscal
quarters ending March 31, 1997, (ii) .35 to 1.0 at the end of each
month beginning April 30, 1997, for the then most recently ended
period of twelve (12) consecutive Months, and (iii) .60 to 1.0 at
the end of each Month beginning December 31, 1997, for the then
most recently ended period of twelve consecutive Months. For
purposes of this Section 6.02(d), the term "Fixed Charge Coverage"
shall mean for any period, EBITDAR for such period divided by the
sum of (i) Fixed Charges for such period plus (ii) Capital
Expenditures permitted by Section 7.06 hereof actually made during
such period."
Section 2.5. Uncommitted Line. Section 2A.01 of the Original
Agreement is hereby deleted in its entirety.
Section 2.6. 1996 Financial Statements. On or before April 1,
1997, Borrower shall deliver to each Lender its audited financial
statements for the fiscal year ending December 31, 1996, with the
report being delivered by the independent certified accountant in
connection therewith being without limitation as to the scope of
the audit and without a "going concern" or like qualification of
exception.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become
effective as of the date first above written when, and only when
(i) Agent shall have received, at Agent's office, (a) a counterpart
of this Amendment executed and delivered by Borrower and each
Lender and (b) promissory notes with appropriate insertions in the
form attached hereto as Exhibit A payable to the order of each
Lender (such notes being herein called the "Renewal Notes"), duly
executed on behalf of Borrower, dated the date hereof, and
expressly renewing the Original Notes, and (ii) Borrower shall have
paid to Agent for the benefit of Lenders, in consideration of
Lenders agreeing to the transactions contemplated herein, an
amendment fee in the amount of $80,000.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In
order to induce each Lender to enter into this Amendment, Borrower
represents and warrants to each Lender that:
(a) The representations and warranties contained in Article V
of the Original Agreement are true and correct at and as of the
time of the effectiveness hereof.
(b) Each Related Person ia duly authorized to execute and
deliver this Amendment and the Renewal Notes, and Borrower is and
will continue to be duly authorized to borrow monies and to perform
its obligations hereunder and thereunder.
(c) The execution and delivery by each Related Person of this
Amendment and the Renewal Notes, the performance by each Related
Person of its obligations hereunder and thereunder and the
consummation thereunder and the consummation of the transactions
contemplated hereby do not and will not conflict with any provision
of law, statute, rule or regulation or of the partnership
agreement, articles of incorporation and bylaws of any Related
Person, or of any material agreement, judgment, license, order or
permit applicable to or binding upon any Related Person, or result
in the creation of any lien, charge or encumbrance upon any assets
or properties of any Related Person. Except for those which have
been obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in
connection with the execution and delivery by each Related Person
of this Amendment and the Renewal Notes or to consummate the
transactions contemplated hereby or thereby.
(d) When duly executed and delivered, each of this Amendment
and the Renewal Notes will be a legal and binding obligation of
each Related Person, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency or similar laws of
general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
ARTICLE V.
Miscellaneous
Section 5.1. Ratification of Agreements. The Original Agreement
as hereby amended is hereby ratified and confirmed in all respects.
Any reference to the Credit Agreement in any Loan Document shall he
deemed to be a reference to the Original Agreement as hereby
amended. Any reference in any Loan Documents to the Original Notes
shall be deemed to be a reference to the Renewal Notes. The
execution, delivery and effectiveness of this Amendment and the
Renewal Notes shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of Lenders under
the Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement, the Notes or any
other Loan Document nor constitute a waiver of any Default or Event
of Default.
Section 5.2. Survival of Agreements. All representations,
warranties, covenants and agreements of the Related Person herein
shall survive the execution and delivery of this Amendment and the
Renewal Notes and the performance hereof, including without
limitation the making or granting of the Loans, and shall further
survive until all of the Obligations are paid in full. All
statements and agreements contained in any certificate or
instrument delivered by any Related Person hereunder or under the
Credit Agreement to any Lender shall be deemed to constitute
representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment, the Renewal Notes and under the
Credit Agreement.
Section 5.3. Loan Documents. This Amendment and the Renewal
Notes are Loan Documents, and all provisions in the Credit
Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and
any applicable laws of the United States of America in all
respects, including construction, validity and performance.
Section 5.5. Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to constitute one and the same Amendment.
Section 5.6. Waivers. Borrower has notified Agent and Lenders
that it was not in compliance with Section 6.02(b) as of February
28, 1997, Sections 6.02(c) and 6.02(d) of the Credit Agreement for
the periods ended December 31, 1996, January 31, 1997 and February
28, 1997, Lenders hereby waive Borrower's non-compliance with such
Sections as of such dates and any Events of Default resulting from
such noncompliance.
Borrower has further notified Agent and Lenders that it has
entered into a settlement agreement with the Environmental
Protection Agency ("EPA"), pursuant to which Borrower has agreed to
make installments to the EPA in an aggregate amount of $92,000.
Lenders hereby consent to such settlement agreement and waive any
Event of Default resulting therefrom.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the
date first above written.
BORROWER:
PRIDE COMPANIES, L,P., a Delaware
limited partnership
By: PRIDE REFINING, INC, a Texas corporation,
Managing General Partner
By: Brad Stephens
Chief Executive officer
GUARANTORS:
PRIDE REFINING, INC,
By: Brad Stephens
Chief Executive officer
PRIDE SGP, INC.
By: Brad Stephens
Chief Executive Officer
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By: Brad Stephens
President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its General Partner
By: Brad Stephens
President
PRIDE BORGER, INC,
By: Wayne Malone
President
AGENT:
NATIONSBANK OF TEXAS, N,A,
By: Jay T. Wampler
Senior Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A.
By: Jay T. Wampler
Senior Vice President
BANK ONE, TEXAS, N.A.
By: Randall Durant
Vice President
CONSENT AND AGREEMENT
Each of Pride Refining, Pride SGP and Desulfur Partner hereby
consents to the provisions of this Agreement, the transactions
contemplated herein and the execution and delivery of the Renewal
Notes, and hereby ratifies and confirms the Second Restated
Guaranty Agreement dated as of August 13, 1996, made by it for the
benefit of Lenders and Agent, and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in full
force and effect.
PRIDE REFINING, INC.
By: Brad Stephens
Chief Executive Officer
PRIDE SGP, INC.
By: Brad Stephens
President
DESULFUR PARTNERSHIP
By: Pride Marketing of Texas
(Cedar Wind), Inc.,
its general partner
By:
Name:
Title:
CONSENT AND AGREEMENT
Pride Marketing hereby consents to the provisions of this
Agreement, the transactions contemplated herein, and the execution
and delivery of the Renewal Notes and hereby ratifies and confirms
the Restated Guaranty Agreement dated as of August 13, 1996, made
by it for the benefit of Lenders and Agent, and agrees that its
obligations and covenants thereunder are unimpaired hereby and
shall remain in full force and effect.
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By:
Name:
Title:
PRIDE BORGER, INC.
By:
Name:
Title:<PAGE>
EXHIBIT "A"
REVOLVING NOTE
[$______________] Date: _______________, 1997
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P.
("Borrower"), hereby promises to pay to the order of
__________________________ the principal amount of
____________________________ as provided in the Credit Agreement
(as defined below) . All capitalized terms used herein shall have
the meaning set forth in the Credit Agreement.
Borrower promises to pay interest on the unpaid principal
balance until the principal balance is paid in full, at the
interest rate, and payable at such times, as specified in the
Credit Agreement. Both principal and interest are payable in
lawful money of the United States of America to Agent in same day
funds.
This Revolving Note is a Revolving Note referred to in, and is
entitled to the benefits of, the Fifth Restated and Amended Credit
Agreement, dated as of August 13, 1996 (as from time to time
amended, modified, restated or supplemented, the "Credit
Agreement") among Borrower, Pride Refining, Inc., Pride SGP, Inc.,
Pride Marketing of Texas (Cedar Wind), Inc., and Pride Borger, Inc.
as guarantors, NationsBank of Texas, N.A., as Agent for Lenders,
and NationsBank of Texas, N.A. and Bank One, Texas, N.A. as
Lenders, which, among other things, (i) provides for mandatory
monthly payments of interest and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions
therein specified.
This Revolving Note is issued in restatement, extension and
renewal of (but not in extinguishment or novation of) that certain
Promissory Note dated as of August 13, 1996, made by Borrower to
the order of __________________________________________________,
which Promissory Note was issued in restatement, extension and
renewal of (but not in extinguishment or novation of) that certain
Promissory Note dated as of November 14, 1994, made by Borrower to
the order of______________________________________________________.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc., Managing
General Partner
By: Brad Stephens
Chief Executive Officer
Administration
<PAGE>
PRIDE COMPANIES, L.P.
UNIT RIGHTS APPRECIATION PLAN
1. Purpose. The purpose of this Pride Companies, L.P. Unit
Rights Appreciation Plan (hereinafter referred to as the "Plan") is
to further the success of Pride Companies, L.P., a Delaware limited
partnership (the "Company"), and certain of its affiliates by
giving certain officers and key employees of the Company or its
affiliates ("Participants") the opportunity to benefit from the
appreciation in the value of Common Units of the Company, and thus
to provide an additional incentive to such Participants to continue
in the service of the Company or its affiliates and to give them a
greater interest in the success of the Company. Accordingly the
Committee is hereby authorized to designate those Participants who
are to receive Unit Rights under this Plan, and upon the due
execution of a Unit Rights Agreement, to grant Unit Rights to such
Participants.
2. Definitions. As used in this Plan, the terms set forth
below shall have the following meanings:
(a) "Board" means the Board of Directors of Pride Refining,
Inc., a Delaware corporation, which serves as the managing general
partner of the Company or any successor managing general partner of
the Company.
(b) "Code" means the Internal Revenue Code of 1986.
(c) "Committee" means the Committee administering the Plan
described in Paragraph 3 hereof.
(d) "Common Unit" means a Preferred Unit, as defined and
described in the Amended and Restated Agreement of Limited
Partnership of the Company effective as of March 29, 1990 and as
amended effective September 25, 1991, each of which units shall be
converted into a Common Unit, as amended effective December 31,
1996, and as it may be further amended from time to time.
(e) "Company" means Pride Companies, L.P., a Delaware limited
partnership, and any successor in interest.
(f) "Date of Grant" means the date on which Unit Right(s) are
granted under a written Unit Rights Agreement executed by the
Company and a Participant pursuant to the Plan.
(g) "Disinterested Person" means a "disinterested person" as
defined in Rule 16b-3 promulgated under the Exchange Act or any
successor provision.
(h) "Effective Date" means the effective date of this Plan
specified in Paragraph 13 hereof.
(i) "Exchange Act" means the Securities Exchange Act of 1934,
as it may be amended from time to time.
(j) "Fair Market Value" means Fair Market Value as defined in
Paragraph 7(a) below.
(k) "Participants" means the key employees and officers of the
Company and its affiliates.
(l) "Unit Right(s)" means a right(s), documented by a Unit
Rights Agreement, to purchase, or realize the appreciation in, a
Common Units, as more fully described in Section 4 and the other
provisions of this Plan.
(m) "Unit Rights Agreement" means a written agreement between
the Company and a Participant pursuant to which Unit Right(s) are
granted to a Participant under this Plan.
(n) "Unit Rights Holder" shall mean the person who is entitled
to exercise Unit Rights granted hereunder.
(o) "Unit Rights Price" means, as to a grant of Unit Rights,
the aggregate Fair Market Value of the Common Units covered by the
grant of Unit Rights, determined under Paragraph 7(a) hereof, on
the Date of Grant.
3. Administration of Plan. The Compensation Committee of the
Board (the "Committee") shall administer the Plan. The Committee
shall be initially composed of Clark Johnson, Bob Rice, and Doug
Bech. Only Disinterested Persons shall be eligible to serve as
members of the Committee. The Committee shall report all action
taken by it to the Board, which shall review and ratify or approve
those actions that are by law required to be so reviewed and
ratified or approved by the Board. The Committee shall have full
and final authority in its discretion, subject to the provisions of
the Plan, to determine the Participants to whom, and the time or
times at which, Unit Rights shall be granted and the number of
Common Units covered by each grant of Unit Rights; to construe and
interpret the Plan and any agreements made pursuant to the Plan; to
determine the terms and provisions (which need not be identical or
consistent with respect to each Participant) of the respective Unit
Rights Agreements and any agreements ancillary thereto, including,
without limitation, terms covering the payment of any Unit Rights
Price that may be payable; and to make all other determinations and
take all other actions deemed necessary or advisable for the proper
administration of this Plan. All such actions and determinations
shall be conclusively binding for all purposes and upon all
persons.
4. Unit Rights Authorized. Each Unit Right granted under this
Plan shall consist of a right granted to a Participant to receive
from the Company any of the following, at the option of the
Company, upon exercise (as described herein):
(a) An amount equal to the excess, if any, of (i) the Fair
Market Value on the exercise date ("Exercise Date Price") of a
Common Unit, over (ii) the Fair Market Value of a Common Unit on
the Date of Grant;
(b) An amount equal to the excess, if any, of (i) the Fair
Market Value on the exercise date of a Common Unit, over (ii)
the Fair Market Value of a Common Unit on the Date of Grant, for
the purpose of purchasing Common Units;
(c) A Common Unit (or a fraction thereof) or Units having a
Fair Market Value equal to the difference between (i) the
Exercise Date Price of the Unit Right being exercised and (ii)
the Fair Market Value, as of the Date of Grant, of the Common
Unit subject to the Unit Right being exercised; or
(d) One Common Unit for each Unit Right being exercised,
provided that the Participant shall timely pay the aggregate
Unit Rights Price.
5. Common Units Subject to Unit Rights. The aggregate number
of Common Units as to which Unit Rights may be issued shall not
exceed 300,000 Common Units per calendar year and 500,000 Common
Units over the term (as set forth in Paragraph 11) of the Plan,
subject to adjustment (as to both limitations) under the provisions
of Paragraph 8. In the event any Unit Right shall, for any reason,
terminate or expire or be surrendered without having been exercised
in full, the Common Units subject to such Unit Right shall again be
available for Unit Rights to be granted under the Plan.
6. Participants. Except as hereinafter provided, Unit Rights
may be granted under the Plan to any Participant. In determining
the Participants to whom Unit Rights shall be granted and the
number of Common Units to be covered by such Unit Rights, the
Committee may take into account the nature of the services rendered
by the respective Participants, their present and potential
contributions to the Company's success, and such other factors as
the Committee in its discretion shall deem relevant. A Participant
who has been granted a Unit Right under the Plan may be granted
additional Unit Rights under the Plan, in the Committee's
discretion.
7. Terms and Conditions of Unit Rights. The grant of a Unit
Right under the Plan shall be evidenced by a Unit Rights Agreement
executed by the Company and the applicable Participant and shall
contain such terms and be in such form as the Committee may from
time to time approve, subject to Paragraph 4 above and the
following limitations and conditions:
(a) Unit Rights Price. The Unit Rights Price of the Unit
Rights granted hereunder shall be the Fair Market Value of the
Common Units subject to the Unit Rights as of the Date of Grant.
For purposes of this Paragraph 7(a), Fair Market Value shall be,
where applicable, the closing price of the Common Units on the
Date of Grant as reported on the New York Stock Exchange
composite tape or, if the Common Units are not traded on such
exchange, as reported on any other national securities exchange
on which the Common Units may be traded. If the Common Units
were not traded on the Date of Grant, the most recent trading
date shall be substituted in the preceding sentence.
(b) Period of Unit Rights. The expiration date of each Unit
Right shall be the tenth (10th) anniversary of the Date of
Grant. No Unit Rights granted hereunder may be exercised after
such expiration date.
(c) Vesting of Common Unit Rights. Neither a Unit Rights
Holder nor his or her successor in interest shall have any of
the rights of a Common Unit Holder of the Company solely by
virtue of the ownership of Unit Rights until the Unit Rights are
exercised and, subject to the Company's election described in
Paragraph 4 above, the Common Units relating to the Unit Rights
are properly delivered to such Unit Rights Holder or successor
pursuant to Paragraph 4(c) or 4(d).
(d) Vesting and Exercise of Unit Rights. Unit Rights shall
vest and become exercisable as to one-third of the Unit Rights
granted on the first December 31 following the Date of Grant and
as to an additional one third on each of the second and third
December 31 dates following the Date of Grant; provided,
however, that all outstanding Unit Rights shall become one
hundred percent (100%) vested and exercisable upon the effective
date of the sale or exchange of 51% or more of the outstanding
stock of Pride Refining Inc., the Managing General Partner of
the Company. All Unit Rights may be exercised, after the
vesting thereof, only during the period beginning on the third
and ending on the twelfth business day following the date of
release of the Company's quarterly financial reports. A Unit
Rights Holder shall exercise his or her Unit Rights by written
notice to the Company stating the number of Unit Rights being
exercised. Notice of exercise shall be effective for the day
prior to receipt by the Company. The Committee shall inform the
Unit Rights Holder within ten days of receipt of such notice by
the Company whether all or any portion of his or her Unit Rights
are to be exercised as provided in Paragraph 4(d), together with
the amount of the payment required by the Unit Holder. After
the death of the Unit Holder, Unit Rights may be exercised as
provided in Paragraph 15 hereof.
(e) Nontransferability of Unit Rights. No Unit Rights shall
be transferable or assignable by a Unit Rights Holder, other
than by will or the laws of descent and distribution, and each
Unit Right shall be exercisable, during the Unit Rights Holder's
lifetime,only by him or her or, during periods of legal
disability, by his or her legal representative. No Unit Right
shall be subject to execution, attachment, or similar process.
8. Adjustments. The Committee, in its discretion, may make
such adjustments in the Unit Rights Price and the number of Common
Units covered by outstanding Unit Rights if such adjustments are
required to prevent any dilution or enlargement of the rights of
the holders of such Unit Rights that would otherwise result from
any reorganization, recapitalization, merger, consolidation,
issuance of rights, or other change in the capital structure of the
Company. The Committee, in its discretion, may also make such
adjustments in the aggregate number of Common Units that may be
subject to the future grant of Unit Rights if such adjustments are
appropriate to reflect any transaction or event described in the
preceding sentence. In the event that the Company ceases to be a
master limited partnership as a result of restructuring, the
Committee may, subject only to approval by the Board, determine
that any future awards hereunder will be granted in the form of
equity securities rather than cash.
9. Restrictions on Issuing Common Units. The issuance of any
Common Units pursuant to the terms of this Plan may be made subject
to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration, or
qualification of any Common Units otherwise deliverable upon such
exercise upon any securities exchange or under any state or federal
law, or that the consent or approval of any regulatory body, is
necessary or desirable as a condition of, or in connection with,
such exercise or the delivery or purchase of Common Units pursuant
thereto, then in any event, such exercise shall not be effective
unless such withholding, listing, registration, qualification,
consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
10. Use of Proceeds. The proceeds received by the Company from
the sale of any Common Units pursuant to the exercise of Unit
Rights granted under the Plan shall be added to the Company's
general funds and used for general partnership purposes.
11. Amendment, Suspension, and Termination of Plan. The Board
may at any time suspend or terminate the Plan or may amend it from
time to time in such respects as the Board may deem advisable in
order that the Unit Rights granted thereunder may conform to any
changes in the law or in any other respect which the Board may deem
to be in the best interests of the Company, provided, however, that
without approval by the limited partners of the Company voting the
proper percentage(s), no such amendment shall make any change in
the Plan for which partner approval is required of the Company by
(a) Rule 16b-3, promulgated under the Exchange Act; (b) any rules
for listed companies promulgated by any national stock exchange on
which the Company's Common Units are traded; or (c) any other
applicable rule or law. Unless sooner terminated hereunder, the
Plan shall terminate fifteen (15) years after the Effective Date.
No Unit Rights may be granted during any suspension or after the
termination of the Plan.
12. Withholding. The Committee may, in its sole discretion,
(a) require a Unit Rights Holder to remit to the Company a cash
amount sufficient to satisfy, in whole or in part, any federal,
state, and local withholding requirements prior to any payment or
issuance of property pursuant to the exercise of Unit Rights
hereunder; (b) satisfy any such withholding requirements by
withholding from payments or property issuable to the Unit Rights
Holder upon the exercise of the Unit Rights amounts of cash or
property equal in value to the amount required to be withheld; or
(c) satisfy such withholding requirements through another lawful
method, including through additional withholdings against the Unit
Rights Holder's other compensation from the Company.
13. Effective Date of Plan. This Plan shall become effective
on the date (the "Effective Date") upon which the Plan is adopted
by the Board.
14. Termination of Employment. In the event of the retirement
(with the written consent of the Company) or other termination of
the employment of a Participant to whom Unit Rights have been
granted under the Plan, other than (a) a termination that is either
(i) for cause or (ii) voluntary on the part of the employee and
without the written consent of the Company; or (b) a termination by
reason of death, the employee may (unless otherwise provided in his
Unit Rights Agreement) exercise his Unit Rights at any time within
one year after such retirement or other termination of employment
(or within one year after termination of employment due to
disability within the meaning of Code Section 422(c)(6), or within
such other time as the Committee shall authorize, but in no event
after ten years from the date of granting thereof (or such lesser
period as may be specified in the Unit Rights Agreement), but only
to the extent of the number of Common Units for which his Unit
Rights were exercisable by him at the date of the termination of
his employment. In the event of the termination of the employment
of an employee to whom Unit Rights have been granted under the Plan
that is either (i) for cause or (ii) voluntary on the part of the
employee and without the written consent of the Company, any Unit
Rights held by him under the Plan, to the extent not previously
exercised, shall forthwith terminate on the date of such
termination of employment. Unit Rights granted under the Plan
shall not be affected by any change of employment so long as the
holder continues to be an employee of the Company or a subsidiary
of the Company, or of a general partner of the Company. The Unit
Rights Agreement may contain such provisions as the Committee shall
approve with respect to the effect of approved leaves of absence.
Nothing in the Plan or in any Unit Rights granted pursuant to the
Plan shall confer on any individual any right to continue in the
employ of the Company or any of its affiliates or interfere in any
way with the right of the Company or any of its affiliates to
terminate his employment at any time.
15. Death of Holder of Unit Rights. In the event a Participant
to whom Unit Rights have been granted under the Plan dies during,
or within one year after the termination of, his employment by the
Company or an affiliate, such Unit Rights (unless they shall have
been previously terminated pursuant to the provisions of the Plan
or unless otherwise provided in his Unit Rights Agreement) may be
exercised (to the extent of the entire number of Common Units
covered), whether or not purchasable by the employee at the date of
his death, by the executor or administrator of the Unit Rights
Holder's estate or by the person or persons to whom the Unit Rights
Holder shall have transferred such Unit Rights by will or by the
laws of descent and distribution, at any time within a period of 12
months after his death, but not after the exercise termination date
set forth in the relevant Units Rights Agreement.
16. Loans to Assist in Exercise of Unit Rights. If approved by
the Board, the Company or any affiliate may lend money or guarantee
loans by third parties to an individual to finance the exercise of
any Unit Rights granted under the Plan to purchase Common Units
thereby acquired.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<BONDS> 50,417
0
0
<COMMON> 29,474
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<SALES> 615,203
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<CGS> 596,841
<TOTAL-COSTS> 596,841
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<INTEREST-EXPENSE> 5,808
<INCOME-PRETAX> (6,463)
<INCOME-TAX> (48)
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<NET-INCOME> (6,415)
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