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AMENDMENT NO. 2 TO SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement. [ ] Confidential, for use of the
Commission Only (as permitted by
Rule 14a-6(e)(2).)
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material under Rule14a-12.
GENESIS ENERGY, L.P.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[GENESIS ENERGY, L.P. LOGO]
October , 2000
Dear Genesis Energy, L.P. Unitholder:
We propose a financial restructuring of Genesis Energy, L.P. intended to
simplify our ownership structure and create the financial flexibility we need to
successfully grow and diversify our business or enter into a transaction to
combine with another business entity.
Since our initial public offering in December 1996, we have not been able
to generate enough cash flow from operations to fund the full minimum quarterly
distribution of $0.50 per unit on both the common units and the subordinated
units. In fact, holders of subordinated units have never received distributions.
Our ability to generate cash flow has deteriorated further during the past
year. We have not generated enough cash flow from operations to fully fund the
payment of the minimum quarterly distribution of $0.50 per unit on the common
units since the second quarter of 1999. To make up the shortfall on the common
units, we have had to use Salomon Smith Barney Holdings Inc.'s distribution
support.
We expect to have fully used all of the available distribution support
from Salomon by the first quarter of 2001. Beginning the first quarter of 2001,
we expect that we will no longer be able to pay the minimum quarterly
distribution of $0.50 per unit on the common units.
To align our minimum quarterly distribution more closely with the levels of cash
that we expect to generate from operations for the foreseeable future, we
propose an amendment to the partnership agreement of our subsidiary operating
partnership that will:
o reduce the minimum quarterly distribution on the common units from the
current $0.50 per unit to $0.20 per unit;
o reduce correspondingly the respective per unit dollar distribution
thresholds that must be achieved before the general partner is
entitled to incentive compensation payments from the current threshold
levels of $0.55, $0.635, and $0.825 per unit to the new threshold
levels of $0.25, $0.28, and $0.33 per unit;
o eliminate all of the outstanding subordinated limited partner units in
our operating partnership and, as a result, provide that the common
units will no longer accrue arrearages if the minimum quarterly
distribution is not paid in full in any quarter; and
o eliminate, without the payment of any consideration, all of the
outstanding additional partnership interests, or APIs, issued to
Salomon in exchange for its distribution support and, as a result,
eliminate our obligation to redeem the APIs issued to Salomon in
exchange for its distribution support if quarterly cash available for
distribution exceeds specified levels.
If the proposal is approved:
o Salomon will contribute to the operating partnership in cash the
remaining distribution support, expected to be $3.7 million. After
payment of transaction costs associated with the restructuring
estimated at $1.3 million, we will then declare a special distribution
of the remaining cash, estimated at $2.4 million, or $0.28 per unit.
o Salomon will extend the expiration date of its $300 million credit
support obligation to the partnership from March 31, 2001 to December
31, 2001 on the current terms and conditions. This extension will
eliminate an estimated $2.5 million increase in trade credit costs for
the last nine months of 2001.
A glossary of some of the terms used in this proxy statement is included
on page 34.
BASED ON THE UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD
OF DIRECTORS ESTABLISHED TO CONSIDER THE FAIRNESS OF THE PROPOSED RESTRUCTURING
TO YOU, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE PROPOSED RESTRUCTURING. THE AFFIRMATIVE VOTE OF A MAJORITY OF COMMON UNITS
IS NECESSARY FOR THE APPROVAL OF THE PROPOSAL. YOUR FAILURE TO VOTE WILL HAVE
THE EFFECT OF A VOTE AGAINST THE PROPOSAL. A special meeting of unitholders of
Genesis Energy, L.P. will be held on December 7, 2000, at our offices at 500
Dallas, Suite 2500, Houston, Texas 77002. The meeting will start at 10:00 a.m.,
local time.
GENESIS ENERGY, L.P.
Mark J. Gorman
President and Chief Executive Officer,
Genesis Energy, L.L.C., as General Partner
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF
OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT IS CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROXY STATEMENT.
This proxy statement was first mailed to unitholders on or about October
, 2000.
PLEASE SEE THE SECTION ENTITLED "DISADVANTAGES OF THE PROPOSAL TO THE
COMMON UNITHOLDERS AND OTHER CONSIDERATIONS" BEGINNING ON PAGE 12 FOR A
DISCUSSION OF POTENTIAL DISADVANTAGES AND OTHER FACTORS WHICH YOU SHOULD
CONSIDER IN CONNECTION WITH THE RESTRUCTURING PROPOSAL.
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GENESIS ENERGY, L.P.
500 DALLAS, SUITE 2500
HOUSTON, TEXAS 77002
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON DECEMBER 7, 2000
To the unitholders of Genesis Energy, L.P.:
A special meeting of unitholders of Genesis Energy, L.P., a Delaware
limited partnership, will be held on December 7, 2000 at 10:00 a.m. local time,
at our offices at 500 Dallas, Suite 2500, Houston, Texas 77002, to consider and
vote upon a proposal that, if approved, will:
o reduce the minimum quarterly distribution on the common units
from the current $0.50 per unit to $0.20 per unit;
o reduce correspondingly the respective per unit dollar thresholds
that must be achieved before the general partner is entitled to
incentive compensation payments from the current threshold levels
of $0.55, $0.635, and $0.825 per unit to the new threshold levels
of $0.25, $0.28, and $0.33 per unit;
o eliminate for no consideration all outstanding subordinated
limited partnership units and, as a result, terminate the
subordination period and eliminate the requirement that the
common units accrue arrearages for any future shortfalls in
quarterly distributions below the minimum quarterly distribution;
and
o eliminate for no consideration all outstanding additional
partnership interests.
If the proposal is approved:
o Salomon will contribute to the operating partnership in cash the
remaining distribution support expected to be $3.7 million. After
payment of transaction costs associated with the restructuring
estimated at $1.3 million, we will then declare a special
distribution of the remaining cash, estimated at $2.4 million, or
$0.28 per unit.
o Salomon will extend the expiration date of its $300 million
credit support obligation to the partnership from March 31, 2001
to December 31, 2001 on the current terms and conditions. This
extension will eliminate an estimated $2.5 million increase in
trade credit costs for the last nine months of 2001.
Only holders of units at the close of business on October 18, 2000 are
entitled to notice of, and to vote at, the special meeting or any adjournments
or postponements thereof. Unitholders may vote in person or by proxy. Our
general partner is soliciting the accompanying form of proxy.
Under applicable law, dissenters' appraisal rights do not apply to the
unitholders in connection with the proposal to be voted upon at the special
meeting.
YOUR VOTE IS IMPORTANT. An affirmative vote of a majority of the votes
entitled to be cast is required to approve the proposal. YOUR FAILURE TO VOTE
WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL. Even if you plan to attend
the special meeting in person, please sign and return the enclosed proxy, or
authorize the individuals named on your proxy card to vote your units by calling
the toll-free telephone number or using the Internet as described in the
instructions included with your proxy card. This will ensure that your units
will be represented at the special meeting if you are unable to attend. If you
do attend the special meeting and wish to vote in person, you may withdraw your
proxy and vote in person.
By Order of the General Partner,
Ross A. Benavides
General Counsel, Secretary and Chief Financial Officer
Genesis Energy, L.L.C.
Houston, Texas
October , 2000
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TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING .................................................................1
FORWARD LOOKING STATEMENTS.....................................................................................2
GENESIS ENERGY, L.P............................................................................................3
REASONS FOR THE PROPOSAL.......................................................................................5
REASONS FOR THE DECLINE IN AVAILABLE CASH......................................................................8
RECENT DEVELOPMENTS............................................................................................9
PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP..................................10
Contribution of Distribution Support and Extension of Credit Support.....................................12
Disadvantages of the Proposal to the Common Unitholders and Other Considerations.........................12
Costs And Expenses Of The Proposed Restructuring.........................................................13
DESCRIPTION OF THE UNITS......................................................................................14
CURRENT OWNERSHIP STRUCTURE...................................................................................20
RESULTING OWNERSHIP STRUCTURE.................................................................................21
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL..................................................................22
RECOMMENDATIONS AND OPINIONS..................................................................................22
Strategic Alternatives...................................................................................22
Recommendation of the Special Committee of the Board of Directors of the General Partner.................23
Fairness Opinion of Financial Advisor to the Special Committee...........................................24
Recommendation of the Board of Directors of the General Partner..........................................27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................28
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES.................................................................29
Treatment of Distributions...............................................................................29
Effect of Elimination of Interests Held by Salomon and Howell............................................29
Disposition of Common Units..............................................................................29
Basis of Units...........................................................................................30
Ratio of Taxable Income to Distributions.................................................................30
THE SPECIAL MEETING...........................................................................................31
General..................................................................................................31
Unitholders Entitled to Vote.............................................................................31
Record Date..............................................................................................31
Proxies..................................................................................................31
Voting Procedures for Beneficial Owners..................................................................32
Solicitation.............................................................................................32
Quorum; Adjournment......................................................................................32
No Dissenters' Appraisal Rights..........................................................................32
Recommendations of the Special Committee and our Board of Directors......................................32
INCORPORATION OF DOCUMENTS BY REFERENCE.......................................................................33
GLOSSARY......................................................................................................34
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................................................................F-1
ANNEX A - OPINION OF SIMMONS & COMPANY INTERNATIONAL........................................................A-1
ANNEX B - FORM OF SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF GENESIS ENERGY, L.P.............................................................B-1
ANNEX C - FORM OF SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF GENESIS CRUDE OIL, L.P..........................................................C-1
ANNEX D - GENESIS ENERGY, L.P. QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000..............................................D-1
ANNEX E - GENESIS ENERGY, L.P. ANNUAL REPORT ON FORM 10-K/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999....................................................E-1
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QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its annexes,
and to consider how the restructuring may affect you as a unitholder. This
proxy statement, which was mailed to all holders of record as of October
18, 2000, contains important information regarding the proposed
restructuring. For information about where to call to get answers to your
questions, see "What if I have questions?" below.
Q: HOW DO I VOTE?
A: Just mail your completed, signed and dated proxy card in the enclosed
postage-paid return envelope as soon as possible so that your units may be
represented at the special unitholders' meeting to vote on the proposal, or
authorize the individuals named on your proxy card to vote your units by
calling the toll-free telephone number or using the Internet as described
in the instructions included with your proxy card. You may also attend the
special meeting and vote your units in person. The special meeting will be
held on December 7, 2000 at 10:00 a.m. at our offices at 500 Dallas, Suite
2500, Houston, Texas 77002. Even if you plan to attend the special meeting,
we recommend that you complete, sign and date the enclosed proxy card and
return it promptly in the enclosed postage-paid envelope.
Q: WHEN MUST I VOTE?
A: In order for your vote to be counted, we must receive your proxy at or
prior to the special meeting or you must attend the special meeting.
Q: IF MY BROKER HOLDS MY UNITS, HOW DO I VOTE?
A: You should contact your broker for instructions. Your broker can tell you
if your units are held in street name and, if they are, how you can
instruct your broker to vote your units. Your broker may vote your units
only if you provide instructions on how to vote. Please tell your broker
how to vote your units.
Q: WHAT IF I HAVE QUESTIONS?
A: If you have questions about the restructuring or if you would like
additional copies of this proxy statement or a new proxy card, you should
contact: D.F. King & Co., Inc., by mail at 77 Water Street, New York, New
York 10005, or by telephone, toll free, at (800) 431-9643. D.F. King & Co.,
Inc. is acting as our proxy solicitor.
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FORWARD LOOKING STATEMENTS
The statements in this proxy statement that are not historical information
are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Although we believe that our expectations regarding future events are based on
reasonable assumptions, we cannot assure you that our goals will be achieved or
that our expectations regarding future developments will prove to be correct.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward looking statements herein include, but are
not limited to, the following:
o changes in regulations;
o our success in obtaining additional lease barrels;
o changes in crude oil production volumes (both world-wide and in
areas in which we have operations);
o developments relating to possible acquisitions or business
combination opportunities;
o volatility of crude oil prices and grade differentials;
o the success of our risk management activities;
o credit requirements by our counterparties;
o our ability to replace our credit support from Salomon with a
bank facility and to replace our working capital facility with
BNP Paribas with another facility;
o our ability in the future to generate sufficient amounts of
Available Cash to permit us to distribute to our unitholders at
least the minimum quarterly distribution;
o any requirements for testing or changes in our Mississippi
pipeline system as a result of the oil spill that occurred there
in December 1999;
o any fines and penalties federal and state regulatory agencies may
impose in connection with the oil spill that would not be
reimbursed by insurance;
o results of current or threatened litigation; and
o conditions of capital markets and equity markets during the
periods covered by the forward looking statements.
All subsequent written or oral forward looking statements attributable to
us, or persons acting on our behalf, are expressly qualified in their entirety
by the foregoing cautionary statements.
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GENESIS ENERGY, L.P.
We were formed in December 1996 to acquire the crude oil gathering and
marketing operations of a subsidiary of Salomon and the crude oil gathering,
marketing and pipeline operations of Howell Corporation. We are an independent
gatherer and marketer of crude oil. Our operations are concentrated in Texas,
Louisiana, Alabama, Florida, Mississippi, New Mexico, Kansas and Oklahoma. In
our gathering and marketing business, we are principally engaged in the purchase
and aggregation of crude oil at the wellhead and the bulk purchase of crude oil
at pipeline and terminal facilities for resale at various points along the crude
oil distribution chain, which extends from the wellhead to aggregation and
terminal facilities, refineries and other end markets. Our gathering and
marketing margins are generated by buying crude oil at competitive prices,
efficiently transporting or exchanging the crude oil along the distribution
chain and marketing the crude oil to refineries or other customers at favorable
prices. In addition to our gathering and marketing business, our operations
include transportation of crude oil for ourselves and for others at regulated
published tariffs on our three common carrier pipeline systems. Our
profitability depends to a significant extent upon our ability to maximize our
gross margins. In 1999, the gathering and marketing operations contributed
approximately 64% of our total gross margin and the pipeline operations
contributed the remaining 36%.
GATHERING AND MARKETING. In the second quarter of 2000, we purchased an
average of 101,702 barrels per day of crude oil at the wellhead from
approximately 9,600 leases. We utilize our trucking fleet of 76 tractor-trailers
and our gathering lines to transport crude oil purchased at the wellhead to
pipeline injection points, terminals and refineries for sale to our customers.
We also transport purchased crude oil on trucks, barges and pipelines owned and
operated by third parties. In addition, as part of our gathering and marketing
business, we purchase crude oil in bulk at pipeline and terminal facilities for
resale to refineries or other customers. When opportunities arise to increase
our margin or to acquire a grade of crude oil that more closely matches the
specifications for crude oil we are obligated to deliver, we exchange crude oil
with third parties through exchange or buy/sell agreements.
In our gathering and marketing business, we seek to purchase and sell
crude oil at points along the crude oil distribution chain where we can achieve
positive gross margins. We generally purchase crude oil at prevailing prices
from producers at the wellhead under short-term contracts or in bulk from major
oil companies, intermediaries and other third parties. We then transport the
crude oil along the distribution chain for sale to or exchange with customers.
We generally enter into an exchange transaction only when the cost of the
exchange is less than the alternative costs we would otherwise incur in
transporting or storing the crude oil. In addition, we often exchange one grade
of crude oil for another to maximize our margins or to meet our contract
delivery requirements.
Generally, as we purchase crude oil, we simultaneously establish a margin
by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the New York Mercantile
Exchange. Through these transactions, we seek to maintain a position that is
substantially balanced between crude oil purchases, on the one hand, and sales
or future delivery obligations, on the other hand. It is our policy not to
acquire and hold crude oil, futures contracts or other derivative products for
the purpose of speculating on crude oil price changes.
PIPELINE OPERATIONS. Our three common carrier crude oil pipeline systems
and related gathering lines are the Texas System, the Jay System extending
between Florida and Alabama, and the Mississippi System extending between
Mississippi and Louisiana. We also own approximately 2.0 million barrels of
associated storage capacity. We currently transport a total of approximately
90,000 barrels per day on our pipelines. As a result of a December 1999 oil
spill, a segment of our Mississippi system has been temporarily shut down and
will not be returned to service until regulators give their approval.
Through our pipeline systems, we transport crude oil for ourselves and
others pursuant to tariff rates regulated by the Federal Energy Regulatory
Commission or the Texas Railroad Commission. Accordingly, we offer
transportation services to any shipper of crude oil, provided that the products
tendered for transportation satisfy the conditions and specifications contained
in the applicable tariff. Pipeline revenues and gross margins are primarily a
function of the level of throughput and storage activity.
GROSS MARGINS. Gross margin from gathering, marketing and pipeline
operations varies from period-to-period, depending to a significant extent upon
changes in the supply and demand of crude oil and the resulting changes in
United States crude oil inventory levels. The gross margin from gathering and
marketing operations is generated by
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the difference between the price of crude oil at the point of purchase and the
price of crude oil at the point of sale, minus the associated costs of gathering
and transportation. The absolute price levels of crude oil do not necessarily
bear a relationship to gross margin because absolute price levels normally
impact revenues and cost of sales by equivalent amounts.
In addition to purchasing crude oil at the wellhead, we purchase crude oil
in bulk at major pipeline terminal points and major marketing points and enter
into exchange transactions with third parties. These bulk and exchange
transactions are characterized by large volumes and narrow profit margins on
purchase and sales transactions, and the absolute price levels for crude oil do
not necessarily bear a relationship to gross margin, although such price levels
significantly impact revenues and cost of sales. Period-to-period variations in
revenues and cost of sales are not generally meaningful in analyzing the
variation in gross margin for gathering and marketing operations.
Pipeline gross margins are primarily a function of the level of throughput
and storage activity and are generated by the difference between the regulated
published tariff and the fixed and variable costs of operating the pipeline.
Changes in revenues, volumes and pipeline operating costs, therefore, are
relevant to the analysis of financial results of our pipeline operations.
The price level of crude oil impacts gathering and marketing and pipeline
gross margins to the extent that oil producers adjust production levels.
Short-term and long-term price trends impact the amount of cash flow that
producers have available to maintain existing production and to invest in new
reserves, which in turn impacts the amount of supply that is available to be
gathered and marketed by us and our competitors.
CREDIT SUPPORT. We are substantially dependent on credit support to
conduct our business. The amount of credit support required for the conduct of
our business depends on the aggregate price we pay for crude oil, the extent to
which crude oil producers require credit support from us for our purchases and
the extent to which we are able to offset the credit required for our crude oil
purchases against sales with the same counterparty through a compromise of
claims. If crude oil prices are high or if producers require a significantly
higher percentage of crude oil purchases to be supported by guarantees or
letters of credit, the credit support available to us through Salomon or through
financial institutions could be insufficient to support crude oil purchases at
current levels.
In connection with our initial public offering of units in December 1996,
we entered into a Master Credit Support Agreement with Salomon. Under this
agreement, Salomon provides us with credit support in the form of a guarantee
facility in connection with the purchase, sale or exchange of crude oil in the
ordinary course of our business with third parties. The aggregate amount of the
guarantee facility is limited to $300 million. This amount is reduced by the
amount of any obligation we have to a third party to the extent that such party
has a prior security interest in the collateral under the Master Credit Support
Agreement.
Salomon's credit support obligation will expire on March 31, 2001. If the
proposal is approved Salomon will extend its credit support obligation, on the
current terms and conditions, for nine additional months to December 31, 2001.
INCREASED DEMAND FOR CREDIT SUPPORT. At December 31,1999, the aggregate
amount of obligations covered by guarantees was $164 million, including $72
million in payable obligations and $92 million in estimated crude oil purchase
obligations for January 2000. At June 30, 2000, because of a significant
increase in crude oil prices and increased demands for credit support from
counterparties, the aggregate amount of obligations covered by guarantees was
$290 million, including $186 million in payable obligations and $104 million in
estimated crude oil purchase obligations for July 2000.
During the first six months of 2000, we provided Salomon guaranties to
several exchange partners and producers who previously had not requested credit
support. In addition, several exchange partners eliminated the open lines of
credit they had extended to us before their guaranty became effective. As oil
prices have risen during this period, we have also had to increase the face
amount of numerous guaranties. During the second quarter of 2000, we have
exceeded the $300 million maximum for guaranty usage allowed by Salomon under
the Master Credit Support Agreement. As a result of exceeding this maximum, we
have obtained from Salomon a waiver of default under the Master Credit Support
Agreement. We have taken actions for future months such as limiting our purchase
and exchange transactions in order to reduce the guaranty usage under the Master
Credit Support Agreement. Any reduction in our gathering and marketing
activities is likely to result in decreased total gross margins and, as a
result, less Available Cash for distribution to common unitholders. Further, in
light of potential further increases in crude oil prices and expected increased
requests for guaranties from counterparties, we cannot assure you that further
reductions in our gathering and marketing activities will not be required to
ensure that our guaranty usage will remain below the $300 million threshold of
the Master Credit Support Agreement.
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SALOMON'S DISTRIBUTION SUPPORT FOR THE MINIMUM QUARTERLY DISTRIBUTION. In
connection with our initial public offering in December 1996, Salomon agreed to
contribute up to $17.6 million in exchange for APIs if necessary to support our
ability to pay the minimum quarterly distributions on our outstanding common
units with respect to quarters ending on or prior to December 31, 2001. To date,
we have issued to Salomon $11.3 million in APIs. In November 2000, we expect to
utilize an additional $2.6 million of distribution support to pay a portion of
the $0.50 per unit quarterly distribution for the third quarter of 2000. As a
result, we will have utilized $13.9 million of Salomon's $17.6 million
distribution support.
SHORTFALL OF AVAILABLE CASH. Since our initial public offering in December
1996, we have generated $46.6 million of Available Cash from operations and have
distributed $62.9 million to you, our common unitholders. Available Cash is
generally all cash on hand at the end of a quarter, as adjusted for reserves.
See also "Description of the Units--Distributions of Available Cash." For a more
detailed definition of Available Cash, please see the Glossary on page 34. We
have not made any distributions on the subordinated units. The $16.3 million
shortfall in Available Cash from operations has primarily been funded from $5
million of proceeds that we retained from our initial public offering and $11.3
million of distribution support provided by Salomon pursuant to Salomon's
distribution support obligation.
REASONS FOR THE PROPOSAL
We believe that a simplified ownership structure and improved financial
condition will enhance the potential for business combinations and other
strategic alternatives. We believe that after the restructuring we will be
better able to attract a strategic partner who will contribute assets to us in
exchange for partnership interests on a basis that will increase the amount of
Available Cash generated per unit. Unless our unitholders approve the proposed
restructuring, the board of directors of our general partner believes that the
following will occur:
o WE WILL CONTINUE TO GENERATE INSUFFICIENT AVAILABLE CASH FROM
OPERATIONS TO PAY THE MINIMUM QUARTERLY DISTRIBUTION FOR THE
FORESEEABLE FUTURE.
We do not expect industry conditions to improve enough to allow us to
generate sufficient Available Cash from operations to pay the full
minimum quarterly distribution on the common units for the foreseeable
future. To pay the full minimum quarterly distribution on the common
units for a full year, we need to generate $17.6 million in Available
Cash. We currently generate, and expect to generate for the
foreseeable future, approximately $7.0 million of Available Cash from
operations. We expect to utilize the remaining $3.7 million of
distribution support from Salomon by the first quarter of 2001. Once
the distribution support provided by Salomon has been fully utilized,
distributions on common units will be based on the amount of Available
Cash we generate from operations. Beginning the first quarter of 2001,
we expect distributions to average approximately $0.20 per unit per
quarter. We cannot assure you that the amount of Available Cash we
generate from operations will be sufficient to pay a quarterly
distribution of $0.20 per unit.
o WE EXPECT TO ACCUMULATE ARREARAGES OF APPROXIMATELY $10.6 MILLION PER
YEAR.
Under the terms of our existing partnership agreement, unless the
proposed restructuring is approved, we will accumulate arrearages of
approximately $10.6 million per year for the foreseeable future. See
"Reasons for the Decline in Available Cash." These arrearages are the
result of the expected shortfall of $0.30 per unit per quarter between
the current minimum quarterly distribution of $0.50 per unit and the
amount actually paid on common units, which we expect to be $0.20 per
unit per quarter. Common unit arrearages are contingent payment
obligations entitling you to payments only to the extent there is
Available Cash in excess of the minimum quarterly distribution on
common units for the then current quarter. These arrearages accrue
only so long as subordinated units remain outstanding. If the
restructuring is approved, the subordination period will end and
arrearages will no longer accrue.
IF ARREARAGES ACCUMULATE:
WE EXPECT TO INCUR INCREASED CREDIT SUPPORT REQUIREMENTS AND
COSTS.
If arrearages accumulate, we expect credit support requirements
and costs to increase. As described under "Genesis Energy, L.P. -
Credit Support" during the first six months of 2000, we have
experienced increased demand for credit support. As a result, we
have exceeded the $300 million maximum for guaranty usage and
have taken actions such as limiting our purchase and exchange
transactions to reduce guaranty usage. Any reduction in our
gathering and marketing activities is likely to result in
decreased total gross margins and, as a result, less Available
Cash for distribution to common unitholders. If crude oil prices
increase further and if additional counterparties demand
guarantees, we may be forced to curtail our gathering and
marketing activities even further to remain below the $300
million threshold of the Master Credit Support Agreement.
Once we accrue arrearages, we expect exchange partners and
producers to demand further increased credit support. The
increased credit support demands would further increase the
amount of credit fees we pay Salomon or, after the expiration of
Salomon's Master Credit Support Agreement, to a third party. If
increased credit support demands exceed the credit support
available to us, we will be forced to further curtail our
purchasing and marketing activities, which will adversely affect
our profitability and Available Cash.
Further, the Master Credit Support Agreement with Salomon is
scheduled to expire on March 31, 2001. If we replace the existing
$300 million Master Credit Support Agreement with a commercial
letter-of-credit facility, we expect the cost of our credit
support to increase by at least $3.3 million per year.
WE EXPECT TO EXPERIENCE INCREASING DIFFICULTIES IN OBTAINING
WORKING CAPITAL CREDIT.
If the proposed restructuring is not approved, our current $25
million working capital facility with BNP Paribas will expire on
February 28, 2001. Increasing trade credit support requirements
and the prospects of accumulating arrearages on common units may
adversely affect the terms and the cost of replacing the existing
working capital facility.
WE EXPECT CONSTRAINTS ON OUR ABILITY TO ACCESS CAPITAL MARKETS.
Unless Genesis expends capital to increase its asset base or
diversify into other businesses that generate qualifying income
for a master limited partnership under the Internal Revenue
Code, and if current industry conditions continue, we believe
that Available Cash will continue to decline. If we begin to
accumulate distribution arrearages with respect to our common
units, we believe that our access to capital markets will be
limited. We believe that there would be a great deal of
uncertainty and complexity associated with the issuance of new
common or subordinated units while existing common units are
subject to arrearages for past distributions and obligations to
repurchase APIs exist. Further, we believe that this impediment
to issuing new equity capital could adversely affect our ability
to obtain debt financing for acquisitions since an important
element of obtaining debt financing is our commitment to and our
ability to access equity markets to repay the debt. If we are
limited in our ability to access capital to grow and diversify
the business, we may be adversely affected in our ability to
maintain or increase our level of purchasing and marketing
activity. Such reduction of activity could further erode our
ability to generate Available Cash.
o UNLESS WE SIMPLIFY OUR OWNERSHIP STRUCTURE AND IMPROVE OUR FINANCIAL
CONDITION, THE POTENTIAL FOR BUSINESS COMBINATIONS AND OTHER STRATEGIC
ALTERNATIVES IS LOW.
We believe that Genesis' current capital structure combined with its
inability to generate sufficient Available Cash from operations to
meet a minimum quarterly distribution of $0.50 per unit serves as a
disincentive to any enterprise with assets that generate income that
qualifies for master limited partnership treatment under the Internal
Revenue Code to contribute these assets in exchange for partnership
interests in Genesis. A substantial portion of any incremental cash
flow generated by the contribution of these assets would be applied to
reduce arrearages on existing common units, to make minimum quarterly
distributions on existing subordinated units, and to redeem APIs.
Further, we believe that any combination of Genesis with another
master limited partnership would most likely require, as a condition
of that combination, a reduction in the minimum quarterly distribution
on existing Genesis common units, forgiveness of common unit
arrearages, and the elimination of subordinated units and APIs.
Approval of the proposed restructuring would remove significant
impediments to a business combination that could bring value to the
holders of common units. We believe that after the restructuring we
will be better able to attract a strategic partner who will contribute
assets to us in exchange for partnership interests on a basis that
will increase the amount of Available Cash generated per unit.
REASONS FOR THE DECLINE IN AVAILABLE CASH
As described below, lower total gross margins result in less Available Cash
from operations available to pay the minimum quarterly distribution to common
unitholders. As evidenced by our use of distribution support from Salomon, we
have had insufficient Available Cash generated from operations in each quarter
since the second quarter of 1999 to meet our distribution obligation on the
common units. We do not expect our situation to improve for the foreseeable
future. In fact, if the proposed restructuring is not approved, our future
results from operations and, therefore, our Available Cash could decline
further.
DECLINE IN AVAILABLE CASH. Available Cash from operations has declined
$12.7 million or 53% from 1996 to 1999 and $3.5 million or 49% from the first
six months of 1999 to the first six months of 2000.
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SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------
2000 1999 1999 1998 1997 1996
-------- -------- -------- -------- -------- ------------
(PRO FORMA)
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Net income ............................................ $ (571) $ 1,913 $ 2,332 $ 7,056 $ 7,880 $ 15,889
Minority interests .................................... (143) 479 583 1,763 1,968 3,970
Depreciation and amortization ......................... 4,081 4,112 8,220 7,719 6,300 6,834
Other non-cash items .................................. 1,306 746 610 1,772 45 --
Reserves .............................................. (750) (405) 396 -- -- --
Maintenance capital expenditures, net ................. (325) 235 (670) (1,509) (3,785) (2,535)
-------- -------- -------- -------- -------- ------------
Available Cash from operations ........................ 3,598 7,080 11,471 16,801 12,408 24,158
Distribution obligation on common units ............... 8,800 8,800 17,600 17,600 17,600 17,600
-------- -------- -------- -------- -------- ------------
Cash surplus (deficit) vs. distribution obligation .... $ (5,202) $ (1,720) $ (6,129) $ (799) $ (5,192) $ 6,558
======== ======== ======== ======== ======== ============
DECLINE IN TOTAL GROSS MARGINS. The $12.7 million decline in Available
Cash from operations from 1996 to 1999 is primarily attributable to an
equivalent decrease in our gross margins over the same time frame. As shown in
the table below, our total gross margins decreased $13.3 million from $36.2
million in 1996 to $22.9 million in 1999. Gathering and marketing gross margins
decreased $9.7 million from 1996 to 1999 and pipeline gross margins decreased
$3.6 million over the same period. Total gross margins decreased $2.8 million
from $12.1 million in the first six months of 1999 to $9.3 million in the first
six months of 2000, with gathering and marketing gross margins decreasing $1.4
million and pipeline gross margins decreasing $1.4 million during the same
period.
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996
-------- -------- -------- -------- -------- ------------
(UNAUDITED) (PRO FORMA)
(UNAUDITED)
(IN THOUSANDS)
Gathering and marketing gross margins .... $ 6,208 $ 7,582 $ 14,659 $ 19,635 $ 11,648 $ 24,379
Pipeline gross margins ................... 3,133 4,508 8,205 8,562 11,973 11,802
-------- -------- -------- -------- -------- ------------
Total gross margins ...................... $ 9,341 $ 12,090 $ 22,864 $ 28,197 $ 23,621 $ 36,181
SIGNIFICANT PRODUCTION DECLINES. The decline in gathering and marketing
gross margins resulted from significant declines since 1996 in production from
Texas, Louisiana, Mississippi and Alabama, our primary areas of operation. As
crude oil prices fell from $20 per barrel to $10 per barrel during 1998, oil
producers stopped drilling and shut in existing production. Hardest hit were
operators of stripper wells. Stripper wells are older wells which produce less
than 10 barrels per day and account for 75% of all wells in the United States.
Baker Hughes Incorporated estimates that 135,000 of the 450,000 stripper wells
in the United States were shut in and that 30% of the shut-in wells have been
permanently lost.
Crude oil production in our primary areas of operation declined 15.8%
between 1996 and 1999, decreasing from 1.97 million barrels per day to 1.66
million barrels per day. Over the same time frame, our wellhead purchases
declined 19.8% from 111,000 barrels per day to 93,000 barrels per day. The
decline in wellhead volumes began in the second half of 1998 in response to
weakening crude oil prices. Volumes declined from 118,000 barrels per day during
the first half of 1998 to 110,000 barrels per day during the second half of the
year. A large contract with Pioneer Natural Resources expired at the end of
1998, reducing volumes at the beginning of 1999 by an additional 21,000 barrels
per day. The loss of the Pioneer volumes and continued declines associated with
low crude oil prices cut wellhead volumes during the first half of 1999 to an
average of 89,000 barrels per day.
We increased wellhead volumes during the second half of 1999 by
obtaining existing production through competitive pricing. Wellhead purchases
increased to 92,000 barrels per day during the third quarter and to 99,000
barrels per day for the fourth quarter of 1999. Although we increased our
average wellhead volumes by 13,000 barrels per day in the first six months of
2000 as compared to the same period in 1999, these volume increases were
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primarily a result of obtaining existing production by paying higher prices for
the production than the previous purchaser. Increased volumes obtained through
competitive pricing for existing production generally result in incrementally
lower margins per barrel.
ANNUAL AVERAGE BARRELS PER DAY
---------------------------------
1999 1998 1997 1996
------ ------ ------ ------
(IN THOUSANDS)
Total Production--Primary Operating Areas .... 1,663 1,865 1,954 1,974
Genesis Wellhead Purchases .................... 93 114 105 116
The significant production declines in our primary areas of operation
adversely impacted our pipeline gross margins. The $3.6 million decline in
pipeline gross margins since 1996 is attributable to volume declines on pipeline
assets that were acquired when our partnership was formed in December 1996.
Shipments on these assets declined 18.5% between 1996 and 1999, dropping from
approximately 86,600 barrels per day to 70,500 barrels per day. The 16,000
barrel per day decline reduced annual pipeline revenues by over $3.1 million
over the same period. The West Columbia acquisition in the fourth quarter of
1998 and the tie-in of a new connecting carrier on the Texas System at the
beginning of 1999 replaced volume declines on the pipeline assets acquired when
the partnership was formed, but the length of haul associated with the new
volumes was significantly shorter. The length of haul refers to the distance
between the point where the crude oil enters the pipeline and the delivery
point. Tariffs are based on the distance the oil is transported, therefore when
the length of haul is shorter, we earn lower total revenues and gross margins.
Also contributing to the decline in the pipeline gross margins associated with
these assets were higher maintenance costs and lease payments on a new pipeline
segment.
AVERAGE BARRELS PER DAY
YEAR ENDED
SIX MONTHS ENDED ---------------------------------
JUNE 30, 2000 1999 1998 1997 1996
---------------- ------ ------ ------ ------
(In thousands)
Initial Pipeline Assets: December 1996 ... 69,917 70,549 82,769 89,117 86,557
West Columbia Acquisition ................ 15,428 17,073 2,825 0 0
Business Development ..................... 4,988 6,426 0 0 0
---------------- ------ ------ ------ ------
Total Pipeline Volume .................... 90,333 94,048 85,594 89,117 86,557
Although crude oil prices have increased from $12 per barrel in January 1999 to
nearly $32 per barrel in June 2000, U.S. onshore crude oil production volumes
have not improved. Further, producers appear to be responding cautiously to the
oil price increase and are focusing more on drilling for natural gas. This
changed focus is clearly demonstrated by the Baker Hughes North American Rotary
Rig Count for 1997 to 2000.
BAKER HUGHES NORTH AMERICAN ROTARY RIG COUNT
AVERAGE NUMBER OF RIGS DRILLING FOR CRUDE OIL AND NATURAL GAS
Year Crude Oil Natural Gas Price per bbl*
---- --------- ----------- --------------
1997 376 566 $20.60
1998 264 560 $14.40
1999 128 496 $19.25
2000 (through June 30) 177 630 $28.80
- ----------
* Annual average price for 1997 through 1999 and six month average for 2000 for
West Texas Intermediate at Cushing, Oklahoma.
Based on the limited improvement in the number of rigs drilling for
crude oil, we believe that crude oil production in our primary areas of
operation is likely to continue to decrease. Although there has been some
increase since January 1999 in the number of drilling and workover rigs being
utilized in our primary areas of operation, we believe that this activity is
more likely to have the effect of reducing the rate of decline rather than
meaningfully increasing wellhead volumes in our operating areas in 2000.
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Our improved gathering and marketing volumes in the first six months of
2000 compared to the same period of 1999 were primarily due to obtaining
existing production by paying higher prices for the production than the previous
purchaser. Increased volumes obtained through competitive pricing for existing
production generally result in incrementally lower margins per barrel.
INCREASED CREDIT COSTS. As crude oil prices have risen, our utilization
of, and cost of credit under, the Master Credit Support Agreement has increased
with respect to the same volume of business. We have taken steps to reduce our
gathering and marketing activities due to the $300 million limit of the Master
Credit Support Agreement. Any reduction in our gathering and marketing
activities is likely to result in decreased total gross margins and, as a
result, less Available Cash for distribution to common unitholders.
Additionally, as prices rise, we may have to increase the amount of our
revolving credit agreement with BNP Paribas in order to have funds available to
meet margin calls on the NYMEX and to fund inventory purchases. We cannot assure
you that we would be able to increase the size of the revolving credit facility
or that changes to the terms of the increased revolving credit facility would
not have a material impact on our results of operations or cash flows.
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RECENT DEVELOPMENTS
SHAREHOLDER LITIGATION. On May 24, 2000, Richard Dollinger, a holder of
units of limited partner interests in the partnership, filed a putative class
action complaint in the Chancery Division, Camden County, Superior Court of New
Jersey, seeking to enjoin Salomon from taking any steps to accomplish or
implement the proposed restructuring without adequate safeguards for the
interests of the class of common unitholders. The plaintiff alleges breach of
fiduciary duty, breach of contract and duty of good faith and fair dealing and a
violation of the New Jersey Consumer Fraud Act by the defendant in connection
with the restructuring. Salomon believes that the complaint is without merit and
intends to vigorously defend the action.
On June 7, 2000, Bruce E. Zoren, a holder of units of limited partner
interests in the partnership, filed a putative class action complaint in the
Delaware Court of Chancery, No. 18096-NC seeking to enjoin the restructuring and
seeking damages. Defendants named in the complaint include the partnership,
Genesis Energy L.L.C., members of the board of directors of Genesis Energy,
L.L.C., and Salomon Smith Barney Holdings Inc. The plaintiff alleges numerous
breaches of the duties of care and loyalty owed by the defendants to the
purported class in connection with making a proposal for restructuring. We
believe that the complaint is without merit and intend to vigorously defend the
action.
PETITION REQUESTING DEPOSITIONS TO INVESTIGATE POTENTIAL CLAIM OR SUIT.
On August 17, 2000, Pennzoil-Quaker State Company filed a petition in the 61st
District Court of Harris County, Texas requesting the court's authority to take
depositions and subpoena documents in connection with the investigation of a
potential claim or suit against several parties, including Genesis. In its
petition, Pennzoil-Quaker State alleges that tainted crude oil supplied by
Genesis may have caused a fire and explosion at Pennzoil-Quaker State's
Shreveport refinery in January 2000. Genesis does not possess sufficient
information at this time to determine whether the fire at the refinery was
caused by crude oil supplied by Genesis. If Pennzoil-Quaker State were to file a
lawsuit against the partnership, we intend to vigorously defend any claim filed
against us. However, we cannot guarantee that a potential claim will not result
in liability to us, nor can we assure you that any potential liability would be
covered by Genesis' insurance carrier.
POTENTIAL DELISTING FROM THE NEW YORK STOCK EXCHANGE. The common units
of Genesis are traded on the New York Stock Exchange. The NYSE rules provide
that if a listed company has a global market capitalization of less than $50
million and total stockholders' equity of less than $50 million, the NYSE will
evaluate the continued listing of the company's securities on the NYSE. The
partnership's total partners' capital was $44.3 million as of June 30, 2000 and
total market capitalization had dropped below $50 million during the second
quarter of 2000. We cannot assure you that the NYSE will not notify us by letter
of our status. This notification would provide us with an opportunity to provide
the NYSE with a plan advising the NYSE of definitive action we have taken, or
are taking, that would bring the partnership into conformity with continued
listing standards within 18 months of receipt of the notice. We cannot assure
you that the NYSE will not provide notice of delisting, and if so, whether we
would be able to present a plan to the NYSE that would assure the continued
listing of our common units on the NYSE. We believe that the proposed
restructuring meets the NYSE requirement of a plan that would assure the
continued listing of our common units. On a pro forma basis, assuming the
restructuring had been approved by the unitholders and became effective as of
July 1, 2000, total partners' capital would be $83.4 million, as a result of the
amounts on the balance sheet under "additional partnership interests" and
"minority interests" being contributed to partners' capital.
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15
PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT
OF THE OPERATING PARTNERSHIP
Your vote for the proposal described below will also constitute your
vote for the corresponding amendments to the partnership agreements of the
operating partnership and the partnership necessary to effect the proposal.
Approval of the proposal requires the affirmative vote of a majority of the
outstanding common units.
If the proposed restructuring is approved, it will become effective
October 1, 2000. As a result, we expect the minimum quarterly distribution for
the fourth quarter of 2000 to be $0.20 per unit. We expect to pay this
distribution approximately 45 days after the end of the fourth quarter. If the
restructuring is approved, we also expect to pay a one-time special distribution
of approximately $0.28 per unit.
If the proposal is approved, the agreement of limited partnership of
the operating partnership will be amended to:
o REDUCE THE MINIMUM QUARTERLY DISTRIBUTION ON THE COMMON UNITS
FROM $0.50 PER UNIT TO $0.20 PER UNIT. This will lower the
minimum quarterly distribution to a level that we expect to be
compatible with our current and expected cash generating
capability. The minimum quarterly distribution fixed at our
initial public offering in 1996 was based on a pro forma cash
available for distribution for the twelve months ended
September 30, 1996 of approximately $27.8 million. Total
Available Cash from operations generated by the partnership in
1999 was $11.5 million. In the first six months of 2000, we
generated $3.6 million of Available Cash from operations.
We expect to generate Available Cash from operations of
approximately $7 million per year for the foreseeable future.
Accordingly, based on the currently outstanding approximately
8,617,000 common units, we are proposing a lower minimum
quarterly distribution of $0.20 per unit per quarter, or an
aggregate of approximately $7 million for a four-quarter
period. However, we cannot assure you that the amount of
Available Cash that we generate from operations will be
sufficient to pay a quarterly distribution of $0.20 per unit
for the foreseeable future.
Our estimate of $7 million per year of Available Cash from
operations is based on the following assumptions:
o crude oil production in our primary areas of operation will
continue to decline at an average rate of approximately 5%
per year through 2010;
o we expect to increase general and administrative costs by
5% per year to achieve increases in gathering and marketing
volumes sufficient to offset the expected crude oil
production declines in our areas of operations;
o our marketing gross margin per barrel and pipeline tariffs
per barrel will remain consistent with 1999 averages;
o we will replace the Master Credit Support Agreement with
Salomon with a $300 million commercial letter-of-credit
facility which will increase credit costs after 2001 by
approximately $3.3 million per year;
o operating, maintenance, and general and administrative
expenses will grow by approximately 2.5% per year; and
o capital expenditures to maintain the integrity of our assets
will average $2 million per year.
As described below, the restructuring will eliminate the
subordinated units and terminate the subordination period,
with the result that common unit arrearages will no longer
accrue. This means that once the restructuring is approved,
any shortfalls of Available Cash below the $0.20 per unit
quarterly distribution will no longer accumulate as
arrearages.
If the restructuring proposal is approved, we expect to pay
the proposed minimum quarterly distribution of $0.20 per unit
commencing the fourth quarter of this year. However, you will
receive a one-time payment of approximately $0.28 per unit as
a result of Salomon's contribution to the operating
partnership of all of the remaining distribution support. See
"--Contribution of Distribution Support and Extension of
Credit Support" below.
If the proposal is not approved, we expect that you will
receive the current minimum quarterly distribution of $0.50
per unit through the fourth quarter of 2000, when Salomon's
distribution support will be fully utilized. Commencing the
first quarter of 2001, we expect to be able to pay a quarterly
distribution of $0.20 per unit. The $0.30 per unit shortfall
from the current minimum quarterly distribution of $0.50 per
unit will accumulate as arrearages in the aggregate of
approximately $10.6 million per year for the foreseeable
future. Based on our current expectation, it is unlikely that
we will be able to repay these arrearages in the foreseeable
future. For the expected effects of arrearages on our business
and financial condition, see "Reasons for the Proposal."
o CORRESPONDINGLY REDUCE EACH TARGET DISTRIBUTION LEVEL AT WHICH
THE GENERAL PARTNER WILL BE ENTITLED TO INCENTIVE COMPENSATION
PAYMENTS AS FOLLOWS:
o The first target distribution, above which the
general partner will be entitled to receive 13.3% of
Available Cash from operations, will be reduced from
$0.55 to $0.25 per unit per quarter;
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o The second target distribution, above which the
general partner will be entitled to receive 23.5% of
Available Cash from operations, will be reduced from
$0.635 to $0.28 per unit per quarter; and
o The third target distribution, above which the
general partner will be entitled to receive 49% of
Available Cash from operations, will be reduced from
$0.825 to $0.33 per unit per quarter.
Because the Available Cash we expect to generate from
operations is approximately $0.20 per unit per quarter, which
is significantly below the existing target distribution
thresholds at which the general partner is entitled to
increasing levels of incentive compensation, we believe it is
remote that the general partner would be entitled to receive
incentive compensation payments in the foreseeable future
whether or not the restructuring is implemented.
Currently, the first, second and third target distributions
are set at 110%, 127% and 165% of the minimum quarterly
distribution. These percentages would rise to 275%, 317% and
412% of the minimum quarterly distribution if the minimum
quarterly distribution was reduced without a corresponding
reduction of the target distribution levels. In order to
restore the economic incentive to the general partner intended
by the initial incentive compensation payment thresholds
established at the time of the initial public offering, we are
seeking unitholder approval to lower these thresholds
generally commensurate with the reduction in the minimum
quarterly distribution. If the restructuring is approved, the
target distribution levels will be set at 125%, 140% and 165%
of the new minimum quarterly distribution.
o ELIMINATE ALL OF THE SUBORDINATED UNITS, THEREBY ENDING THE
RIGHT OF THE COMMON UNITS TO ACCRUE ARREARAGES. If the
restructuring is approved, Salomon and Howell have agreed to
the elimination of all subordinated units for no
consideration, which will result in the elimination of Salomon
and Howell as limited partners of the operating partnership
and increase the public unitholders' effective ownership of
the operating partnership from the current approximately 78%
to 98%.
If the restructuring is approved, common units will no longer
be entitled to arrearages if the minimum quarterly
distribution is not paid in full in any quarter.
The concept of arrearages was to ensure that the common units
received the minimum quarterly distribution for the current
quarter plus any unpaid portion of the minimum quarterly
distribution from prior quarters before any payment was made
on the subordinated units. Under the existing partnership
agreement, common units are not entitled to arrearages after
the end of the subordination period when all the subordinated
units have converted into common units. Since all the
subordinated units will be eliminated in the restructuring,
the subordination period will end and therefore, in accordance
with the terms of the existing partnership agreement, the
common units will no longer be entitled to arrearages.
If the proposal is approved, we expect our financial structure
to be improved principally as a result of the elimination of
arrearages. We believe that it is essential to grow our
business if we are to maintain or improve our Available Cash
for distribution. We expect that the approval of the proposal
will increase our ability to access debt capital and to issue
partnership units as currency for acquisitions. However, we
cannot assure you that the elimination of common unit
arrearages will result in an improved financial structure. See
"Reasons for the Proposal."
The elimination of all subordinated units will have no effect
on the management and operations of the partnership's crude
oil business. In connection with the transfer of assets to the
partnership pursuant to our initial public offering in
December 1996, each of Salomon and Howell agreed to retain
environmental liabilities and indemnification obligations in
connection with these assets. As a result of the restructuring
these agreements will not change, other than that the
subordinated units will no longer serve as collateral for each
of Salomon and Howell's indemnification obligations. However,
we believe that based upon the current fair market value of
the partnership's assets, no distributions would be made with
respect to the subordinated units if the partnership were to
be liquidated at this time.
o ELIMINATE ALL OUTSTANDING ADDITIONAL PARTNERSHIP INTERESTS. If
the restructuring is approved, Salomon has agreed to
contribute to the partnership at closing its remaining support
obligation estimated to be $3.7 million, as a result of which
it will own $17.6 million in aggregate amount of APIs. If the
restructuring is not approved, we expect Salomon would have
contributed this amount by the end of the fourth quarter of
2000. Under the partnership agreement, after we have paid the
minimum quarterly distribution on the common and subordinated
units and any arrearages on the common units, we are not
permitted to make any further distributions on the common
units until the APIs have been redeemed in full. If the
restructuring is
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approved, Salomon has agreed to the elimination of all APIs
for no consideration.
The elimination of subordinated units and APIs eliminates
future distribution obligations of the partnership to anyone
other than the common unitholders and the general partner. Any
increases in distributions of Available Cash above the minimum
quarterly distribution on the common units will be paid to the
common unitholders and the general partner.
Our agreement of limited partnership will require other technical
modifications to conform to the amendments made to the agreement of limited
partnership of the operating partnership.
The form of our Second Amended and Restated Agreement of Limited
Partnership of Genesis Energy, L.P. is attached as Annex B to this proxy
statement. The form of the Second Amended and Restated Agreement of Limited
Partnership of Genesis Crude Oil, L.P. is attached as Annex C to this proxy
statement.
CONTRIBUTION OF DISTRIBUTION SUPPORT AND EXTENSION OF CREDIT SUPPORT
If the proposal is approved, Salomon will:
o contribute to the operating partnership in cash the remaining
distribution support, expected to be $3.7 million. After
payment of transaction costs associated with the restructuring
estimated at $1.3 million, we will then declare a special
distribution of the remainder, estimated at $2.4 million, or
$0.28 per unit; and
o extend the expiration date of its $300 million Master Credit
Support Agreement with us from March 31, 2001 to December
31, 2001 under terms equivalent to the existing Master Credit
Support Agreement. The extension of Salomon's Master Credit
Support Agreement to the end of 2001 will eliminate an
estimated $2.5 million increase in trade credit costs for the
last nine months of 2001.
DISADVANTAGES OF THE PROPOSAL TO THE COMMON UNITHOLDERS AND OTHER CONSIDERATIONS
While we believe that the proposed restructuring will benefit our
unitholders by simplifying our ownership structure and creating the financial
flexibility we need to successfully grow and diversify our business or to enter
into a transaction to combine with another business entity, you should consider
the following disadvantages of the restructuring:
o The approval of the proposal will result in a reduction of the minimum
quarterly distribution on the common units from the current $0.50 per
unit to $0.20 per unit. However, regardless of whether the minimum
quarterly distribution is reduced, we are not generating enough
Available Cash to pay $0.50 per unit per quarter and, once Salomon has
contributed the full $17.6 million in distribution support by the
fourth quarter of 2000, we would expect to pay $0.20 per unit per
quarter beginning in the first quarter of 2001.
o Arrearages will no longer accrue on the common units if the minimum
quarterly distribution is not paid in full in any quarter. This may
have the effect of increasing the amount of cash distributed to the
general partner and reducing the amount of cash distributed to common
unitholders. For example, if we are unable to pay the minimum quarterly
distribution in one quarter but are able to pay more than the minimum
quarterly distribution in a subsequent quarter, then instead of
distributing the excess as an arrearage on the common units that is
paid 98% to the common unitholders and 2% to the general partner, we
will make an incentive compensation payment to the general partner
which can be as high as 49% of a portion of the excess.
o If the proposal is approved, the general partner will be entitled to
receive a substantially higher percentage of cash distributed above
$0.25 per unit than under the existing partnership agreement as a
result of the lowering of the thresholds necessary to receive incentive
compensation payments. Under the existing partnership agreement, the
general partner is entitled to 13.2%, 23.5% and 49% of all Available
Cash distributed in a quarter above $0.55, $0.635 and $0.825 per unit,
respectively. As a result of the restructuring, the general partner
will be entitled to 13.2%, 23.5% and 49% of distributions in excess of
$0.25, $0.28 and $0.33 per unit, respectively.
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o After the restructuring, neither Salomon nor the general partner will
have any future obligation to provide distribution support on the
common units.
o As a result of the end of the subordination period, the partnership
agreement no longer will require the unitholders to approve the
issuance of additional common units in excess of 3,750,000 if these
additional units are not issued in connection with an acquisition or
capital improvement that will not result in an increase of per unit
available cash flow.
o We cannot assure you that the amount of Available Cash we generate from
operations in the future will be sufficient to pay the minimum
quarterly distribution of $0.20 per unit. The actual amount of cash
that is available to be distributed each quarter will depend upon
numerous factors, such as those listed under the heading "Forward
Looking Statements" on page 2.
o Although we believe that the elimination of arrearages will reduce the
financial constraints we expect to experience if arrearages accumulate,
we cannot assure you that the elimination of arrearages will in fact
reduce these financial constraints to the extent necessary for us to
successfully grow our business.
COSTS AND EXPENSES OF THE PROPOSED RESTRUCTURING
We expect the transaction costs of the proposed restructuring to be
approximately $1.3 million, including accounting, legal, financial and printing
expenses. See "Pro Forma Consolidated Financial Statements--Notes to Pro Forma
Consolidated Financial Statements." However, if the proposed restructuring is
not approved, Salomon will not extend the Master Credit Support Agreement for an
additional nine months to December 31, 2001. As a result, our trade credit costs
for the year 2001 would be approximately $2.5 million higher than these costs
would be if the restructuring is approved. Further, we would incur additional
costs to replace our current working capital facility with BNP Paribas which
will expire on February 28, 2001 if the proposal is not approved.
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DESCRIPTION OF THE UNITS
The following is a general description of the units and the
modifications to the units that will occur if the proposal that you are being
asked to vote upon is approved. Please refer to the Second Amended and Restated
Agreement of Limited Partnership of Genesis Energy, L.P. attached as Annex B and
the Second Amended and Restated Agreement of Limited Partnership of Genesis
Crude Oil, L.P. attached as Annex C for a more detailed description. Both are
marked to show the proposed changes to the First Amended and Restated
Agreements.
The common units represent limited partner interests in the
partnership. The common units entitle their holders to participate in our
distributions and to exercise the rights or privileges available to limited
partners under our partnership agreement. The common units are listed and traded
on the New York Stock Exchange and constitute a class of securities registered
under Section 12 of the Securities Exchange Act of 1934.
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BEFORE AFTER
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OWNERSHIP STRUCTURE
- --------------------------------------------------------------------------------------------------------------------
Our principal asset is our 80.01% general partner We will own a 99.99% limited partner interest in the
interest in the operating partnership. operating partnership.
Genesis Energy, L.L.C. is the operating general partner Genesis Energy, L.L.C. will hold the remaining 0.01%
and holds a 0.40% general partner interest. as a general partner interest.
The public unitholders' effective ownership interest in The public unitholders' effective ownership interest
the operating partnership is 78.41%. in the operating partnership will be 98%.
The subordinated units represent an aggregate 19.59% All subordinated units will be eliminated and Salomon
ownership interest in the operating partnership, with and Howell will hold no interest in the operating
Salomon's 1,163,700 subordinated units representing a partnership.
10.58% interest and Howell's 991,300 subordinated units
representing a 9.01% interest.
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RIGHTS TO PARTICIPATION
- --------------------------------------------------------------------------------------------------------------------
The common units entitle their holders to participate in The common units holders' rights to participation will
our distributions and to exercise the rights or not change.
privileges available to limited partners under our
partnership agreement.
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DISTRIBUTION SUPPORT AND ADDITIONAL PARTNERSHIP INTERESTS
- --------------------------------------------------------------------------------------------------------------------
Pursuant to a distribution support agreement with Salomon's distribution support obligation, by virtue
Salomon, we may request Salomon to purchase up to $17.6 of Salomon's contribution of the remaining amount
million of APIs if we need these funds to support our available, will terminate. Once the general partner
ability to pay the current minimum quarterly has established a record date, this amount, less
distributions on our common units with respect to transaction costs, will be paid to common unitholders
quarters ending prior to December 31, 2001. as a special distribution.
The APIs are limited partner interests that may be All outstanding APIs will be eliminated for no
redeemed for the face value but are not entitled to consideration.
distributions and have no voting rights. APIs will be
redeemed if Available Cash from operating surplus with
respect to any quarter exceeds the amount necessary to
pay the minimum quarterly distribution for such quarter
on all units and subordinated units on
- --------------------------------------------------------------------------------------------------------------------
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20
- --------------------------------------------------------------------------------------------------------------------
BEFORE AFTER
- --------------------------------------------------------------------------------------------------------------------
an aggregate basis and to eliminate all arrearages on
the common units, if any, and if the General Partner
determines not to reserve the excess for future
operations or future distributions.
- --------------------------------------------------------------------------------------------------------------------
SUBORDINATED UNITS
- --------------------------------------------------------------------------------------------------------------------
The subordinated units are a separate class of interests All subordinated units will be eliminated for no
in the operating partnership, and the rights of holders consideration.
of such interests to participate in distributions to
limited partners differ from the rights of the holders of
common units in the partnership.
For any given quarter, any Available Cash will be
distributed to the general partner and to the holders of
common units, and may also be distributed to the holders
of subordinated units during the subordination period
depending upon the amount of Available Cash for the
quarter, the amount of outstanding common unit
arrearages, if any, and other factors discussed below.
Since its inception, the partnership has not paid any
distributions on subordinated units and does not expect
to do so in the foreseeable future.
- --------------------------------------------------------------------------------------------------------------------
SUBORDINATION PERIOD
- --------------------------------------------------------------------------------------------------------------------
The subordination period extends until the first day of Because all subordinated units will be eliminated, the
any quarter beginning after December 31, 2001 in which subordination period will be terminated, and as a
(1) distributions of Available Cash on the common units result, arrearages on common units will no longer
and subordinated units equaled or exceeded the minimum accrue.
quarterly distribution for each of the three consecutive
four quarter periods immediately preceding that date,
(2) the adjusted operating surplus we generated in each
of the three consecutive four quarter periods immediately
preceding that date equaled or exceeded the sum of the
minimum quarterly distribution on the common units and
subordinated units and the related distribution on the
general partner interest during such periods and
(3) there are no arrearages on the common units. As used
above, adjusted operating surplus for a period generally
means the cash generated from our operations during such
period less cash expenditures during such period and
reserves, other than expenditures for capital
improvements or acquisitions or repayments of
indebtedness. Based on current conditions, we do not
expect the subordination period to end in the foreseeable
future, since we have not been generating sufficient
adjusted operating surplus to pay the minimum quarterly
distribution and since we have not been making any
distributions on the subordinated units.
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21
- --------------------------------------------------------------------------------------------------------------------
BEFORE AFTER
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS OF AVAILABLE CASH
- --------------------------------------------------------------------------------------------------------------------
The operating partnership distributes to its partners, The partnership will make distributions to its
including the partnership, the general partner and the partners with respect to each calendar quarter prior
holders of subordinated units and APIs, on a quarterly to liquidation in an amount equal to 100% of its
basis, all of its Available Cash in the manner described Available Cash for such quarter. The common units will
below. The partnership will then distribute to its not accrue arrearages if the minimum quarterly
partners, including the public common unitholders and the distribution is not paid in full in any quarter.
general partner, all of its Available Cash in the manner
described below. This discussion concerning the The mechanics of cash distributions from the operating
distribution of Available Cash includes the distribution partnership to the partnership and then to the common
of Available Cash by both the partnership and the unitholders and the general partner will remain
operating partnership on a combined basis. unchanged. However, no distributions to holders of
subordinated units or APIs will be made.
Available Cash is defined in the Glossary on page 34 and
generally means, with respect to any fiscal quarter of To the extent there is sufficient Available Cash, the
the partnership, all cash on hand at the end of such holders of the common units will have the right to
quarter less: receive the minimum quarterly distribution of $0.20
per unit.
o the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the
general partner to:
o provide for the proper conduct of the
partnership's business,
o comply with applicable law or any partnership
debt instrument or other agreement, or
o provide funds for distributions to
unit-holders and the general partner in respect
of any one or more of the next four quarters; and
o any amount necessary to make incentive
compensation payments to the general partner
with respect to that quarter.
The partnership currently makes distributions to its
partners with respect to each calendar quarter prior to
liquidation in an amount equal to 100% of its Available
Cash for such quarter. With respect to each quarter
during the subordination period, to the extent there is
sufficient Available Cash, the holders of the common
units will have the right to receive the minimum
quarterly distribution of $0.50 per unit, plus the amount
of any arrearages in payments of minimum quarterly
distributions on the common units from prior quarters,
prior to any distribution of Available Cash to the
holders of subordinated units. The common units will not
accrue arrearages for any quarter after the subordination
period, and subordinated units will not accrue arrearages
with respect to distributions for any quarter.
- --------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------
BEFORE AFTER
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DURING SUBORDINATION PERIOD
- --------------------------------------------------------------------------------------------------------------------
Our distributions of Available Cash from operating The elimination of the subordinated units and the
surplus with respect to any quarter during the subordination period will alter the manner in which
subordination period are required to be made in the distributions of Available Cash are made. See below
following manner: under "--AFTER --Distributions After Termination of
Subordination Period."
first, 98% to the common unitholders, pro rata,
and 2% to the general partner, until there has been
distributed in respect of each outstanding common
unit an amount equal to the minimum quarterly
distribution for such quarter;
second, 98% to the common unitholders, pro rata,
and 2% to the general partner, until there has been
distributed in respect of each common unit an amount
equal to any common unit arrearages accrued and
unpaid with respect to any prior quarters during the
subordination period;
third, 98% to the subordinated unitholders, pro
rata, and 2% to the general partner, until there has
been distributed in respect of each subordinated
unit an amount equal to the minimum quarterly
distribution for such quarter;
fourth, 100% to the holders of APIs, pro rata,
to redeem outstanding APIs, until all outstanding
APIs have been redeemed; and
thereafter, 98% to all common unitholders and
subordinated unitholders, pro rata, and 2% to the
general partner.
As discussed below under "--Thresholds for Incentive
Compensation Payments," Available Cash distributed after
redemption of the APIs will be further reduced for
incentive compensation payments. The above references to
the 2% of Available Cash from operating surplus
distributed to the general partner are references to the
amount of the general partner's percentage interest in
distributions from the partnership and the operating
partnership on a combined basis.
- --------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS AFTER TERMINATION OF SUBORDINATION PERIOD
- --------------------------------------------------------------------------------------------------------------------
Upon expiration of the subordination period, all
subordinated units will convert into common units in the
operating partnership (common OLP units) on a one-for-one
basis. The common OLP units will thereafter participate
pro rata with the partnership
- --------------------------------------------------------------------------------------------------------------------
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23
- --------------------------------------------------------------------------------------------------------------------
BEFORE AFTER
- --------------------------------------------------------------------------------------------------------------------
common units in future distributions of Available
Cash.
Our distributions of Available Cash from operating
surplus with respect to any quarter after the Our distributions of Available Cash from operating
subordination period has ended will be made in the surplus with respect to any quarter will be made in
following manner: the following manner:
first, 98% to all unitholders, pro rata, and 2% to first, 98% to the common unitholders, pro
the general partner, until there has been distributed in rata, and 2% to the general partner, until there
respect of each outstanding common and common OLP unit an has been distributed in respect of each
amount equal to the minimum quarterly distribution for outstanding unit an amount equal to the minimum
such quarter; quarterly distribution for such quarter;
second, 100% to the holders of APIs, pro rata, to thereafter, in the manner described in "-
redeem outstanding APIs, until all outstanding APIs have Thresholds for Incentive Compensation Payments"
been redeemed; and in this column below.
thereafter, 98% to all unitholders, pro rata and 2%
to the general partner. As discussed below under
"--Thresholds for Incentive Compensation Payments,"
Available Cash distributed after redemption of the APIs
will be further reduced for incentive compensation
payments.
- --------------------------------------------------------------------------------------------------------------------
THRESHOLDS FOR INCENTIVE COMPENSATION PAYMENTS
- --------------------------------------------------------------------------------------------------------------------
Incentive distribution rights represent the right to The threshold amounts will be $0.25, $0.28 and
receive a higher percentage of quarterly distributions of $0.33 per unit per quarter. If, for any quarter, we
Available Cash after the minimum quarterly distribution have distributed Available Cash to the common
has been achieved, and as additional target levels are unitholders in an amount equal to the minimum
met, increasingly higher percentages of Available Cash of quarterly distribution, then we will distribute any
13.3%, 23.5% and 49% (see below). The target additional Available Cash for that quarter among the
distribution levels are the amounts of Available Cash common unitholders and the general partner in the same
distributed in excess of payments made for the minimum percentages as set forth in the "BEFORE" column.
quarterly distribution and the related 2% distribution to
the general partner. Since the subordinated units and APIs will have been
eliminated, all excess cash available for distribution
For any quarter for which Available Cash from operating will directly accrue for the benefit of the common
surplus is distributed in respect of both the common unitholders and the general partner, at the percentage
units and the subordinated units in an amount equal to levels set forth above, depending on the threshold
the minimum quarterly distribution and Available Cash levels achieved. Further, the elimination of the
from operating surplus has been distributed on subordinated units will result in the termination of
outstanding common units in the amount as may be the subordination period. Therefore, arrearages in
necessary to eliminate any accrued and unpaid common unit distribution obligations to common unitholders will no
arrearages and to the holders of APIs in redemption of longer accumulate.
any outstanding APIs, then any additional Available Cash
from operating surplus in respect of such quarter will be
reduced by the incentive compensation payments required
to be made to the general partner with respect to such
quarter.
After the first target distribution level ($0.55 per
unit per quarter) has been reached:
- --------------------------------------------------------------------------------------------------------------------
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24
- --------------------------------------------------------------------------------------------------------------------
BEFORE AFTER
- --------------------------------------------------------------------------------------------------------------------
o the common unitholders and subordinated
unitholders and the general partner will be entitled to
receive distributions of approximately 86.7% of Available
Cash from operating surplus (calculated before any
reduction for the payment of incentive compensation
payments to the general partner), with these
distributions to be made 98% to the common unitholders
and subordinated unitholders and 2% to the general
partner, and
o the general partner will be entitled to receive
incentive compensation payments of approximately 13.3% of
Available Cash from operating surplus (calculated before
any reduction for such payments).
After the second target distribution level ($0.635
per unit per quarter) and third target distribution level
($0.825 per unit per quarter) have been reached, the
general partner will be entitled to receive incentive
compensation payments of approximately 23.5% and 49%,
respectively, of Available Cash from operating surplus
(calculated before any reduction for such payments).
- --------------------------------------------------------------------------------------------------------------------
ISSUANCE OF ADDITIONAL SECURITIES
- --------------------------------------------------------------------------------------------------------------------
Generally, the partnership has the authority to issue There will be no restrictions in the partnership
additional common units or other equity securities of agreement on the ability of the partnership to issue
the partnership for such consideration and on such additional partnership securities, including
terms and conditions as are established by the securities ranking senior to the common units.
general partner in its sole discretion and without
the approval of the unitholders.
However, during the subordination period and without
the approval of the holders of a majority of the
outstanding common units, the partnership may not
issue:
o equity securities ranking prior or senior
to the common units or
o an aggregate of more than 3,750,000 additional
common units, or an equivalent number of
securities ranking on a parity with the
common units,
other than in connection with acquisitions or capital
improvement that result in an increase of per unit
available cash flow.
It is possible that the partnership will fund
acquisitions through the issuance of additional
common units or other equity securities of the
partnership. Holders of any additional common units
issued by the partnership will be entitled to share
equally with the then-existing holders of common
units in distributions of Available Cash by the
partnership. In addition, the issuance of additional
interests in the partnership may dilute the value of
the interests of the then existing holders of common
units in the net assets of the partnership. The
general partner will be required to make an
additional capital contribution to the partnership in
connection with the issuance of additional interests
in the partnership.
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25
CURRENT OWNERSHIP STRUCTURE
EFFECTIVE OWNERSHIP OF
THE OPERATING PARTNERSHIP
Public Unitholders' Common Units.................... 78.41%
Salomon's Subordinated OLP Unites................... 10.58%
Howell's Subordinated OLP Units..................... 9.01%
General Partners' Interest.......................... 2.00%
[DESCRIPTION OF DIAGRAM]
Diagram depicting the organizational structure and percentage interests
owned in the Partnership, the Operating Partnership and the General Partner,
setting forth the following information:
ENTITY PERCENTAGE INTEREST HELD BY
- ---------------------------- --------------------------------- ----------------------------
Genesis Energy, L.L.C....... 100% member interest Salomon
Genesis Energy, L.P......... 98% limited partner interest Public Unitholders
Genesis Energy, L.P......... 2% general partner interest Genesis Energy, L.L.C.
Genesis Crude Oil, L.P...... 80.01% general partner interest Genesis Energy, L.P.
Genesis Crude Oil, L.P...... 0.40% general partner interest Genesis Energy, L.L.C.
Genesis Crude Oil, L.P...... 10.58% subordinated limited Salomon
partner interest
Genesis Crude Oil, L.P. 9.01% subordinated limited Howell
partner interest
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26
RESULTING OWNERSHIP STRUCTURE
EFFECTIVE OWNERSHIP OF
THE OPERATING PARTNERSHIP
Public Unitholders' Common Units.................... 97.99%
General Partners' Interest.......................... 2.01%
[DESCRIPTION OF DIAGRAM]
Diagram depicting the organizational structure and percentage interests
owned in the Partnership, the Operating Partnership and the General Partners,
setting forth the following information:
ENTITY PERCENTAGE INTEREST HELD BY
- ---------------------------- --------------------------------- ----------------------------
Genesis Energy, L.L.C....... 100% member interest Salomon
Genesis Energy, L.P......... 98% limited partner interest Public Unitholders
Genesis Energy, L.P......... 2% general partner interest Genesis Energy, L.L.F.
Genesis Crude Oil, L.P...... 99.99% limited partner interest Genesis Energy, L.P.
Genesis Crude Oil, L.P...... 0.01% general partner interest Genesis Energy, L.L.C.
21
27
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL
Our general partner is owned by Salomon Smith Barney Holdings Inc. and
Salomon Brothers Holding Company Inc. Salomon, both as owner of the general
partner and under the agreements between Salomon and the partnership, has
interests in the proposal that differ from the interests of the unitholders, as
set forth below:
o If the proposal is approved and as a result the subordinated
units and the APIs are eliminated, the reduction of the minimum
quarterly distribution from $0.50 to $0.20 in conjunction with
the reduction of the individual target distribution thresholds to
$0.25, $0.28 and $0.33 per quarter from the current threshold
levels of $0.55, $0.635 and $0.825 will increase the likelihood
that the general partner, currently an indirect wholly owned
subsidiary of Salomon, will receive incentive distributions.
o The elimination of arrearages will increase the likelihood that
the general partner will receive incentive compensation payments
since, if the minimum quarterly distribution is not paid in full
in any quarter, Available Cash in excess of the minimum quarterly
distribution in any subsequent quarter would be available to be
paid as incentive compensation to the general partner and would
not be paid as an arrearage.
o The proposal will eliminate for no consideration to Salomon all
of the subordinated units, a majority of which are held by
Salomon.
o As the provider of the distribution support, Salomon has an
interest in the proposal because the proposal will require
Salomon to pay immediately the balance of the distribution
support to the unitholders and eliminates for no consideration
all of the APIs held by Salomon.
o The proposal will also require Salomon to extend the period of
its $300 million credit support to us by nine months, to December
31, 2001.
As general partner, Salomon believes that the restructuring is in the
best interests of the unitholders for the reasons described under "Proposed
Amendment to the Partnership Agreement of the Operating Partnership." From its
own perspective, Salomon believes that the benefits of the restructuring to
Genesis taken as a whole--particularly those relating to the improved financial
structure of Genesis and Genesis' enhanced potential for business combinations
and other strategic alternatives--outweigh the direct costs to Salomon of the
restructuring, including the elimination of the subordinated units, the full
funding of the distribution support and the elimination of the APIs held by
Salomon.
RECOMMENDATIONS AND OPINIONS
STRATEGIC ALTERNATIVES
Initially in response to ongoing industry consolidation and
subsequently in light of the deteriorating business and financial conditions
described above under "Reasons for the Proposal", on several occasions since
July 1997 the general partner had authorized management to exchange financial
information with various parties for the purpose of exploring various types of
strategic combinations in an effort to grow our business and increase our cash
flow. Officers of the general partner and representatives of Howell and Salomon,
as members of the general partner at that time, had on five separate occasions
engaged in preliminary and substantial negotiations with four different parties
interested in entering into transactions with the partnership involving a merger
or other strategic combination, the acquisition by another party of the general
partner or of all of the assets of the partnership. Each of the negotiations
were terminated at a different stage of the negotiations but none progressed to
the execution of a letter of intent or other written agreement. Such
negotiations were terminated for reasons which included, but were not limited
to, the relative value of the combining entities, changing strategic priorities,
impediments of a combination transaction to alternate opportunities, and
economic downturns in business operations. More recently, during the period
since the second quarter of 1999, when it became apparent that the partnership
would have to use distribution support on a quarterly basis to meet the minimum
quarterly distribution on the common units, three proposals by two parties were
made. All three proposals would have reduced the effective minimum quarterly
distribution to common unitholders by approximately 50%, eliminated the
subordinated units and resulted in an accelerated payout of the distribution
support. Two of the proposals proposed an exchange ratio effectively resulting
in a lower trading price for the common units. None of the three proposals
reached the level of a letter of intent or other written agreement.
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28
At its meeting on February 8, 2000, management of the general partner
recommended to the board of directors of the general partner that it was no
longer in the best interest of the common unitholders to pursue a single pronged
strategy of pursuing combinations with another business entity while the
partnership's bargaining position deteriorated due to economic and financial
conditions. Management believed that it was necessary to consider a
restructuring of the partnership to rebuild the partnership's business.
Management expressed the view that the high levels of quarterly distribution
relative to cash flow were significant impediments to achieving a successful
business combination that would grow our business and enhance our ability to
generate Available Cash. At this meeting, management of the general partner
recommended that the general partner seek a unitholder vote to approve a
restructuring proposal. In its presentation on February 8, 2000, management of
the general partner recommended a restructuring of the partnership based upon a
preliminary analysis which indicated a target minimum quarterly distribution of
$0.25 per unit and per unit distribution thresholds for incentive distributions
to the general partner of $0.45, $0.586 and $0.725.
The special committee reviewed management's preliminary analysis and
its projected target distribution amounts and incentive distribution thresholds.
It considered the likelihood that these lower targets and thresholds would
achieve the objectives of the restructuring and increase unitholder value,
balancing these considerations with the likely immediate negative impact upon
the unitholders of lower target minimum quarterly distribution amounts and lower
incentive distribution thresholds. Upon review of these matters (as more fully
described below), the special committee requested a more detailed analysis of
the restructuring proposal from management. In response to this request,
management conducted a more detailed analysis. Based upon such analysis, in a
letter dated April 27, 2000 management presented to the special committee of the
board of directors of the general partner a revised restructuring proposal. The
revised restructuring proposal indicated a lower target minimum quarterly
distribution of $0.20 per unit, and per unit distribution thresholds for
incentive distributions to the general partner of $0.25, $0.28 and $0.33 taking
into account the following additional factors:
o An expected increase in the annual cost of our credit support in
the year 2000 by at least $3.3 million, due to the need to
replace the Master Credit Support Agreement with Salomon if
the proposal is not approved.
o Expected expenditures necessary to increase market share in the
face of declining production volumes.
o The undesirability of failing to meet quarterly distributions
combined with the uncertainty as to whether, based on current
conditions and assumptions (including the approval of the
proposal), a minimum quarterly distribution of $0.25 per unit is
sustainable on a consistent and long-term basis.
o The expectation, based on current conditions and assumptions
(including the approval of the proposal), to be able to sustain a
minimum quarterly distribution of $0.20 per unit on a consistent
and long-term basis.
o The potentially more adverse impact on unitholder value of a
failure to meet a target minimum quarterly distribution of $0.25
per unit, as compared to the initially negative impact of a
recommendation of a lower minimum quarterly distribution of $0.20
per unit.
o The strategic need to maintain the per unit distribution
thresholds for incentive distributions within the range of
economic incentives available to the general partners of Genesis'
competitors, in order to facilitate the possible combination of
the partnership with another business entity.
RECOMMENDATION OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE GENERAL
PARTNER
On March 1, 2000, Salomon, as the owner of the general partner, adopted
a resolution to appoint a special committee of the board of directors of the
general partner comprised of disinterested members of the board of directors and
delegated to the special committee the authority to review and investigate the
proposed restructuring and to report its findings and recommendation to Salomon
and the board of directors.
The special committee met on seven occasions during March, April and
May to evaluate the proposed restructuring in light of the partnership's
financial and operating condition. The special committee engaged Simmons &
Company International as its financial advisor to assist the special committee
in its evaluation of the fairness of the proposed restructuring to the holders
of common units of Genesis. At the request of the special committee, the general
partner provided information concerning its projections of the future financial
performance of Genesis under various circumstances, and the special committee,
together with its financial advisor, analyzed the reasonableness of each set of
projections and the possible impact of the proposed restructuring under the
projections.
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29
The special committee reviewed information provided by its financial
advisor concerning the current business conditions affecting the crude oil
gathering business, the prospects for continued arrearages under Genesis'
current structure, and the resulting financial constraints that would likely
prevent growth and/or business combinations that might otherwise bring value to
the holders of common units. The special committee also considered the impact of
various target distribution amounts and incentive distribution thresholds, both
on our ability to grow our business and increase our cash flow and on unitholder
value, including the likelihood that various target distribution amounts and
incentive distribution thresholds would require further reductions in the near
term in a variety of economic circumstances. Finally, the special committee
reviewed the possible results of a failure to restructure Genesis at all, as
well as the likely immediate negative impact upon unitholders of lower target
distribution amounts and lower incentive distribution thresholds.
After completing its consideration of these matters and receiving the
opinion of its financial advisor to the effect that the proposed restructuring
is fair, from a financial point of view, to the holders of common units of
Genesis, the special committee unanimously recommended that the general partner,
Salomon and the holders of common units of Genesis adopt the proposed
restructuring.
FAIRNESS OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
In connection with its opinion which is attached to this proxy
as Annex A, Simmons & Company International considered certain financial and
other information available to it as of May 8, 2000, including, without
limitation, the following:
o a draft of the Proxy Statement dated April 28, 2000;
o certain publicly available financial statements and other
information concerning Genesis, including without
limitation Genesis's Annual Report on Form 10-K for the
year ended December 31, 1999, filed with the Securities
and Exchange Commission on March 29, 2000;
o certain internal business and financial information
relating to Genesis, including certain forecasts prepared
by management of Genesis, including the three
distributable cash flow cases described below, and
provided to Simmons & Company International by Genesis;
o discussions of the past and current operations and the
financial condition and prospects of Genesis with
management of Genesis;
o the financial performance of Genesis;
o the trading performance of Genesis's common units as
compared to those of certain other publicly held entities
in businesses similar to those conducted by Genesis;
o the terms of the Reorganization (as defined in Simmons &
Company International's opinion); and
o the financial terms of certain other recent transactions
to the extent such transactions are reasonably comparable
to the Reorganization.
Simmons & Company International's opinion also took into account
its assessment of general economic, market and financial conditions and its
experience in connection with similar transactions and securities' valuations
generally. The opinion was necessarily based upon conditions as they existed and
could be evaluated on, and based on the information made available at, May 8,
2000.
In preparing its opinion, Simmons & Company International assumed
and relied upon the accuracy and completeness of all information supplied or
otherwise made available to, discussed with or reviewed by or for it, and
Simmons & Company International did not assume any responsibility for
independently verifying any of such information. With respect to financial
forecasts (including the three distributable cash flow cases described below),
Simmons & Company utilized certain information set forth in such forecasts and
assumed that such information was reasonably prepared on bases reflecting the
best estimates and judgments of the management of Genesis as to the
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30
future financial performance of Genesis, as available at the time of
preparation. In addition, Simmons & Company International did not conduct any
physical inspection of the properties or facilities of Genesis and it did not
make or receive any independent evaluation or appraisal of any assets or
liabilities of Genesis.
In preparing its opinion for the special committee, Simmons &
Company International performed a variety of financial, comparative and other
analyses, including those described below. Set forth below is a summary of all
of the material analyses performed by Simmons & Company International. The
presentation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
analysis and the application of those methods to the particular circumstances in
question, and no summary or partial description of the entire analysis presented
to the special committee can substitute for such presentation. No other company
or other transaction used in such analyses as a comparison was identical to
Genesis or the transactions contemplated by the Reorganization, and no
evaluation of such comparative analysis is entirely mathematical.
Financial, comparative and other analyses, such as those
performed by Simmons & Company International in connection with its fairness
opinion, are inherently subject to substantial uncertainty. The financial,
comparative and other analyses performed by Simmons & Company International
involved complex considerations and judgments concerning financial and
operational characteristics and other factors relevant to the particular
companies and transactions included in such analyses. Additionally, all results
of the financial, comparative and other analyses performed by Simmons & Company
International, including the range of valuations derived for Genesis from such
analyses, were based upon estimates, assumptions and similar projections that
may significantly vary from actual results, and, accordingly, the results of the
financial, comparative and other analysis performed by Simmons & Company
International are not necessarily indicative of actual values and should not be
considered to be predictive of future results or values, which may be
significantly more or less favorable than those results and values suggested by
such analyses. Finally, the financial, comparative and other analyses prepared
by Simmons & Company International do not purport to, and should not be
considered to be, an appraisal of the business or assets of Genesis or a
prediction of the prices at which Genesis, its securities or any of its
properties may be sold.
Simmons & Company International made qualitative judgments as to
the significance and relevance of each of the financial, comparative and other
analyses and factors that it used in arriving at its fairness opinion. The
analyses and other factors used by Simmons & Company International must be
viewed as a whole; extraction of any one or more of these analyses or other
factors, or any portion thereof, will result in an incomplete and potentially
misleading view of the process underlying the preparation of the fairness
opinion and the conclusion expressed therein. Accordingly, the summary of the
financial, comparative and other analyses and factors set forth below should be
read with that caveat in mind.
Distributable Cash Flow Analysis. To analyze specific
distributable cash flow scenarios, Simmons & Company International reviewed
three financial cases prepared by management of Genesis: the Base Case, the
Expected Case and the Upside Case. The distributable cash generated by Genesis
as well as the distribution summary for each case was calculated by management
of Genesis through 2010 and a cumulative distribution summary for both the
common and subordinated unitholders through 2010 was also calculated based on
Genesis' current structure, which includes a minimum quarterly distribution of
$0.50, and first, second and third thresholds of $0.55, $0.635 and $0.825 per
unit that must be achieved before the general partner is entitled to incentive
distributions. The cases also assumed utilization of $11.5 million of the
Salomon distribution support for 2000.
For the Base Case, estimated volumes and projected declines were
based on data that management assumed would yield a baseline valuation for a
mature business without growth opportunities and capture a valuation floor for
the Genesis equity securities. Other assumptions underlying the Base Case
included the calculation of gathering and marketing gross margin based on annual
volume production by state based on management's assumptions of expected volume
production through 2010; future trucked volumes as a percent of total lease
purchases remaining consistent with 1999 level of 45 percent; field costs
growing at 2.5 percent per year; and lease margin per barrel remaining
substantially consistent with current levels.
The Base Case also included assumptions that per barrel gathering
and marketing gross margin would remain constant at 1999 levels and our volumes
would decrease as a result of overall production volume decreases,
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that Genesis would consider selling assets to repay approximately $20 million in
outstanding debt due in 2000 assuming the working capital facility would not be
replaced, that pipeline margins in Texas and Mississippi would be calculated
based on the assumed volume declines, that pipeline tariffs per barrel would be
consistent with 1999 averages, that operating and maintenance expenses, general
and administrative expenses and credit costs would increase at rates
substantially consistent with current levels. Also, the Base Case assumed that
Genesis would replace the Salomon credit facility and incur incremental charges
of $3.3 million in 2001 and beyond.
The Expected Case incorporated the Base Case plus strategic
market share increases necessary to reduce the decline in absolute volumes. The
Expected Case incorporated an assumption that Genesis would grow its market
share of lease purchases in its current areas of operations by five to 10
percent per year. Also, management assumed that the current rate of decline in
pipeline throughput would be reduced as a result of increases in market share.
General and administrative expenses were assumed to increase by five percent per
year in order to reflect additional expenditures necessary to generate the
increased market share.
The Upside Case incorporated the Expected Case plus capital
expenditures of approximately $7 million to improve partnership assets such as
pipelines. The Upside Case further assumed that Genesis would complete potential
transactions such as alliances that may be accretive to Genesis' cash flow
relative to the Expected Case. In order to implement these plans, management
assumed that Genesis would incur additional debt of approximately $15 million to
$20 million.
Genesis' current structure versus the proposed restructuring on a
cumulative basis for 2000 to 2010 for each of the three cases was compared,
assuming an effective date of July 1, 2000, for the restructuring. Without
restructuring, Genesis could accumulate $169.3 million, $106.1 million and
$104.5 million in cumulative arrearages through 2010 for the Base Case, Expected
Case and Upside Case, respectively. Additionally, the remaining Salomon
distribution support would be fully utilized by the beginning of 2001.
Distributable Cash Flow Coverage. Simmons & Company International
analyzed Genesis' distributable cash flow coverage set forth in management's
three cases, which is the ratio of distributable cash flow to cash distributions
to the Common Unitholders. A comparison of the Genesis ratio to that of its
peers showed Genesis positioned below its peers, which included eight other
publicly held entities in businesses similar to those conducted by Genesis. In
1999, Genesis had a distributable cash flow coverage ratio of .65x, whereas its
peers had an average ratio of 1.40x. The average distributable cash flow
coverages for Genesis' peers were assumed to be 1.34x and 1.42x for 2000 and
2001, respectively. In the Expected Case, Genesis was projected to have a ratio
of .15x and .39x in 2000 and 2001, respectively, without restructuring, and
1.50x and 1.16x with restructuring.
Comparable Company Incentive Distribution Analysis. Simmons &
Company International compared Genesis' current incentive distribution
thresholds to those of its peers, which included ten other publicly held
entities in businesses similar to those conducted by Genesis. The percentage of
the minimum quarterly distribution that Genesis must generate in order for the
general partner to receive an increased portion of the distribution was well
above that of its peers. The average percent of the minimum quarterly
distribution of Genesis' peers required to reach the first incentive range was
107% to 122% compared to Genesis' 110% to 127%. Next, Genesis' peers' average
percent of the minimum quarterly distribution to reach the second incentive
range were 122% to 149%, compared to Genesis' 127% to 165%. Finally, Genesis'
peers' average percent of the minimum quarterly distribution to reach the final
incentive range was 149%, compared to Genesis' 165%. After restructuring,
Genesis would be required to reach 125% to 140% of the minimum quarterly
distribution to reach the first incentive range, 140% to 165% of the minimum
quarterly distribution to reach the second incentive range and 165% of the
minimum quarterly distribution to reach the final incentive range.
Comparable Company Trading Analysis. Simmons & Company
International compared Genesis' trading status to that of its peers. Assuming
the continued payment of a $0.50 minimum quarterly distribution, Genesis was
yielding approximately 22%, well above all its peers, which included ten other
publicly held entities in businesses similar to those conducted by Genesis. No
other publicly traded limited partnership was trading at a yield higher than
15%. The average yield of Genesis' peers was 11%. Simmons & Company noted that
based on the proposed $0.20 per unit quarterly distribution, a trading price
between $5 and $7 per unit on Genesis units would generate a yield of 11% to
15%, which is comparable to that of its peers.
Comparable Transaction Analysis. Simmons & Company International
did not find another restructuring transaction that closely resembled the
Reorganization. A comparable transaction analysis was undertaken with two
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other restructurings of publicly traded partnerships, although significant
financial and transactional differences exist between the Reorganization and
those transactions. In 1999, EOTT Energy Partners, L.P. undertook the issuance
of 10 million common units as well as the conversion of certain special units
and subordinated units to common units. To help induce approval for such
issuance and conversion, Enron Corporation increased its distribution support
and extended it beyond its existing termination date. Immediately prior and
post-approval of EOTT's transaction its unit price performance was relatively
stable. In 1996, Pride Companies L.P. commenced a consent solicitation and
recapitalization designed to reduce Pride's debt and annual cash payment
requirements. BancBoston issued a commitment to refinance Pride's letter of
credit and revolver facilities as well as to fund certain term financing at a
future date. In conjunction with BancBoston's commitment, Varde Partners Inc.
entered into an agreement to purchase Pride's bank debt. The recapitalization
plan was completed on January 6, 1998. Pride had been experiencing a declining
unit price since October 1996, which, despite its recapitalization, never
recovered, leading to the delisting of its Units in August 1998.
Other Factors and Analyses. In the course of preparing its
opinion, Simmons & Company International performed certain other analyses and
reviewed numerous other matters, including, without limitation, the trading
characteristics of the Genesis units and other units issued by publicly traded
partnerships and the history and outlook for energy markets and for other
companies in the energy industry engaged in activities similar to Genesis'
activities.
Simmons & Company International is a nationally recognized
investment banking firm engaged, among other things, in the valuation of
businesses and their securities in connection with mergers and acquisitions,
leveraged buyouts, negotiated underwritings, secondary distributions of listed
and unlisted securities, and private placements of equity and debt. Simmons &
Company International served as financial advisor to the Special Committee in
connection with the Reorganization and received a fee for its services, which
fee was not contingent upon consummation of the Reorganization. Salomon, or an
affiliate of Salomon, is frequently engaged, along with other investment firms,
in the same or similar transactions. In addition, in the ordinary course of
business, Simmons & Company International may actively trade the securities of
Genesis and of Salomon and its affiliates for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE GENERAL PARTNER
Based on the unanimous recommendation of the special committee and
pursuant to the authority delegated to it by the general partner, on May 9,
2000, the board of directors of the general partner unanimously approved the
restructuring proposal and unanimously recommends that the unitholders of
Genesis vote FOR the proposal.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets certain information as of October 1, 2000,
regarding the beneficial ownership of the units by all directors of the general
partner, each of our named executive officers and all of our directors and
officers as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
SOLE VOTING AND PERCENT
TITLE OF CLASS NAME INVESTMENT POWER OF CLASS
-------------- ---- -------------------- --------
Genesis Energy, L.P. A. Richard Janiak............................................... -- --
Common Unit Mark J. Gorman.................................................. 18,683 *
John P. vonBerg................................................. 18,558 *
Michael A. Peak................................................. 28,920 *
Robert T. Moffett............................................... -- --
Herbert I. Goodman.............................................. 2,000 *
J. Conley Stone................................................. 1,000 *
John M. Fetzer.................................................. 18,683 *
Kerry W. Mazoch................................................. 5,702 *
Ross A. Benavides............................................... 4,965 *
All directors and executive officers as a group (11 in number).. 103,573 1.2%
- ----------
* Less than 1 percent
The above table includes units owned by members of the families of the directors
or executive officers, including units in which pecuniary interest may be
disclaimed.
The general partner does not know of any person that beneficially owns
more than 5% of the units.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences that are expected to result from the restructuring proposal, if
approved. This discussion does not intend to deal with all aspects of federal
income taxation that may affect particular unitholders in light of their
individual circumstances and, in particular, does not address tax considerations
that may affect the treatment of certain special status taxpayers such as
financial institutions, broker-dealers, life insurance companies, tax-exempt
organizations (including individual retirement accounts), investment companies
and foreign taxpayers. In addition, no information is provided in this
discussion with respect to tax considerations under any applicable foreign,
state or local laws.
This discussion is based upon current law. Future legislative, judicial
or administrative changes or interpretations could alter or modify the following
statements and conclusions, and any of these changes or interpretations could be
retroactive and could affect the tax consequences to unitholders.
No ruling from the IRS concerning the federal income tax consequences
of the proposal has been or will be requested. The consequences described in
this discussion are not binding on the IRS or the courts and no assurance can be
given that contrary positions will not be successfully asserted by the IRS or
adopted by a court if the issues are litigated. If a contrary position was
successfully asserted by the IRS, we or the unitholders could be subject to the
assessment of additional taxes, penalties and interest.
UNITHOLDERS ARE URGED TO SEEK TAX ADVICE TO DETERMINE THEIR PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
OF APPROVAL OF THE PROPOSAL.
TREATMENT OF DISTRIBUTIONS
The special distribution to a unitholder generally will not be taxable
to the unitholder for federal income tax purposes to the extent of his tax basis
in common units immediately before the distribution. Our cash distribution in
excess of a unitholder's tax basis generally would be considered to be gain from
the sale or exchange of the common units, taxable in accordance with the rules
described under "Disposition of Common Units" below. We do not anticipate that
any unitholder will receive cash distributions in excess of his tax basis in his
common units as a result of the proposal, if approved. If our distributions
cause a unitholder's at-risk amount to be less than zero at the end of any
taxable year, he must recapture any loss deducted in prior years but only to the
extent that such at risk amount is less than zero.
There is a risk that the IRS will treat the special cash distribution
as a taxable purchase by Salomon of a portion of each unitholder's units,
taxable in accordance with Section 707(a)(2)(B) of the Internal Revenue Code.
Under this characterization, each unitholder would be required to recognize gain
to the extent the special cash distribution to the unitholder exceeded the basis
allocable to the portion of the unit deemed sold. While no authority exists
specifically addressing the issue, we believe, and intend to take the position,
that Salomon will not be treated as having purchased any interest in the
partnership from the unitholders because, among other reasons, Salomon's entire
interest in our subsidiary operating partnership, including any APIs it would be
entitled to receive upon the contribution of the cash used to fund the
distribution, will be eliminated in the transaction.
If a unitholder received consideration in exchange for his consent to
the proposal, that consideration would be subject to tax as ordinary income. We
believe, and intend to take the position, that the common unitholders received
either no consideration or very nominal consideration in exchange for their
approval of the proposal.
EFFECT OF ELIMINATION OF INTERESTS HELD BY SALOMON AND HOWELL
If the elimination of the subordinated units and APIs held by Salomon
and Howell constituted an indirect shift of their interests in the capital of
our subsidiary operating partnership to the unitholders, each unitholder might
recognize income equal to the fair market value of the capital interest shifted
to the unitholder. We believe, however, that, based upon the current fair market
value of the partnership's assets, no distributions would be made with respect
to the subordinated units or the APIs if the partnership were to be liquidated
at this time. Accordingly, we believe, and intend to take the position, that the
elimination of the subordinated units and APIs will not cause a shift of capital
to the unitholders, or that the fair market value of any such shift of capital
will be only nominal.
DISPOSITION OF COMMON UNITS
Gain or loss will be recognized on a sale or exchange of units equal to
the difference between the amount
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realized and the unitholder's tax basis for the units sold. A unitholder's
amount realized will be measured by the sum of the cash or the fair market value
of other property received plus his share of our nonrecourse liabilities.
Because the amount realized includes a unitholder's share of our nonrecourse
liabilities, the gain recognized on the sale of units could result in a tax
liability in excess of any cash received from the sale. We currently have no
nonrecourse liabilities outstanding and this discussion assumes that there will
be none outstanding at the time of the restructuring.
Prior distributions from us in excess of cumulative net taxable income
for a common unit that decreased a unitholder's tax basis in that common unit
will, in effect, become taxable income if the common unit is sold at a price
greater than the unitholder's tax basis in that common unit, even if the price
is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder, other
than a "dealer" in units, on the sale or exchange of a unit held for more than
one year will generally be taxable as capital gain or loss. Capital gain
recognized by an individual on the sale of units held more than 12 months will
generally be taxed a maximum rate of 20%. A portion of this gain or loss, which
will likely be substantial, however, will be separately computed and taxed as
ordinary income or loss to the extent attributable to assets giving rise to
depreciation recapture or other "unrealized receivables" or to "inventory items"
we own. The term "unrealized receivables" includes potential recapture items,
including depreciation recapture. Ordinary income attributable to unrealized
receivables, inventory items and depreciation recapture may exceed net taxable
gain realized upon the sale of the unit and may be recognized even if there is a
net taxable loss realized on the sale of the unit. Thus, a unitholder may
recognize both ordinary income and a capital loss upon a disposition of units.
Net capital loss may offset no more than $3,000 of ordinary income in the case
of individuals and may only be used to offset capital gain in the case of
corporations.
BASIS OF UNITS
A unitholder's initial tax basis for his common units will be the
amount he paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our income and by any
increases in his share of our nonrecourse liabilities. That basis will be
decreased (but not below zero) by distributions from us, by the unitholder's
share of our losses, by any decrease in his share of our nonrecourse liabilities
and by his share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A limited partner will
have no share of our debt which is recourse to the general partner, but will
have a share, generally based on his share of profits, of our nonrecourse
liabilities. We currently have no nonrecourse liabilities outstanding and this
discussion assumes that there will be none outstanding at the time of the
restructuring.
RATIO OF TAXABLE INCOME TO DISTRIBUTIONS
We anticipate that no material change in the ratio of allocable taxable
income to cash distributions will result from approval of the proposal. This
estimate is based upon the assumption that gross income from operations will
approximate the amount required to make the minimum quarterly distribution on
all units and assumptions with respect to capital expenditures, cash flow,
anticipated cash distributions and other matters. This estimate and the
assumptions are subject to, among other things, numerous business, economic,
regulatory, competitive and political uncertainties beyond our control. The
estimate also assumes, as we believe to be the case, that no reduction to the
tax basis of our operating partnership's assets will be required under Section
734 of the Internal Revenue Code on account of any loss recognized by Salomon or
Howell upon the elimination of the subordinated units and APIs without
consideration. Further, the estimate is based on additional aspects of current
tax law and specified tax reporting positions that we intend to adopt or have
adopted. It is possible that the IRS may disagree with one or more of the
assumptions and reporting positions on which our estimate is based. Accordingly,
we cannot assure you that the estimate will prove to be correct.
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THE SPECIAL MEETING
GENERAL
The special meeting will be held for the purpose of considering the
proposal to restructure our distribution policy and capital structure. The
special meeting is scheduled to be held on December 7, 2000 at 10:00 a.m., local
time, at our offices at 500 Dallas, Suite 2500, Houston, Texas 77002.
UNITHOLDERS ENTITLED TO VOTE
Holders of record of common units representing limited partner units in
the partnership at the close of business on October 18, 2000, the record date,
will be entitled to notice of and to vote on the proposal at the special
meeting. As of the record date, 8,617,392 common units of the partnership were
issued and outstanding and held by approximately 342 holders of record, and each
unit is entitled to one vote on the proposal. The partnership agreement requires
the affirmative vote of at least a majority of the common units outstanding. In
addition, the partnership agreement also provides that if any person or group,
other than the general partner or its affiliates, beneficially owns 20% or more
of any of the common units, those common units shall not be voted on any matter
and shall not be considered outstanding when sending notices of a meeting or
calculating required votes. If the proposal is approved, our agreement of
limited partnership and the agreement of limited partnership of our operating
partnership will be amended. See "Proposed Amendment to the Partnership
Agreement of the Operating Partnership" on page 10.
A vote in favor of the proposal is a vote in favor of amending our
agreement of limited partnership and in favor of causing us to vote the
partnership's 80.01% general partner interest in the operating partnership in
favor of amending the agreement of limited partnership of the operating
partnership.
Salomon and Howell have agreed to vote their subordinated units, which
represent all of the outstanding subordinated units in the operating partnership
and an aggregate 19.59% limited partner interest in the operating partnership,
for approval of the amendment of the agreement of limited partnership of the
operating partnership.
RECORD DATE
Our general partner has fixed the close of business on October 18,
2000, as the record date for the determination of holders of units entitled to
notice of, and to vote at, the special meeting or any adjournment(s) thereof.
Only holders of record of units at the close of business on the record date are
entitled to notice of, and to vote at, the special meeting. A complete list of
the unitholders will be available for inspection at the offices of Genesis Crude
Oil, L.P., 500 Dallas, Suite 2500, Houston, Texas, during normal business hours
upon written demand by any unitholder, unitholder's agent or attorney beginning
five business days after the date of this proxy statement and continuing through
the special meeting. Any unitholder or unitholder's agent or attorney may, upon
written notice and subject to Section 17-305 of the Delaware Revised Uniform
Limited Partnership Act, copy the list of unitholders during regular business
hours during the inspection period at the unitholder's expense. If you have
units registered in the name of a brokerage firm or trustee and plan to attend
the special meeting, please obtain from the firm or trustee a letter, account
statement or other evidence of your beneficial ownership of those units to
facilitate your admittance to the meeting.
PROXIES
Any holder of outstanding units entitled to vote on the proposal may
vote such units either in person or by duly authorized proxy. The giving of a
proxy by a unitholder will not affect the unitholder's right to vote his or her
units if the unitholder attends the special meeting and desires to vote in
person. Prior to the voting of a proxy, the proxy may be revoked by the
unitholder by delivering written notice of revocation to the general partner:
Attention: Secretary, by executing a subsequently dated proxy or by voting in
person at the special meeting. All units represented by effective proxies on the
enclosed form of proxy received by us will be voted at the special meeting in
accordance with the terms of such proxies. If no instructions are given,
executed proxies will be voted for approval of the proposal. IF A GENESIS COMMON
UNITHOLDER DOES NOT ATTEND THE SPECIAL MEETING AND DOES NOT RETURN THE EXECUTED
PROXY CARD, THAT HOLDER'S UNITS WILL NOT BE VOTED, AND THIS WILL HAVE THE EFFECT
OF A VOTE AGAINST THE PROPOSED RESTRUCTURING.
Our general partner does not intend to bring any matters before the
special meeting other than approval of the restructuring proposal and it does
not know of any other matters sought to be brought before the special meeting by
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others. If any business other than the restructuring proposal is brought before
the special meeting, the common units represented by a proxy card will be voted
by those persons appointed by our general partner to vote the common units
represented by the proxy card according to their best judgment. The proxy card
also confers discretionary authority on the persons appointed by our general
partner named on the proxy card to vote the common units represented thereby on
any other procedural matter that is properly presented for action at the special
meeting.
VOTING PROCEDURES FOR BENEFICIAL OWNERS
The enclosed proxy includes the power to vote at the special meeting
(or any adjournment of same) the number of units registered in a holder's name,
according to the books of our transfer agent. We will mail this proxy statement
and a proxy to all persons who, according to the books of our transfer agent,
beneficially own units. Unless the arrangement between the beneficial owner and
a broker or other nominee holder provides otherwise, brokers and other nominee
holders of common units will not have discretionary authority to vote common
units on any of the matters to be voted on in the absence of instructions from
the beneficial owners of those common units. Beneficial owners are therefore
urged to provide instructions to those brokers or other nominees concerning how
they wish their common units to be voted. Abstentions and broker non-votes are
each included in the determination of the number of common units present for
quorum purposes. Abstentions and broker non-votes will in effect be votes
against the restructuring proposal because approval of this proposal requires
the affirmative vote of the holders of a majority of the outstanding common
units.
SOLICITATION
We will bear the expense of preparing, printing and mailing this proxy
statement and the proxies solicited hereby. We will also request brokerage
firms, banks, nominees, custodians and fiduciaries to forward proxy materials to
the beneficial owners of units as of the record date and will provide
reimbursement for the cost of forwarding the proxy materials in accordance with
customary practice. We have retained D.F. King & Co., Inc., a professional proxy
solicitation firm, to aid in the solicitation of proxies. We will pay this firm
a fee of $7,500, plus expenses, for this service. In addition, some of our
officers, directors and regular employees may, without additional compensation,
solicit proxies by personal interview, telephone, telex, telegram, facsimile or
similar means of communication. Your cooperation in promptly signing and
returning the enclosed proxy card will help to avoid additional expenses.
QUORUM; ADJOURNMENT
The partnership agreement provides that the presence at the meeting of
the holders of a majority of the outstanding common units that are entitled to
vote, represented in person or by proxy, shall constitute a quorum. If any
person or group, other than the general partner or its affiliates, beneficially
owns 20% or more of any of the common units, those common units shall not be
considered outstanding for purposes of determining the presence of a quorum. In
the absence of a quorum, the special meeting may be adjourned by the affirmative
vote of holders of at least a majority of the common units entitled to vote at
the meeting represented either in person or by proxy.
The partnership agreement provides that 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 of the adjourned meeting
is announced at the meeting at which the adjournment is taken, unless that
adjournment is for more than 45 days.
NO DISSENTERS' APPRAISAL RIGHTS
Genesis' common unitholders do not have dissenters' appraisal rights in
connection with the proposal to be voted upon at the special meeting.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS
The special committee believes that the transaction is in the best
interest of our public common unitholders and has unanimously recommended that
the general partner, Salomon and the holders of common units of Genesis adopt
the proposed restructuring. Based on the recommendations of the special
committee, the board of directors of our general partner unanimously approved
the restructuring proposal and unanimously recommends that the unitholders of
Genesis vote FOR the proposal.
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INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate certain documents into this proxy
statement by reference. Accordingly, we have incorporated by reference into this
proxy statement:
o Genesis Energy, L.P.'s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2000, which is
attached hereto as Annex D; and
o Genesis Energy, L.P.'s Annual Report on Form 10-K/A for
the fiscal year ended December 31, 1999, which is attached
hereto as Annex E.
It is important that your units be represented at the special
meeting. Therefore, whether or not you expect to be present in person, you are
respectfully requested to mark, sign and date the enclosed proxy and promptly
return in the enclosed envelope.
YOUR FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST THE
PROPOSAL.
Respectfully submitted,
Genesis Energy, L.L.C., general
partner of Genesis Energy, L.P.
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GLOSSARY
ADJUSTED OPERATING SURPLUS: Generally, for any period, operating surplus
generated during that period as adjusted to (a) decrease operating surplus by
(i) any net increase in working capital borrowings during that period; and (ii)
any net reduction in cash reserves for operating expenditures during that period
not relating to an operating expenditure made during that period; and (iii) any
capital contributed to purchase APIs pursuant to the distribution support
agreement during that period; and (b) increase operating surplus by (i) any net
decrease in working capital borrowings during that period; and (ii) any net
increase in cash reserves for operating expenditures during that period required
by any debt instrument for the repayment of principal, interest or premium; and
(iii) the amount of any incentive compensation payments that reduced operating
surplus for that period.
Adjusted operating surplus does not include that portion of operating
surplus included in clause (a)(i) of the definition of operating surplus.
APIs: Non-voting, limited partner interests in the operating partnership issued
(at a rate of $100 per API) pursuant to the operating partnership agreement and
in accordance with the distribution support agreement. The APIs confer upon the
holder only the rights and obligations specifically provided in the operating
partnership agreement for APIs (and no other rights otherwise available to
holders of limited partner interests in the operating partnership). If the
restructuring proposal is approved, the APIs will be eliminated.
AGGREGATION: The gathering and accumulation of oil from individual wells into
large batches for shipment by pipeline or barge.
AVAILABLE CASH: For any quarter prior to liquidation: (a) the sum of (i) all
cash and cash equivalents of the partnership, the operating partnership and any
other subsidiary of the partnership on hand at the end of that quarter; and (ii)
all additional cash and cash equivalents of the partnership on hand on the date
of determination of Available Cash for that quarter resulting from working
capital borrowings after the end of that quarter;(b) less the amount of cash
reserves that is necessary or appropriate in the reasonable discretion of the
general partner to (i) provide for the proper conduct of the business of the
partnership, the operating partnership and any other subsidiary of the
partnership (including reserves for future capital expenditures and for
anticipated future credit needs of the partnership, any subsidiary and the
operating partnership) after that quarter; (ii) comply with applicable law or
any debt instrument (including the Master Credit Support Agreement), security
agreement, mortgage, or other agreement or obligation to which any member of the
partnership, the operating partnership or any subsidiary is a party or by which
it is bound or its assets are subject; and (iii) provide funds for distributions
to unitholders and the general partner or to make incentive compensation
payments for any one or more of the next four quarters; provided, however, that
the general partner may not establish cash reserves for distributions to the
subordinated units unless the general partner has determined that in its
judgment the establishment of reserves will not prevent the partnership from
distributing the minimum quarterly distribution on all common units and any
common unit arrearages thereon for the next four quarters; and, provided
further, that disbursements made by the partnership and its subsidiaries or cash
reserves established, increased or reduced after the end of that quarter but on
or before the date of determination of Available Cash for that quarter shall be
deemed to have been made, established, increased or reduced, for purposes of
determining Available Cash, within that quarter if the general partner so
determines.
BARREL: One barrel of crude oil equals 42 U.S. gallons.
CAPITAL SURPLUS: All Available Cash distributed by the partnership from any
source will be treated as distributed from operating surplus until the sum of
all Available Cash distributed since the commencement of the partnership equals
the operating surplus as of the end of the quarter prior to such distribution.
Any excess Available Cash will be deemed to be capital surplus.
CAPITAL IMPROVEMENTS: Additions or improvements to the capital assets owned by
the partnership, the operating partnership or any other subsidiary of the
partnership or the acquisition of existing or the construction of new capital
assets (including pipeline systems, storage facilities and related assets), made
to increase the operating capacity of the partnership, the operating partnership
or any other subsidiary of the partnership from the operating capacity of the
partnership, the operating partnership or any other subsidiary of the
partnership existing immediately prior to such addition, improvement,
acquisition or construction.
34
40
COMMON UNIT: A unit representing a fractional part of the partnership interests
of all limited partners and assignees and having the rights and obligations
specified for common units in the partnership agreement.
COMMON OLP UNIT: A Unit representing a fractional part of the partnership
interests of all limited partners of the operating partnership and their
assignees (other than holders of APIs) and having the rights and obligations
specified with respect to common units in the operating partnership agreement.
COMMON UNIT ARREARAGE: The amount by which the minimum quarterly distribution
for a quarter during the subordination period exceeds the distribution of
Available Cash from operating surplus actually made for that quarter on a common
unit, cumulative for that quarter and all prior quarters during the
subordination period.
CRUDE OIL: Oil in its natural state of composition. "Crude" is classified
according to its physical properties: paraffin based, asphalt based and mixed
based.
DISTRIBUTION SUPPORT AGREEMENT: The Distribution Support Agreement, dated as of
December 3, 1996, among Salomon and the operating partnership, which sets forth
the agreement of Salomon and the operating partnership relating to the purchase
of APIs in exchange for up to $17.6 million contributed to the partnership as
necessary to support the partnership's ability to pay the minimum quarterly
distributions on outstanding common units for quarters ending on or prior to
December 31, 2001.
DISTRIBUTION SUPPORT PERIOD: The period of time during which Salomon will
provide distribution support to the operating partnership ending on the first to
occur of December 31, 2001 or the date on which the amount of support used
equals $17.6 million.
EXCHANGE ACT: The Securities Exchange Act of 1934.
FUTURES CONTRACT: A contract providing for the delivery or receipt at a future
date of a specified amount and grade of a traded commodity, product, instrument,
or indices at a specified price and delivery point, or for cash settlement. A
market participant can make a futures contract to buy or sell the underlying
commodity, product, instrument, or indices. The contractual obligations may be
satisfied either by taking or making, as the case may be, physical delivery of
the commodity, product, instrument, or indices or by making an offsetting sale
or purchase of an equivalent but opposite futures contract on the same, or a
mutually offsetting, exchange prior to the designated date of delivery.
GENERAL PARTNER: Genesis Energy, L.L.C., a Delaware limited liability company,
and its successors and permitted assigns as general partner of the partnership.
GROSS MARGIN: For gathering and marketing operations, the difference between the
price of the crude oil where it is purchased and the sales price of crude oil
where it is sold, minus the associated costs of aggregation and transportation.
For pipeline operations, pipeline tariff revenues minus pipeline operating
costs.
INCENTIVE COMPENSATION PAYMENTS: Incentive compensation payments paid to the
general partner as compensation for providing management and other services to
the partnership in the event the target distribution levels have been reached.
If the restructuring proposal is approved, the general partner will relinquish
its 2% share of the special distribution and any rights to the incentive
compensation payments it may have in connection with this special distribution.
INJECTION POINTS: The location on a pipeline system where crude oil is received
from trucks gathering oil at the leases.
IRS: The Internal Revenue Service.
MARGIN: A good faith deposit with a broker to assure fulfillment of a purchase
or sale of a futures, forward or options contract. Margins on these contracts do
not usually involve the payment of interest.
35
41
MASTER CREDIT SUPPORT AGREEMENT: The Master Credit Support Agreement, as
amended, dated as of December 3, 1996, the date of the closing of the initial
public offering, between the operating partnership and Salomon relating to the
credit support Salomon has agreed to provide to the operating partnership.
MASTER CREDIT SUPPORT: The $300 million credit support provided to the
partnership by Salomon on favorable terms pursuant to the Master Credit Support
Agreement, for a period ending on December 31, 2000. If the restructuring
proposal is approved, Salomon will extended the credit support provided under
the Master Credit Agreement on the same terms and conditions until December 31,
2001.
MINIMUM QUARTERLY DISTRIBUTION: Currently, $0.50 per unit for each quarter,
subject to adjustment as described in the partnership agreement. If the
restructuring proposal is approved, the minimum quarterly distribution will be
reduced to $0.20 per unit.
OLP UNIT: Common OLP unit or a subordinated OLP unit.
OPERATING EXPENDITURES: All expenditures of the partnership, the operating
partnership and any other subsidiary of the partnership, including, but not
limited to, taxes, reimbursements of the general partner, debt service payments,
and capital expenditures, subject to the following: (a) payments (including
prepayments) of principal of and premium on indebtedness shall not be an
operating expenditure if the payment is (i) required in connection with the sale
or other disposition of assets or (ii) made in connection with the refinancing
or refunding of indebtedness with the proceeds from new indebtedness or from the
sale of equity interests. For purposes of the foregoing, at the election and in
the reasonable discretion of the general partner, any payment of principal or
premium shall be deemed to be refunded or refinanced by any indebtedness
incurred or to be incurred by the partnership, the operating partnership and any
other subsidiary of the partnership within 180 days before or after such payment
to the extent of the principal amount of such indebtedness. (b) operating
expenditures shall not include (i) capital expenditures made for acquisitions or
for capital improvements, (ii) payment of transaction expenses relating to
interim capital transactions or (iii) distributions to partners. Where capital
expenditures are made in part for acquisitions or for capital improvements and
in part for other purposes, the general partner's good faith allocation between
the amounts paid for each shall be conclusive.
OPERATING PARTNERSHIP: Genesis Crude Oil, L.P., a Delaware limited partnership,
and any successors to Genesis Crude Oil, L.P.
OPERATING PARTNERSHIP AGREEMENT: The Amended and Restated Agreement of Limited
Partnership of the operating partnership, as it may be amended, supplemented or
restated from time to time (the form of Second Amended and Restated Agreement of
Limited Partnership of Genesis Crude Oil, L.P. is filed as Annex C to this proxy
statement).
OPERATING SURPLUS: With respect to any period prior to liquidation on a
cumulative basis and without duplication: (a) the sum of (i) $20 million plus
all cash and cash equivalents of the partnership, the operating partnership and
other subsidiaries of the partnership on hand as of the close of business on
December 3, 1996, the date of the closing of the initial public offering, (ii)
all cash receipts of the partnership, the operating partnership and other
subsidiaries of the partnership for the period beginning on December 3, 1996,
the date of the closing of the initial public offering, and ending with the last
day of such period, other than cash receipts from interim capital transactions
(except to the extent specified in Section 6.5 of the operating partnership
agreement) and (iii) all cash receipts of the partnership, the operating
partnership and other subsidiaries of the partnership after the end of
such period but on or before the date of determination of operating surplus with
respect to such period resulting from borrowings for working capital purposes,
less (b) the sum of (i) operating expenditures for the period beginning on
December 3, 1996, the date of the closing of the initial public offering and
ending with the last day of that period and (ii) the amount of cash reserves
that is necessary or advisable in the reasonable discretion of the general
partner to provide funds for future operating expenditures, provided however,
that disbursements made (including contributions to a member of the partnership,
the operating partnership and other subsidiaries of the partnership or
disbursements on behalf of a member of the partnership, the operating
partnership and other subsidiaries of the partnership) or cash reserves
established, increased or reduced after the end of such period but on or before
the date of determination of Available Cash with respect to such period shall be
deemed to have been made, established, increased or reduced for purposes
36
42
of determining operating surplus, within such period if the general partner so
determines.
PARTNERSHIP: Genesis Energy, L.P., a Delaware limited partnership, and any
successors to Genesis Energy, L.P.
PARTNERSHIP AGREEMENT: The Amended and Restated Agreement of Limited Partnership
of Genesis Energy L.P., as it may be amended, restated or supplemented from time
to time (the form of the Second Amended and Restated Agreement of Limited
Partnership of Genesis Energy L.P. is filed as Annex B to this proxy statement),
unless otherwise specified.
PARTNERSHIP INTEREST: An ownership interest in the partnership, which includes
general partner interests, common units or other equity securities of the
partnership.
RESERVES: The amount of oil and gas in a reservoir currently available for
production, usually described as barrels of oil, or MCF (thousands of cubic
feet) of gas, attributable to a well, to a property, or to an entire field. The
term should be qualified by an adjective, since there are many ways of
estimating the reserves.
ROTARY RIGS: A land-based drilling rig generally consisting of engines, a
drawworks (which hoists and lowers the drill string in and out of the well), a
mast (or derrick), pumps to circulate the drilling fluid (mud) under various
pressures, blowout preventers, drill string and related equipment. The engines
power the different pieces of equipment, including a rotary table or top drive
that turns the drill string, causing the drill bit to bore through the
subsurface rock layers. Rock cuttings are carried to the surface by the
circulating drilling fluid.
SHUT-IN: Stopping a producing oil and gas well from producing.
SECURITIES ACT: The Securities Act of 1933, as amended, supplemented or restated
from time to time and any successor to such statute.
SUBORDINATED OLP UNIT: A unit representing a fractional part of the limited
partner partnership interests of all limited partners of the operating
partnership and assignees of any such limited partner interest and having the
rights and obligations specified for subordinated OLP units in the operating
partnership agreement. If the restructuring proposal is approved, the
subordinated OLP units will be eliminated.
SUBORDINATION PERIOD: The subordination period will generally extend from the
date of the closing of the initial public offering until the first day of any
quarter beginning after September 30, 2001 for which (i) distributions of
Available Cash from operating surplus on all of the outstanding common units and
the subordinated units for each of the three consecutive four-quarter periods
immediately preceding that date, equaled or exceeded the sum of the minimum
quarterly distribution on all of the outstanding common units and subordinated
units during those periods, (ii) the adjusted operating surplus generated during
each of the three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of minimum quarterly distribution on all of the
outstanding common units and subordinated OLP units, and the related
distribution on the general partner interest in the partnership, during such
periods, and (iii) there are no outstanding common unit arrearages. Prior to the
end of the subordination period, a portion of the subordinated OLP units will
convert into common OLP units on a one-for-one basis on the first day after the
record date established for any quarter ending on or after (a) September 30,
1999 (with respect to subordinated OLP units) and (b) September 30, 2000 (with
respect to an additional subordinated OLP units), on a cumulative basis, for
which (i) distributions of Available Cash from operating surplus on the common
units and the subordinated OLP units with respect to each of the two consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the minimum quarterly distribution on all of the outstanding common units and
subordinated OLP units during such periods, (ii) the adjusted operating surplus
generated during each of the two consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the minimum quarterly
distribution on all of the outstanding common units and subordinated OLP units
and the related distribution on the general partner interest in the partnership
during such periods, and (iii) there are no outstanding common unit arrearages;
provided, however, that the early conversion of the second tranche of
subordinated OLP units may not occur until at least one year following the early
conversion of the first tranche of subordinated OLP units. In addition, if the
general partner is removed as general partner of the partnership under
circumstances where cause does not exist and units held by the general partner
and its affiliates are not voted in favor of such removal (i) the subordination
period will end and all outstanding subordinated OLP
37
43
units will immediately convert into common OLP units on a one-for-one basis,
(ii) any existing common unit arrearages will be extinguished and (iii) the
general partner will have the right to convert its general partner interests
(including the incentive distribution rights) into common units or to receive
cash in exchange for such interests.
If the restructuring period is approved, the subordinated units
will be eliminated and the subordination period will terminate.
TARGET DISTRIBUTION LEVELS: The distribution levels at which the general
partner's incentive compensation payments are determined as described in the
partnership agreement. Currently, the levels that must be achieved before the
general partner is entitled to an increasing share of excess distributions are
$0.55, $0.625 and $0.825. If the restructuring proposal is approved, these
levels will be $0.25, $0.28 and $0.33, respectively.
TARGET DISTRIBUTIONS: The distribution levels at which the general partner's
interest in distributions will increase from 2% to 13.3% (the "First Target
Distribution"), from 15% to 23.5% (the "Second Target Distribution") and from
25% to 49% (the "Third Target Distribution").
TERMINAL FACILITY: A storage facility for crude oil connected to a pipeline for
the temporary storage of crude oil.
THROUGHPUT: The volume of crude oil that passes through the pipeline, measured
in barrels.
TRANSFER AGENT: American Stock Transfer & Trust Company or such bank, trust
company or other person (including the general partner or one of its affiliates)
as shall be appointed from time to time by the partnership to act as registrar
and transfer agent for the units.
UNIT MAJORITY: During the subordination period, at least a majority of the
outstanding common units, voting as a class, and at least a majority of the
outstanding subordinated OLP units, voting as a class and, thereafter, at least
a majority of the outstanding units voting as a class.
UNITHOLDERS: Holders of the common units, the common OLP units and the
subordinated OLP units.
UNITS: The common units, the common OLP units and the subordinated OLP units,
collectively, but shall not include the right to receive incentive
distributions.
WELLHEAD: A device on the surface used to hold the tubing in the well. The
wellhead is the originating point of the producing well at the top of the
ground.
WORKOVER: Major remedial operations required to maintain, restore or increase
production rates.
WORKOVER RIG: A land-based workover or well-servicing rig consists of a mobile
carrier, engine, drawworks and a mast. The primary function of a workover or
well-servicing rig is to act as a hoist so that pipe, sucker rods and down-hole
equipment can be run into and out of a well. Typically, land-based drilling,
workover and well-servicing rigs can be readily moved between well sites and
between geographic areas of operations.
38
44
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction............................................................................................F-2
Pro Forma Consolidated Balance Sheet as of June 30, 2000................................................F-3
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 1999.....................F-4
Pro Forma Consolidated Statement of Operations for the Six Months Ended June 30, 2000...................F-5
Pro Forma Consolidated Statement of Operations for the Six Months Ended June 30, 1999...................F-6
Notes to Pro Forma Consolidated Financial Statements....................................................F-7
F-1
45
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
BASIS OF PRESENTATION
The following pro forma adjustments have been prepared as if the
proposed restructuring had been approved and taken place on June 30, 2000, in
the case of the pro forma consolidated balance sheet, or as of January 1, 1999,
in the case of the pro forma consolidated statements of operations for the year
ended December 31, 1999 and the six months ended June 30, 2000 and 1999. The
adjustments are based on currently available information and certain estimates
and assumptions, and therefore the actual adjustments made to effect the
transactions may differ from the pro forma adjustments. However, management
believes that the assumptions provide a reasonable basis for presenting the
effects of the proposed restructuring and that the pro forma adjustments give
appropriate effect to these assumptions and are properly applied in the pro
forma financial information.
THE TRANSACTIONS
Upon approval of the proposed restructuring the following actions will
occur:
o Salomon will contribute the remaining distribution support to
Genesis and receive APIs.
o The costs of the restructuring will be paid from the remaining
distribution support contributed by Salomon.
o The distribution support remaining after the payment of the
restructuring costs will be paid to the common unitholders as a
special distribution.
o All outstanding APIs issued to Salomon in exchange for
distribution support will be eliminated for no consideration.
o All outstanding subordinated limited partner units in the
operating partnership will be eliminated for no consideration.
F-2
46
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2000
(Unaudited)
(in thousands)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- ---------
ASSETS
CURRENT ASSETS
Cash $ 5,674 $ (1,273)(A) $ 5,674
8,902(C)
(7,629)(D)
All other current assets $ 465,717 $ 465,717
--------- ---------
Total Current Assets 471,391 471,391
FIXED ASSETS, at cost 90,836 90,836
OTHER ASSETS, net of amortization 11,297 11,297
--------- ---------
TOTAL ASSETS $ 573,524 $ 573,524
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES $ 490,131 $ 490,131
ADDITIONAL PARTNERSHIP INTERESTS 8,700 8,902(C) --
(17,602)(E)
MINORITY INTERESTS 30,428 (30,428)(B) --
PARTNERS' CAPITAL
Common unitholders 43,444 (1,247)(A) 81,632
29,816(B)
(7,629)(D)
17,248(E)
General partner 864 (26)(A) 1,804
612(B)
354(E)
Treasury units (43) (43)
--------- ---------
Total partners' capital 44,265 83,393
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 573,524 $ 573,524
========= =========
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-3
47
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
(in thousands, except per unit data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
------------ ------------ ------------
REVENUES $ 2,161,012 $ 2,161,012
COST OF SALES 2,138,148 2,138,148
------------ ------------
GROSS MARGIN 22,864 22,864
EXPENSES
General and administrative expenses 11,649 11,649
Depreciation and amortization 8,220 8,220
------------ ------------
OPERATING INCOME 2,995 2,995
OTHER INCOME (EXPENSE), NET (80) (80)
------------ ------------
Net income before minority interests 2,915 2,915
Minority interests 583 (583)(B) --
------------ ------------
NET INCOME $ 2,332 $ 2,915
============ ============
NET INCOME PER UNIT-BASIC AND DILUTED $ 0.27 $ 0.33(F)
============ ============
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING
8,604 8,604
============ ============
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-4
48
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
(in thousands, except per unit data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
------------ ------------ ------------
REVENUES $ 2,196,739 $ 2,196,739
COST OF SALES 2,187,398 2,187,398
------------ ------------
GROSS MARGIN 9,341 9,341
EXPENSES
General and administrative expenses 5,376 5,376
Depreciation and amortization 4,081 4,081
------------ ------------
OPERATING INCOME (116) (116)
OTHER INCOME (EXPENSE), NET (598) (598)
------------ ------------
Net income before minority interests (714) (714)
Minority interests (143) 143(B) --
------------ ------------
NET INCOME $ (571) $ (714)
============ ============
NET INCOME PER UNIT-BASIC AND DILUTED $ (0.06) $ (0.08)(G)
============ ============
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 8,623 8,604
============ ============
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-5
49
GENESIS ENERGY, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
(in thousands, except per unit data)
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
------------ ------------ ------------
REVENUES $ 897,111 $ 897,111
COST OF SALES 885,021 885,021
------------ ------------
GROSS MARGIN 12,090 12,090
EXPENSES
General and administrative expenses 6,039 6,039
Depreciation and amortization 4,112 4,112
------------ ------------
OPERATING INCOME 1,939 1,939
OTHER INCOME (EXPENSE), NET 453 453
------------ ------------
Net income before minority interests 2,392 2,392
Minority interests 479 (479)(B) --
------------ ------------
NET INCOME $ 1,913 $ 2,392
============ ============
NET INCOME PER UNIT-BASIC AND DILUTED $ 0.22 $ 0.27(H)
============ ============
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 8,623 8,604
============ ============
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-6
50
GENESIS ENERGY, L.P.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
PRO FORMA ADJUSTMENTS
A. Reflects estimated costs of restructuring transaction assuming the
transaction occurred on June 30, 2000. Cash would be expended for these
costs and partners' capital would be reduced for the income statement
impact. The effect of these transaction costs is not reflected in the
pro forma statements of operations for June 30, 2000 or 1999 or
December 31, 1999 as these costs are nonrecurring charges directly
attributable to the transaction. The table below reflects an estimate
of the costs expected to be incurred with the issuance of this proxy
statement.
Financial Advisor Fees $ 500
Accounting and legal fees 390
Proxy solicitation costs and transfer agent costs 50
Printing costs 260
Shipping/mailing costs 68
Miscellaneous 5
-----------
Total estimated costs $ 1,273
===========
B. Reflects elimination of subordinated unitholders' interests in Genesis.
The elimination of the subordinated units results in the amount on the
balance sheet reflected in minority interests being contributed 97.99%
to the common unitholders and 2.01% to the general partner.
C. Reflects the receipt of the remaining distribution support of $8,902
from Salomon on June 30, 2000.
D. Reflects the payment of the remaining distribution support of $8,902,
net of the restructuring transaction costs of $1,273, to common
unitholders on June 30, 2000. At June 30, 2000, distribution support
of $8,902 remained (total distribution support obligation of $17,602
less the $8,700 utilized prior to June 30, 2000.) The net amount
available after restructuring costs would be $7,629; therefore, if the
special distribution had been made on that date the pro forma
distribution would have been $7,629. However, $2,600 has been utilized
to make the distribution on August 14, 2000 related to the second
quarter of 2000 and we estimate $2,600 may be utilized for the third
quarter distribution with the remainder of $2,429 to be paid as a
special distribution.
F-7
51
E. Reflects the elimination of APIs after the restructuring on June 30,
2000. The elimination of the APIs results in the amount on the balance
sheet reflected in APIs being contributed 97.99% to the common
unitholders and 2.01% to the general partner.
F. Genesis' net income per common unit for the year ended December 31,
1999, was $0.27 on a historical basis and $0.33 on a pro forma basis.
Distributions, however, are paid based on Available Cash. The following
table depicts Available Cash from operations generated by Genesis by
quarter and the resulting distributions that would be paid on a
historical basis and on a pro forma basis. Cash received from Salomon
as distribution support on a historical basis is not included as
Available Cash from operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
1999 1999 1999 1999 1999
------- ------- ------- ------- -------
Available Cash from Operations $ 4,390 $ 2,690 $ 2,190 $ 2,201 $11,471
Outstanding Units on Record Date 8,604 8,604 8,604 8,625 N/A
Historical
Distributed to:
General Partner $ 88 $ 54 $ 44 $ 44 $ 230
Common Unitholders $ 4,302 $ 2,636 $ 2,146 $ 2,157 $11,241
Distribution per Common Unit from $ 0.50 $ 0.30 $ 0.25 $ 0.25 $ 1.30
Available Cash from operations before
Distribution Support
Pro Forma
Minimum Quarterly Distribution
General Partner $ 44 $ 44 $ 44 $ 44 $ 176
Common Unitholders $ 2,151 $ 2,151 $ 2,146 $ 2,157 $ 8,605
Distribution per Common Unit $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 1.00
First Target Distribution
General Partner Incentive Compensation $ 41 $ 41 $ -- $ -- $ 82
General Partner $ 5 $ 5 $ -- $ -- $ 10
Common Unitholders $ 258 $ 258 $ -- $ -- $ 516
Distribution per Common Unit $ 0.03 $ 0.03 $ -- $ -- $ 0.06
Second Target Distribution
General Partner Incentive Compensation $ 135 $ 45 $ -- $ -- $ 180
General Partner $ 9 $ 3 $ -- $ -- $ 12
Common Unitholders $ 430 $ 143 $ -- $ -- $ 573
Distribution per Common Unit $ 0.05 $ 0.02 $ -- $ -- $ 0.07
Third Target Distribution
General Partner Incentive Compensation $ 645 $ -- $ -- $ -- $ 645
General Partner $ 13 $ -- $ -- $ -- $ 13
Common Unitholders $ 659 $ -- $ -- $ -- $ 659
Distribution per Common Unit $ 0.08 $ -- $ -- $ -- $ 0.08
F-8
52
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
1999 1999 1999 1999 1999
------- ------- ------- ------- -------
Totals
General Partner Incentive Compensation $ 821 $ 86 $ -- $ -- $ 907
General Partner $ 71 $ 52 $ 44 $ 44 $ 211
Common Unitholders $ 3,498 $ 2,552 $ 2,146 $ 2,157 $10,353
Distribution per Common Unit $ 0.41 $ 0.30 $ 0.25 $ 0.25 $ 1.21
G. Genesis' net loss per common unit for the six months ended June 30,
2000, was $0.06 on a historical basis and $0.08 on a pro forma basis.
Distributions, however, are paid based on Available Cash. The following
table depicts Available Cash from operations generated by Genesis by
quarter and the resulting distributions that would be paid on a
historical basis and on a pro forma basis. Cash received from Salomon
as distribution support on a historical basis is not included as
Available Cash from operations.
FIRST SECOND
QUARTER QUARTER TOTAL
2000 2000 2000
------- ------- -------
Available Cash from Operations $ 1,801 $ 1,797 $ 3,598
Outstanding Units on Record Date 8,625 8,617 N/A
Historical
Distributed to:
General Partner $ 36 $ 36 $ 72
Common Unitholders $ 1,765 $ 1,761 $ 3,526
Distribution per Common Unit from $ 0.20 $ 0.20 $ 0.40
Available Cash from operations before
Distribution Support
Pro Forma
Minimum Quarterly Distribution
General Partner $ 36 $ 36 $ 72
Common Unitholders $ 1,765 $ 1,761 $ 3,526
Distribution per Common Unit $ 0.20 $ 0.20 $ 0.40
Totals
General Partner Incentive Compensation $ -- $ -- $ --
General Partner $ 36 $ 36 $ 72
Common Unitholders $ 1,765 $ 1,761 $ 3,526
Distribution per Common Unit $ 0.20 $ 0.20 $ 0.40
F-9
53
H. Genesis' net income per common unit for the six months ended June 30,
1999, was $0.22 on a historical basis and $0.27 on a pro forma basis.
Distributions, however, are paid based on Available Cash. The following
table depicts Available Cash from operations by quarter and the
resulting distributions that would be paid on a historical basis and on
a pro forma basis. Cash received from Salomon as distribution support
on a historical basis is not included as Available Cash from
operations.
FIRST SECOND
QUARTER QUARTER TOTAL
1999 1999 1999
------- ------- -------
Available Cash from Operations $ 4,390 $ 2,690 $ 7,080
Outstanding Units on Record Date 8,604 8,604 N/A
Historical
Distributed to:
General Partner $ 88 $ 54 $ 142
Common Unitholders $ 4,302 $ 2,636 $ 6,938
Distribution per Common Unit from $ 0.50 $ 0.30 $ 0.80
Available Cash from operations before
Distribution Support
Pro Forma
Minimum Quarterly Distribution
General Partner $ 44 $ 44 $ 88
Common Unitholders $ 2,151 $ 2,151 $ 4,302
Distribution per Common Unit $ 0.25 $ 0.25 $ 0.50
First Target Distribution
General Partner Incentive Compensation $ 41 $ 41 $ 82
General Partner $ 5 $ 5 $ 10
Common Unitholders $ 258 $ 258 $ 516
Distribution per Common Unit $ 0.03 $ 0.03 $ 0.06
Second Target Distribution
General Partner Incentive Compensation $ 135 $ 45 $ 180
General Partner $ 9 $ 3 $ 12
Common Unitholders $ 430 $ 143 $ 573
Distribution per Common Unit $ 0.05 $ 0.02 $ 0.07
Third Target Distribution
General Partner Incentive Compensation $ 645 $ -- $ 645
General Partner $ 13 $ -- $ 13
Common Unitholders $ 659 $ -- $ 659
Distribution per Common Unit $ 0.08 $ -- $ 0.08
Totals
General Partner Incentive Compensation $ 821 $ 86 $ 907
General Partner $ 71 $ 52 $ 123
Common Unitholders $ 3,498 $ 2,552 $ 6,050
Distribution per Common Unit $ 0.41 $ 0.30 $ 0.71
F-10
54
ANNEX A
OPINION OF SIMMONS & COMPANY INTERNATIONAL
55
ANNEX A
[Simmons & Company International Letterhead]
CONFIDENTIAL
May 8, 2000
Special Committee of the Board of Directors
Genesis Energy, L.L.C.
500 Dallas, Suite 2500
Houston, TX 77002
Members of the Special Committee:
In your capacity as the Special Committee (the "Special Committee") of the Board
of Directors (the "Board of Directors") of Genesis Energy, L.L.C., the general
partner (the "General Partner") of Genesis Energy, L.P. (the "Partnership"), you
have requested the opinion of Simmons & Company International ("Simmons") as
investment bankers as to the fairness, from a financial point of view, to the
holders of common units of the Partnership (the "Common Unitholders") of the
Terms (as defined below) of the Reorganization (as defined below). We understand
that the General Partner proposes a reorganization and an amendment of the
Amended and Restated Agreement of Limited Partnership of Genesis Energy, L.P.,
and of the Amended and Restated Agreement of Limited Partnership of Genesis
Crude Oil, L.P., to reflect the Reorganization. The proposed reorganization (the
"Reorganization") provides for the following terms (the "Terms"): (i) the
reduction of the minimum quarterly distribution from $0.50 per unit to $0.20 per
unit; (ii) the reduction of the per unit distribution thresholds that must be
achieved before the general partner is entitled to incentive distributions from
$0.55, $0.635, and $0.825, to $0.25, $0.28, and $0.33, respectively; (iii) the
elimination of all outstanding subordinated limited partner units in Genesis
Crude Oil, L.P. (the "Operating Partnership"), thereby increasing the Common
Unitholders' effective ownership of the Operating Partnership from 80% to 98%;
(iv) the elimination of all outstanding additional partner interests of the
Operating Partnership; (v) the Special Distribution (as defined below); and (vi)
the Credit Extension (as defined below). Pursuant to the Reorganization, (a)
Salomon Smith Barney Holdings Inc. ("Salomon"), which owns all of the member
interests of the General Partner, will immediately fund in full its remaining
distribution support obligation that would otherwise be payable in connection
with future quarterly distributions, which amount after reduction by
approximately $1.1 million to pay the costs and expenses of the Partnership
associated with the Reorganization will be distributed by the Partnership to the
Common Unitholders as a special distribution (the "Special Distribution"), and
(b) Salomon will extend its $300 million credit support facility for one year
beyond its current expiration date of December 31, 2000 (the "Credit
Extension"). For reference, the full terms and conditions of the Reorganization
are set forth in the Proxy Statement referred to below. Unless the context
otherwise requires, references in this letter to the Partnership include the
Operating Partnership and the subsidiary partnerships.
In conducting our analysis and arriving at our opinion expressed herein, we have
considered such financial and other factors as we deemed appropriate under the
circumstances, including, without limitation, the following: (i) the most recent
draft of the Proxy Statement (dated April 28, 2000); (ii) certain publicly
available financial statements and other information concerning the Partnership,
including without limitation the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, filed with the Securities and Exchange
Commission on March 29, 2000; (iii) certain internal business and financial
information relating to the Partnership, including certain forecasts prepared by
management of the Partnership and provided to Simmons by the Partnership; (iv)
discussions of the past and current operations and the financial condition and
prospects of the Partnership with management of the Partnership; (v) the
financial performance of the Partnership; (vi) the trading performance of the
Partnership's
A-1
56
common units as compared to those of certain other publicly held entities in
businesses similar to those conducted by the Partnership; (vii) the Terms of the
Reorganization; and (viii) the financial terms of certain other recent
transactions to the extent such transactions are reasonably comparable to the
Reorganization. We also took into account our assessment of general economic,
market and financial conditions and our experience in connection with similar
transactions and securities' valuations generally. The opinion expressed herein
is necessarily based upon conditions as they exist and can be evaluated on, and
based on the information made available at, the date hereof.
In arriving at this opinion, we, with your consent, assumed and relied upon the
accuracy and completeness of all the foregoing information and did not
independently verify any of such information. With respect to financial
forecasts, we utilized certain information set forth therein and assumed that
such information was reasonably prepared on bases reflecting the best estimates
and judgments of the management of the Partnership as to the future financial
performance of the Partnership, as available at the time of preparation. We did
not make or receive any independent evaluation or appraisal of any assets or
liabilities (contingent or otherwise) of the Partnership.
We are serving as financial advisor to the Special Committee in connection with
this transaction and will receive a fee for our services, which fee is not
contingent upon consummation of the Reorganization. We are a nationally
recognized investment banking firm, and we are continually engaged, among other
things, in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities, and private placements of
equity and debt. Salomon, or an affiliate of Salomon, is frequently engaged,
along with other investment firms, in such transactions. In addition, in the
ordinary course of business, we may actively trade the securities of the
Partnership and of Salomon and its affiliates for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
You agree that this opinion letter is for the use and benefit of the Special
Committee, and may not be used for any other purpose without our prior written
consent. This opinion does not address the merits of either the determination by
the General Partner to propose the Reorganization or of the underlying decision
by the Partnership to enter into the Reorganization and does not constitute a
recommendation to any Common Unitholder as to how such Common Unitholder should
vote on the Reorganization or on any matter related thereto. In addition, we
have not evaluated any of the costs to, or the benefits to be derived by,
Salomon from the Reorganization and our opinion in no way speaks to such costs
and benefits to Salomon relative to the benefits to the Common Unitholders of
the Reorganization.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Terms of the Reorganization are fair, from a financial point of
view, to the Common Unitholders (other than Salomon, the affiliates of the
Partnership, the General Partner and their respective officers, directors and
affiliates and any other Common Unitholder that did not acquire its units
through the public trading markets).
Sincerely yours,
SIMMONS & COMPANY INTERNATIONAL
/s/ George C. Morris III
George C. Morris III
Managing Director
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57
ANNEX B
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS ENERGY, L.P.
58
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1.1 Definitions.....................................................................................1
1.2 Construction...................................................................................10
ARTICLE II ORGANIZATION
2.1 Continuation of Existence......................................................................10
2.2 Name...........................................................................................10
2.3 Registered Office; Registered Agent; Principal Office; Other Offices...........................11
2.4 Purpose and Business...........................................................................11
2.5 Powers.........................................................................................11
2.6 Power of Attorney..............................................................................11
2.7 Term...........................................................................................12
2.8 Title to Partnership Assets....................................................................12
ARTICLE III RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability........................................................................13
3.2 Management of Business.........................................................................13
3.3 Outside Activities of the Limited Partners.....................................................13
3.4 Rights of Limited Partners.....................................................................13
ARTICLE IV CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION
OF PARTNERSHIP INTERESTS
4.1 Certificates...................................................................................14
4.2 Mutilated, Destroyed, Lost or Stolen Certificates..............................................14
4.3 Record Holders.................................................................................15
4.4 Transfer Generally.............................................................................15
4.5 Registration and Transfer of Limited Partner Interests.........................................15
4.6 Transfer of a General Partner's General Partner Interest.......................................16
4.7 Restrictions on Transfers......................................................................16
4.8 Citizenship Certificates; Non-citizen Assignees................................................17
4.9 Redemption of Partnership Interests of Non-citizen Assignees...................................17
ARTICLE V CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions.................................................................18
5.2 Additional Contributions by General Partner....................................................18
5.3 Interest and Withdrawal........................................................................18
5.4 Capital Accounts...............................................................................19
5.5 Issuances of Additional Partnership Securities.................................................20
5.6 Limited Preemptive Right.......................................................................21
5.7 Splits and Combination.........................................................................21
5.8 Fully Paid and Non-Assessable Nature of Limited Partner Interests..............................22
B-i
59
ARTICLE VI ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes.......................................................22
6.2 Allocations for Tax Purposes...................................................................24
6.3 Distributions to Record Holders................................................................26
ARTICLE VII MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management.....................................................................................26
7.2 Certificate of Limited Partnership.............................................................28
7.3 Restrictions on General Partner's Authority....................................................28
7.4 Reimbursement of the General Partner...........................................................29
7.5 Outside Activities.............................................................................29
7.6 Loans from the General Partner; Loans or Contributions from the Partnership;
Contracts with Affiliates; Certain Restrictions on the General Partner.........................30
7.7 Indemnification................................................................................31
7.8 Liability of Indemnitees.......................................................................32
7.9 Resolution of Conflicts of Interest............................................................33
7.10 Other Matters Concerning the General Partner...................................................34
7.11 Purchase or Sale of Partnership Securities.....................................................34
7.12 Registration Rights of the General Partner and its Affiliates..................................34
7.13 Reliance by Third Parties......................................................................36
ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting.........................................................................36
8.2 Fiscal Year....................................................................................36
8.3 Reports........................................................................................36
ARTICLE IX TAX MATTERS
9.1 Tax Returns and Information....................................................................37
9.2 Tax Elections..................................................................................37
9.3 Tax Controversies..............................................................................37
9.4 Withholding....................................................................................37
ARTICLE X ADMISSION OF PARTNERS
10.1 Admission of Substituted Limited Partner.......................................................38
10.2 Admission of Successor General Partner.........................................................38
10.3 Admission of Additional Limited Partners.......................................................38
10.4 Amendment of Agreement and Certificate of Limited Partnership..................................39
ARTICLE XI WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner..............................................................39
11.2 Removal of the General Partner.................................................................40
11.3 Interest of Departing Partner and Successor General Partner....................................40
11.4 Withdrawal of Limited Partners.................................................................41
B-ii
60
ARTICLE XII DISSOLUTION AND LIQUIDATION
12.1 Dissolution....................................................................................41
12.2 Continuation of the Business of the Partnership After Dissolution..............................42
12.3 Liquidator.....................................................................................42
12.4 Liquidation....................................................................................43
12.5 Cancellation of Certificate of Limited Partnership.............................................43
12.6 Return of Contributions........................................................................43
12.7 Waiver of Partition............................................................................44
12.8 Capital Account Restoration....................................................................44
ARTICLE XIII AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1 Amendment to be Adopted Solely by the General Partner..........................................44
13.2 Amendment Procedures...........................................................................45
13.3 Amendment Requirements.........................................................................45
13.4 Special Meetings...............................................................................46
13.5 Notice of a Meeting............................................................................46
13.6 Record Date....................................................................................46
13.7 Adjournment....................................................................................46
13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.....................................46
13.9 Quorum.........................................................................................47
13.10 Conduct of a Meeting...........................................................................47
13.11 Action Without a Meeting.......................................................................47
13.12 Voting and Other Rights........................................................................48
ARTICLE XIV MERGER
14.1 Authority......................................................................................48
14.2 Procedure for Merger or Consolidation..........................................................48
14.3 Approval by Limited Partners of Merger or Consolidation.......................................49
14.4 Certificate of Merger.........................................................................50
14.5 Effect of Merger...............................................................................50
ARTICLE XV RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
15.1 Right to Acquire Limited Partner Interests.....................................................50
ARTICLE XVI GENERAL PROVISIONS
16.1 Addresses and Notices..........................................................................51
16.2 Further Action.................................................................................52
16.3 Binding Effect.................................................................................52
16.4 Integration...................................................................................52
16.5 Creditors.....................................................................................52
16.6 Waiver.........................................................................................52
16.7 Counterparts...................................................................................52
16.8 Applicable Law.................................................................................53
16.9 Invalidity of Provisions.......................................................................53
16.10 Consent of Partners............................................................................53
B-iii
61
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS ENERGY, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of
Genesis Energy, L.P. dated as of _______, 2000, is entered into by and among
Genesis Energy, L.L.C., a Delaware limited liability company, as the General
Partner, together with any other Persons who are or who become Partners in the
Partnership or parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the parties hereto hereby
agree as follows:
WHEREAS, the General Partner and certain other parties
organized the Partnership as a Delaware limited partnership pursuant to
an Amended and Restated Agreement of Limited Partnership dated as of
December 3, 1996 (the "Previous Agreement"); and
WHEREAS, the partners of the Partnership and Genesis OLP have
approved by requisite vote a restructuring (the "Restructuring") of the
Partnership and Genesis OLP pursuant to which (a) all outstanding
Subordinated LP Units and APIs (each as defined in the Genesis OLP
Partnership Agreement) will be eliminated, (b) the Previous Agreement
and the previous Genesis OLP Partnership Agreement will be amended to,
among other things, reduce the Minimum Quarterly Distribution, the
First Target Distribution, the Second Target Distribution and the Third
Target Distribution (each as defined in the Genesis OLP Partnership
Agreement) and provide that the Common Units (as defined in the Genesis
OLP Partnership Agreement) will not accrue arrearages if the Minimum
Quarterly Distribution is not paid in full in any Quarter, (c) Salomon
will contribute to Genesis OLP the remaining $_____________ of its
distribution support obligation under the Distribution Support
Agreement, (d) Genesis OLP will make a special distribution of
$_________ to the Partnership and the Partnership will make a special
distribution of $_________ to the holders of Common Units, (e) the
Distribution Support Agreement will be terminated, (f) the Partnership
will withdraw as a general partner of Genesis OLP and the Partnership's
80.01% general partner interest in Genesis OLP represented by
_____________ Subordinated GP Units will be converted into a 99.99%
limited partner interest, (g) the General Partner's 0.40% general
partner interest in Genesis OLP represented by ________ Subordinated GP
Units will be converted into a 0.01% general partner interest and (h)
Salomon's $300 million credit support obligation under the Master
Credit Support Agreement will be extended until December 31, 2001 on
the current terms and conditions; and
WHEREAS, Genesis Energy, L.L.C., as the sole general partner,
now desires to amend and restate the Previous Agreement to reflect the
Restructuring and such other changes that, in the discretion of Genesis
Energy, L.L.C., do not adversely affect the Limited Partners in any
material respect;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby amend and restate
the Previous Agreement in its entirety:
ARTICLE I
DEFINITIONS
1.1 Definitions
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such transaction.
B-1
62
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 10.4 and who is shown as such on the
books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a) increased
by any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of the end of
such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1(c)(i)
or 6.1(c)(ii)). The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.4(d)(i) or 5.4(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
(i) directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question or (ii)
owns, beneficially, directly or indirectly, 20% or more of the outstanding
capital stock, shares or other equity interests of the Person in question. As
used herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative Allocation
(if appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt. The General Partner shall, in its discretion, use such method as
it deems reasonable and appropriate to allocate the aggregate Agreed Value of
Contributed Properties contributed to the Partnership in a single or integrated
transaction among each separate property on a basis proportional to the fair
market value of each Contributed Property.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership of Genesis Energy, L.P., as it may be amended, supplemented or
restated from time to time.
"API" has the meaning assigned to such term in the Genesis OLP
Partnership Agreement.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under this
Agreement and who has executed and delivered a Transfer Application as required
by this Agreement, but who has not been admitted as a Substituted Limited
Partner.
"Associate" means, when used to indicate a relationship with any
Person, (a) any corporation or organization of which such Person is a director,
officer or partner or is, directly or indirectly, the owner of 20% or more of
any class of voting stock or other voting interest; (b) any trust or other
estate in which such Person has at least a 20% beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity; and (c)
any relative or spouse of such Person, or any relative of such spouse, who has
the same principal residence as such Person.
B-2
63
"Audit Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
officers nor employees of the General Partner or officers, directors or
employees of any Affiliate of the General Partner.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership on hand at the end of such Quarter and (ii) all additional
cash and cash equivalents of the Partnership on hand on the date of
determination of Available Cash with respect to such Quarter resulting
from borrowings for working capital purposes, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i)
provide for the proper conduct of the business of the Partnership Group
(including reserves for future capital expenditures and for anticipated
future credit needs of the business of the Partnership Group)
subsequent to such Quarter or (ii) comply with applicable law or any
loan agreement (including the Master Credit Support Agreement),
security agreement (including the Security Agreement), mortgage, debt
instrument or other agreement or obligation to which any Group Member
is a party or by which it is bound or its assets are subject; provided,
however, that disbursements made by the Partnership or cash reserves
established, increased or reduced after the end of such Quarter but on
or before the date of determination of Available Cash with respect to
such Quarter shall be deemed to have been made, established, increased
or reduced, for purposes of determining Available Cash, within such
Quarter if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect
to the Quarter in which the Liquidation Date occurs and any subsequent
Quarter shall equal zero.
"Book-Tax Disparity" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 5.4 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Texas shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.4.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner contributed to the
Partnership pursuant to this Agreement (or the Previous Agreement).
"Capital Improvement" means any (a) addition or improvement to the
capital assets owned by any Group Member or (b) acquisition of existing or the
construction of new capital assets (including pipeline systems, storage
facilities and related assets), made to increase the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property, and (b)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.4(d)(i) and 5.4(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
B-3
64
"Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as general
partner of the Partnership.
"Certificate" means a certificate, (i) substantially in the form of
Exhibit A to this Agreement, (ii) issued in global form in accordance with the
rules of the Depositary or (iii) in such other form as may be adopted by the
General Partner in its discretion, issued by the Partnership evidencing
ownership of one or more Common Units or a certificate, in such form as may be
adopted by the General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more other Partnership Securities.
"Certificate of Limited Partnership" means the Amended and Restated
Certificate of Limited Partnership of the Partnership filed with the Secretary
of State of the State of Delaware as referenced in Section 7.2, as such
Certificate of Limited Partnership may be amended, supplemented or restated from
time to time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee or a
Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.
"claim" has the meaning assigned to such term in Section 7.12(c).
"Closing Price" has the meaning assigned to such term in Section
15.1(a).
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Combined Interest" has the meaning assigned to such term in Section
11.3(a).
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" means a Partnership Security representing a fractional
part of the Partnership Interests of all Limited Partners and Assignees and
having the rights and obligations specified with respect to a Common Unit in
this Agreement.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.4(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
"Conversion Election" has the meaning assigned to such term in the
Genesis OLP Partnership Agreement.
"Conveyance Agreement" means that certain Purchase & Sale and
Contribution & Conveyance Agreement, dated as of November 26, 1996, among the
Partnership, Genesis OLP, Genesis Energy, L.L.C., Howell and a Subsidiary of
Salomon, together with the additional conveyance documents and instruments
contemplated or referenced thereunder.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(c)(ix).
"Current Market Price" has the meaning assigned to such term in Section
15.1(a).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. 17-101, et seq., as amended, supplemented or restated from time to
time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
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"Depositary" means, with respect to any Units issued in global form,
The Depository Trust Company and its successors and permitted assigns.
"Distribution Support Agreement" means the Distribution Support
Agreement, dated as of December 3, 1996, between the Genesis OLP and Salomon,
which sets forth the agreement of the Partnership and Salomon relating to the
purchase of APIs.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or proposes to
do business from time to time, and whose status as a Limited Partner or Assignee
does not or would not subject such Group Member to a significant risk of
cancellation or forfeiture of any of its properties or any interest therein.
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"GP Unit" means a Partnership Security representing a fractional part
of the Partnership Interest of the General Partner and having the rights and
obligations specified with respect to GP Units in this Agreement.
"General Partner" means Genesis Energy, L.L.C. and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it), which may be evidenced by
GP Units or other Partnership Securities or a combination thereof or interest
therein, and includes any and all benefits to which the General Partner is
entitled as provided in this Agreement, together with all obligations of the
General Partner to comply with the terms and provisions of this Agreement.
"Genesis OLP" means Genesis Crude Oil, L.P., a Delaware limited
partnership, and its successors.
"Genesis OLP Partnership Agreement" means the Second Amended and
Restated Agreement of Limited Partnership of Genesis Crude Oil, L.P., as it may
be amended, supplemented or restated from time to time.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any Partnership Securities with any other
Person that beneficially owns, or whose Affiliates or Associates beneficially
own, directly or indirectly, Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.12, has the meaning assigned to such term
in Section 7.12(a).
"Howell" means Howell Corporation and its Subsidiaries.
"Incentive Compensation Payment" has the meaning assigned to such term
in the Genesis OLP Partnership Agreement.
"Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).
"Indemnitee" means (a) the General Partner, any Departing Partner and
any Person who is or was an Affiliate of the General Partner or any Departing
Partner, (b) any Person who is or was a director, officer, employee, agent or
trustee of a Group Member, (c) any Person who is or was a member, officer,
director, employee, agent or trustee of the General Partner or any Departing
Partner or any Affiliate of the General Partner or any Departing Partner, or any
Affiliate of any such Person, and (d) any Person who is or was serving at the
request of the General Partner or any
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Departing Partner or any such Affiliate as a director, officer, employee,
member, partner, agent, fiduciary or trustee of another Person; provided, that a
Person shall not be an Indemnitee by reason of providing, on a fee-for-services
basis, trustee, fiduciary or custodial services.
"Initial Closing Date" means December 3, 1996.
"Initial Offering" means the initial offering and sale of Common Units
to the public on December 3, 1996, as described in the Registration Statement.
"Limited Partner" means, unless the context otherwise requires, (a)
each Initial Limited Partner, each Substituted Limited Partner, each Additional
Limited Partner, and any Partner upon the change of its status from General
Partner to Limited Partner pursuant to Section 11.3 and (b) solely for purposes
of Articles V, VI, VII and IX and Section 12.4, each Assignee.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Common Units
or other Partnership Securities or a combination thereof or interest therein,
and includes any and all benefits to which such Limited Partner or Assignee is
entitled as provided in this Agreement, together with all obligations of such
Limited Partner or Assignee to comply with the terms and provisions of this
Agreement.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time period
during which the Partners have the right to elect to reconstitute the
Partnership and continue its business has expired without such an election being
made, and (b) in the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner
to perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"Master Credit Support Agreement" means the Master Credit Support
Agreement, dated as of December 3, 1996, as amended, between Genesis OLP and
Salomon which sets forth the agreement of Genesis OLP and Salomon relating to
the credit support to be provided by Salomon to Genesis OLP.
"Majority Interest" means at least a majority in Voting Power of the
Outstanding Limited Partner Interests.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.4(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the time
of distribution, in either case, as determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain for such taxable year over the
Partnership's items of loss and deduction for such taxable year. The items
included in the calculation of Net Income shall be determined in accordance with
Section 5.4(b) and shall not include any items specially allocated under Section
6.1(c).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction for such taxable year over the
Partnership's items of income and gain for such taxable year. The items included
in the
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calculation of Net Loss shall be determined in accordance with Section 5.4(b)
and shall not include any items specially allocated under Section 6.1(c).
"Ninety Percent Interest" means at least 90% in Voting Power of the
Outstanding Limited Partner Interests.
"Non-Competition Agreement" means the Non-Competition Agreement, dated
as of December 3, 1996, among the Partnership, Genesis OLP, Salomon, Basis
Petroleum, Inc. and Howell.
"Non-citizen Assignee" means a Person whom the General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Limited Partner Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 4.8.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse
Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term
in Section 15.1(b) hereof.
"OLP General Partner Interest" has the meaning assigned to the term
"General Partner Interest" in the Genesis OLP Partnership Agreement.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner or any of their
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Outstanding" means, with respect to Partnership Securities, all
Partnership Securities that are issued by the Partnership and reflected as
outstanding on the Partnership's books and records as of the date of
determination; provided, however, that if at any time any Person or Group (other
than the General Partner or its Affiliates) beneficially owns 20% or more of any
Outstanding Partnership Securities of any class then Outstanding, all
Partnership Securities owned by such Person or Group shall not be voted on any
matter and shall not be considered to be Outstanding when sending notices of a
meeting of Limited Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a quorum or for
other similar purposes under this Agreement, except that such Partnership
Securities shall be considered to be Outstanding for purposes of Section
11.1(b)(iv) (such Partnership Securities shall not, however, be treated as a
separate class of Partnership Securities for purposes of this Agreement).
"Parity Units" means Common Units and all other Limited Partner
Interests having rights to distributions or in liquidation ranking on a parity
with the Common Units.
"Partner" means the General Partner and each Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
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"Partnership" means Genesis Energy, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership, Genesis OLP and any other
Subsidiary of the Partnership, treated as a single consolidated entity.
"Partnership Interest" means an ownership interest in the Partnership,
which shall include General Partner Interests and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Security" means any class or series of equity interest in
the Partnership and shall include, without limitation, Common Units and GP
Units.
"Percentage Interest" means as of the date of such determination (a) as
to any Partner or Assignee holding Units, the product obtained by multiplying
(i) 100% less the percentage applicable to paragraph (b) by (ii) the quotient
obtained by dividing (A) the number of Units held by such Partner or Assignee by
(B) the total number of all Outstanding Units, and (b) as to the holders of
additional Partnership Securities issued by the Partnership in accordance with
Section 5.5, the percentage established as a part of such issuance.
"Person" means an individual or a corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other entity.
"Previous Agreement" has the meaning assigned to such term in the
recitals to this Agreement.
"Pro Rata" means (a) when modifying Units or any class thereof,
apportioned among all designated Units in accordance with their relative
Percentage Interests and (b) when modifying Partners and Assignees, apportioned
among all Partners and Assignees in accordance with their respective Percentage
Interests.
"Proxy Statement" means the definitive Proxy Statement filed by the
Partnership with the Commission under the Securities Exchange Act of 1934, as
amended, for the purpose of soliciting the votes of the holders of Common Units
with respect to the Restructuring, as it has been or as it may be amended or
supplemented from time to time.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all Limited Partner Interests of a certain class (other
than Limited Partner Interests owned by the General Partner and its Affiliates)
pursuant to Article XV.
"Quarter" means, unless the context requires otherwise, a calendar
quarter.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 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 General Partner for
determining (a) the identity of the Record Holders entitled to notice of, or to
vote at, any meeting of Limited Partners or entitled to vote by ballot or give
approval of Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited Partners or (b) the
identity of Record Holders entitled to receive any report or distribution or
participate in any offer.
"Record Holder" means the Person in whose name a Common Unit is
registered on the books of the Transfer Agent as of the opening of business on a
particular Business Day, or with respect to other Partnership Securities, the
Person in whose name any such other Partnership Security is registered on the
books which the General Partner has caused to be kept as of the opening of
business on such Business Day.
"Redeemable Interests" means any Limited Partner Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.9.
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"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-11545) as amended, filed by the Partnership with the
Commission under the Securities Act to register the offering and sale of the
Common Units in the Initial Offering.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Loss under Section 6.1(b) and (b) any allocation of an item of
income, gain, loss or deduction pursuant to Section 6.1(c)(i), 6.1(c)(ii),
6.1(c)(iii), 6.1(c)(vi) or 6.1(c)(viii).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.
"Restructuring" has the meaning set forth in the recitals to this
Agreement.
"Salomon" means Salomon Smith Barney Holdings Inc, a Delaware
corporation, and Salomon Brothers Holdings, Inc., a Delaware corporation.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such statute.
"Security Agreement" means the Security Agreement, dated as of December
3, 1996, among Genesis OLP, Salomon and the Secured Parties (as defined in the
Security Agreement) securing the obligations of Genesis OLP under the Master
Credit Support Agreement and creating a security interest in the Collateral (as
defined in the Security Agreement) in favor of the Collateral Agent (as defined
in the Security Agreement).
"Special Approval" means approval by a majority of the members of the
Audit Committee.
"Subsidiary" means, with respect to any Person, (a) a corporation of
which more than 50% of the voting power of shares entitled (without regard to
the occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of such partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 10.2 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Trading Day" has the meaning assigned to such term in Section 15.1(a).
"transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person
(including the General Partner or one of its Affiliates) as shall be appointed
from time to time by the Partnership to act as registrar and transfer agent for
the Common Units.
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"Transfer Application" means an application and agreement for transfer
of Partnership Securities in the form set forth on the back of a Certificate or
in a form substantially to the same effect in a separate instrument.
"Two-Thirds Interest" means at least 66_% in Voting Power of the
Outstanding Limited Partner Interests.
"Unit" means a Common Unit or a GP Unit or any other Partnership
Security that is designated as a "Unit."
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
5.4(d)) over (b) the Carrying Value of such property as of such date (prior to
any adjustment to be made pursuant to Section 5.4(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 5.4(d) as of such date) over (b) the fair market value of
such property as of such date (as determined under Section 5.4(d)).
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Voting Power" means the right, if any, of the holder of a Partnership
Security to vote on Partnership matters. Each Common Unit shall entitle the
holder thereof to one vote. Each additional Partnership Security shall entitle
the holder thereof to such vote, if any, as shall be established at the time of
issuance of such Partnership Security.
"Withdrawal Opinion of Counsel" has the meaning assigned to such term
in Section 11.1(b).
1.2 Construction
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
2.1 Continuation of Existence
The General Partner and the Limited Partners hereby amend and restate
the Previous Agreement in its entirety to continue the Partnership as a limited
partnership pursuant to the provisions of the Delaware Act and to set forth the
rights and obligations of the Partners and certain matters related thereto. This
amendment and restatement shall become effective on the date of this Agreement.
Except as expressly provided to the contrary in this Agreement, the rights,
duties (including fiduciary duties), liabilities and obligations of the Partners
and the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.
2.2 Name
The name of the Partnership shall be "Genesis Energy, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws of
any jurisdiction that so requires. The General Partner in its discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
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2.3 Registered Office; Registered Agent; Principal Office; Other Offices
Unless and until changed by the General Partner, the registered office
of the Partnership in the State of Delaware shall be located at 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 CT Corporation System. The principal office of the
Partnership shall be located at 500 Dallas, Suite 2500, Houston, Texas 77002 or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems necessary or appropriate. The address of the General Partner shall
be 500 Dallas, Suite 2500, Houston, Texas 77002 or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners.
2.4 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) serve as a general partner in Genesis OLP and, in
connection therewith, to exercise all the rights and powers conferred upon the
Partnership as a general partner in Genesis OLP pursuant to the Genesis OLP
Partnership Agreement or otherwise, (b) engage directly in, or enter into or
form any corporation, partnership, joint venture, limited liability company or
other arrangement to engage indirectly in, any business activity that Genesis
OLP is permitted to engage in by the Genesis OLP Partnership Agreement and, in
connection therewith, to exercise all of the rights and powers conferred upon
the Partnership pursuant to the agreements relating to such business activity,
(c) engage directly in, or to enter into or form any corporation, partnership,
joint venture, limited liability company or other arrangement to engage
indirectly in, any business activity that is approved by the General Partner and
which lawfully may be conducted by a limited partnership organized pursuant to
the Delaware Act and, in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership pursuant to the agreements relating to
such business activity, and (d) do anything necessary or appropriate to the
foregoing, including the making of capital contributions or loans to a Group
Member. The General Partner has no obligation or duty to the Partnership, the
Limited Partners, or the Assignees to propose or approve, and in its discretion
may decline to propose or approve, the conduct by the Partnership of any
business.
2.5 Powers
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
2.6 Power of Attorney
(a) Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner and, if a Liquidator shall have been selected
pursuant to Section 12.3, the Liquidator, severally (and any successor to the
Liquidator by merger, transfer, assignment, election or otherwise) and each of
their authorized officers and attorneys-in-fact, as the case may be, with full
power of substitution, as his true and lawful agent and attorney-in-fact, with
full power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (A) all certificates, documents and
other instruments (including this Agreement and the Certificate of
Limited Partnership and all amendments or restatements hereof or
thereof) that the General Partner or the Liquidator deems necessary or
appropriate to form, qualify or continue the existence or qualification
of the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware
and in all other jurisdictions in which the Partnership may conduct
business or own property; (B) all certificates, documents and other
instruments that the General Partner or the Liquidator deems necessary
or appropriate to reflect, in accordance with its terms, any amendment,
change, modification or restatement of this Agreement; (C) all
certificates, documents and other instruments (including conveyances
and a certificate of cancellation) that the General Partner or the
Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this
Agreement; (D) all certificates, documents and other instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article IV, X, XI or
XII; (E) all certificates, documents and other instruments relating to
the determination of the rights, preferences and privileges of any
class or series of
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Partnership Securities issued pursuant to Section 5.5; and (F) all
certificates, documents and other instruments (including agreements and
a certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and
other instruments necessary or appropriate, in the discretion of the
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms
of this Agreement or is necessary or appropriate, in the discretion of
the General Partner or the Liquidator, to effectuate the terms or
intent of this Agreement; provided, that when required by Section 13.3
or any other provision of this Agreement that establishes a percentage
of the Limited Partners or of the Limited Partners of any class or
series required to take any action, the General Partner and the
Liquidator may exercise the power of attorney made in this Section
2.6(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed as
authorizing the General Partner to amend this Agreement except in accordance
with Article XIII or as may be otherwise expressly provided for in this
Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Interest and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be bound
by any representation made by the General Partner or the Liquidator acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator deems necessary to effectuate this
Agreement and the purposes of the Partnership.
2.7 Term
The term of the Partnership shall continue until the close of
Partnership business on December 31, 2086 or until the earlier dissolution of
the Partnership in accordance with the provisions of Article XII. The existence
of the Partnership as a separate legal entity shall continue until the
cancellation of the Certificate of Limited Partnership as provided in the
Delaware Act.
2.8 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner or Assignee, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner, one or more of its Affiliates or one or more
nominees, as the General Partner may determine. The General Partner hereby
declares and warrants that any Partnership assets for which record title is held
in the name of the General Partner or one or more of its Affiliates or one or
more nominees shall be held by the General Partner or such Affiliate or nominee
for the use and benefit of the Partnership in accordance with the provisions of
this Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability
The Limited Partners and the Assignees shall have no liability under
this Agreement except as expressly provided in this Agreement or the Delaware
Act.
3.2 Management of Business
No Limited Partner or Assignee, in its capacity as such, shall
participate in the operation, management or control (within the meaning of the
Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. Any action taken by any Affiliate of the General Partner or any
officer, director, employee, member, general partner, agent or trustee of the
General Partner or any of its Affiliates, or any officer, director, employee,
member, general partner, agent or trustee of a Group Member, in its capacity as
such, shall not be deemed to be participation in the control of the business of
the Partnership by a limited partner of the Partnership (within the meaning of
Section 17-303(a) of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners or Assignees under this
Agreement.
3.3 Outside Activities of the Limited Partners
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Limited Partners or Assignees, any Limited Partner or
Assignee shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the Partnership
Group. Neither the Partnership nor any of the other Partners or Assignees shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee.
3.4 Rights of Limited Partners
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.4(b), each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon reasonable written demand
and at such Limited Partner's own expense:
(i) to obtain true and full information regarding the status
of the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of
the Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to him a current list of the name and
last known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant
to which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount
of cash and a description and statement of the Net Agreed Value of any
other Capital Contribution by each Partner and which each Partner has
agreed to contribute in the future, and the date on which each became a
Partner; and
(vi) to obtain such other information regarding the affairs of
the Partnership as is just and reasonable.
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(b) The General Partner may keep confidential from the Limited Partners
and Assignees, for such period of time as the General Partner deems reasonable,
(i) any information that the General Partner reasonably believes to be in the
nature of trade secrets or (ii) other information the disclosure of which the
General Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (C) that any Group
Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
4.1 Certificates
Upon the Partnership's issuance of Common Units to any Person, the
Partnership shall issue one or more Certificates in the name of such Person
evidencing the number of such Common Units being so issued. In addition, the
General Partner may cause the Partnership to issue Certificates evidencing
ownership of one or more other classes or series of Partnership Securities.
Certificates shall be executed on behalf of the Partnership by the Chairman of
the Board, President or any Vice President and the Secretary or any Assistant
Secretary of the General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer Agent; provided,
however, that if the General Partner elects to issue Common Units in global
form, the Common Unit Certificates shall be valid upon receipt of a certificate
from the Transfer Agent certifying that the Common Units have been duly
registered in accordance with the directions of the Partnership.
4.2 Mutilated, Destroyed, Lost or Stolen Certificates
(a) If any mutilated Certificate is surrendered to the Transfer Agent,
the appropriate officers of the General Partner on behalf of the Partnership
shall execute and deliver and, in the case of a Common Unit Certificate, the
Transfer Agent shall countersign, in exchange therefor, a new Certificate
evidencing the same number and type of Partnership Securities as the Certificate
so surrendered.
(b) The appropriate officers of the General Partner on behalf of the
Partnership shall execute and deliver and, in the case of a Common Unit
Certificate, the Transfer Agent shall countersign (or, in the case of Common
Units issued in global form, register in accordance with the rules and
regulations of the Depositary), a new Certificate in place of any Certificate
previously issued if the Record Holder of the Certificate:
(i) makes proof by affidavit, in form and substance
satisfactory to the Partnership, that a previously issued Certificate
has been lost, destroyed or stolen;
(ii) requests the issuance of a new Certificate before the
Partnership has notice that the Certificate has been acquired by a
purchaser for value in good faith and without notice of an adverse
claim;
(iii) if requested by the Partnership, delivers to the
Partnership a bond, in form and substance satisfactory to the
Partnership, with surety or sureties and with fixed or open penalty as
the Partnership may reasonably direct, in its sole discretion, to
indemnify the Partnership, the General Partner and the Transfer Agent
against any claim that may be made on account of the alleged loss,
destruction or theft of the Certificate; and
(iv) satisfies any other reasonable requirements imposed by
the Partnership.
If a Limited Partner or Assignee fails to notify the Partnership within
a reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee shall
be precluded from making any claim against the Partnership, the General Partner
or the Transfer Agent for such transfer or for a new Certificate.
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(c) As a condition to the issuance of any new Certificate under this
Section 4.2, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Transfer
Agent) reasonably connected therewith.
4.3 Record Holders
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of whether
the Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any National Securities Exchange on which Limited Partner Interests are listed
for trading. Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation or an agent of any of the
foregoing) is acting as nominee, agent or in some other representative capacity
for another Person in acquiring and/or holding Limited Partner Interests, as
between the Partnership on the one hand, and such other Persons on the other,
such representative Person (a) shall be the Partner or Assignee (as the case may
be) of record and beneficially, (b) must execute and deliver a Transfer
Application and (c) shall be bound by this Agreement and shall have the rights
and obligations of a Partner or Assignee (as the case may be) hereunder and as,
and to the extent, provided for herein.
4.4 Transfer Generally
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner, or by which the holder of a Limited Partner
Interest assigns such Limited Partner Interest to another Person who is or
becomes a Limited Partner or an Assignee, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition
by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any member of the General Partner of any or all of the issued and
outstanding member interests in the General Partner.
4.5 Registration and Transfer of Limited Partner Interests
(a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests. The
Transfer Agent is hereby appointed registrar and transfer agent for the purpose
of registering Common Units and transfers of such Common Units as herein
provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interest, and subject to the
provisions of Section 4.5(b), the appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver and, in the case of Common
Units, the Transfer Agent shall countersign (or, in the case of Common Units
issued in global form, register in accordance with the rules and regulations of
the Depositary), in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's instructions, one or more new
Certificates evidencing the same aggregate number and type of Limited Partner
Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.8, the Partnership shall
not recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and are accompanied by a Transfer Application duly executed by the
transferee (or the transferee's attorney-in-fact duly authorized in writing). No
charge shall be imposed by the Partnership for such transfer; provided, that as
a condition to the issuance of any new Certificate under this Section 4.5, the
Partnership may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed with respect thereto.
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(c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests and
the admission of any new Limited Partner shall not constitute an amendment to
this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited Partners may include
custodians, nominees or any other individual or entity in its own or any
representative capacity.
(e) A transferee of a Limited Partner Interest who has completed and
delivered a Transfer Application shall be deemed to have (i) requested admission
as a Substituted Limited Partner, (ii) agreed to comply with and be bound by and
to have executed this Agreement, (iii) represented and warranted that such
transferee has the right, power and authority and, if an individual, the
capacity to enter into this Agreement, (iv) granted the powers of attorney set
forth in this Agreement and (v) given the consents and approvals and made the
waivers contained in this Agreement.
4.6 Transfer of a General Partner's General Partner Interest
Prior to December 31, 2006, the General Partner shall not transfer all
or any part of its General Partner Interest to a Person unless such transfer (a)
has been approved by the prior written consent or vote of the holders of a
Majority Interest or (b) is of all, but not less than all, of its General
Partner Interest to (i) an Affiliate of the General Partner or (ii) another
Person in connection with the merger or consolidation of the General Partner
with or into another Person or the transfer by the General Partner of all or
substantially all of its assets to another Person. Notwithstanding anything
herein to the contrary, no transfer by the General Partner of all or any part of
its General Partner Interest to another Person shall be permitted unless (x) the
transferee agrees to assume the rights and duties of the General Partner under
this Agreement and the Genesis OLP Partnership Agreement and to be bound by the
provisions of this Agreement and the Genesis OLP Partnership Agreement, (y) the
Partnership receives an Opinion of Counsel that such transfer would not result
in the loss of limited liability of any Limited Partner or of any limited
partner of Genesis OLP or cause the Partnership or Genesis OLP to be treated as
an association taxable as a corporation or otherwise to be taxed as an entity
for federal income tax purposes (to the extent not already so treated or taxed)
and (z) such transferee also agrees to purchase all (or the appropriate portion
thereof, if applicable) of the partnership interest of the General Partner as
the general partner of each other Group Member. In the case of a transfer
pursuant to and in compliance with this Section 4.6, the transferee or successor
(as the case may be) shall, subject to compliance with the terms of Section
10.3, be admitted to the Partnership as a General Partner immediately prior to
the transfer of the General Partner Interest, and the business of the
Partnership shall continue without dissolution.
4.7 Restrictions on Transfers
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Partnership or Genesis OLP under the laws of
the jurisdiction of its formation or (iii) cause the Partnership or Genesis OLP
to be treated as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes (to the extent not already so
treated or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
Genesis OLP becoming taxable as a corporation or otherwise to be taxed as an
entity for federal income tax purposes. The restrictions may be imposed by
making such amendments to this Agreement as the General Partner may determine to
be necessary or appropriate to impose such restrictions; provided, however, that
any amendment that the General Partner believes, in the exercise of its
reasonable discretion, could result in the delisting or suspension of trading of
any class of Limited Partner Interests on the principal National Securities
Exchange on which such class of Limited Partner Interests is then traded must be
approved, prior to such amendment being effected, by the holders of at least a
majority of the Outstanding Limited Partner Interests of such class.
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(c) Nothing contained in this Article IV, or elsewhere in this
Agreement, shall preclude the settlement of any transactions involving
Partnership Interests entered into through the facilities of any National
Securities Exchange on which such Partnership Interests are listed for trading.
4.8 Citizenship Certificates; Non-citizen Assignees
(a) If any Group Member is or becomes subject to any federal, state or
local law or regulation that, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
General Partner may request any Limited Partner or Assignee to furnish to the
General Partner, within 30 days after receipt of such request, an executed
Citizenship Certification or such other information concerning his nationality,
citizenship or other related status (or, if the Limited Partner or Assignee is a
nominee holding for the account of another Person, the nationality, citizenship
or other related status of such Person) as the General Partner may request. If a
Limited Partner or Assignee fails to furnish to the General Partner within the
aforementioned 30-day period such Citizenship Certification or other requested
information or if upon receipt of such Citizenship Certification or other
requested information the General Partner determines, with the advice of
counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Limited Partner Interests owned by such Limited Partner or Assignee shall be
subject to redemption in accordance with the provisions of Section 4.9. In
addition, the 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 General Partner shall be substituted for such Non-citizen Assignee as the
Limited Partner in respect of his Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights in respect
of Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Limited Partners
(including without limitation the General Partner) in respect of Limited Partner
Interests other than those of Non-citizen Assignees are cast, either for,
against or abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall
have no right to receive a distribution in kind pursuant to Section 12.4 but
shall be entitled to the cash equivalent thereof, and the Partnership shall
provide cash in exchange for an assignment of the Non-citizen Assignee's share
of the distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right to receive his
share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the General
Partner, request admission as a Substituted Limited Partner with respect to any
Limited Partner Interests of such Non-citizen Assignee not redeemed pursuant to
Section 4.9, and upon his admission pursuant to Section 10.2, the General
Partner shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.
4.9 Redemption of Partnership Interests of Non-citizen Assignees
(a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.8(a), or if upon receipt of such Citizenship
Certification or other information the General Partner determines, with the
advice of counsel, that a Limited Partner or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee establishes
to the satisfaction of the General Partner that such Limited Partner or Assignee
is an Eligible Citizen or has transferred his Limited Partner Interests to a
Person who is an Eligible Citizen and who furnishes a Citizenship Certification
to the General Partner prior to the date fixed for redemption as provided below,
redeem the Limited Partner Interest of such Limited Partner or Assignee as
follows:
(i) The General Partner shall, not later than the 30th day
before the date fixed for redemption, give notice of redemption to the
Limited Partner or Assignee, at his last address designated on the
records of the Partnership or the Transfer Agent, by registered or
certified mail, postage prepaid. The notice shall be deemed to have
been given when so mailed. The notice shall specify the Redeemable
Interests, the date fixed for redemption, the place of payment, that
payment of the redemption price will be made upon surrender of the
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Certificate evidencing the Redeemable Interests and that on and after
the date fixed for redemption no further allocations or distributions
to which the Limited Partner or Assignee would otherwise be entitled in
respect of the Redeemable Interests will accrue or be made.
(ii) The aggregate redemption price for Redeemable Interests
shall be an amount equal to the Current Market Price (the date of
determination of which shall be the date fixed for redemption) of
Limited Partner Interests of the class to be so redeemed multiplied by
the number of Limited Partner Interests of each such class included
among the Redeemable Interests. The redemption price shall be paid, in
the discretion of the General Partner, in cash or by delivery of a
promissory note of the Partnership in the principal amount of the
redemption price, bearing interest at the rate of 10% annually and
payable in three equal annual installments of principal together with
accrued interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the
Certificate evidencing the Redeemable Interests, duly endorsed in blank
or accompanied by an assignment duly executed in blank, the Limited
Partner or Assignee or his duly authorized representative shall be
entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Interests shall no
longer constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.9 shall also be applicable to
Limited Partner Interests held by a Limited Partner or Assignee as nominee of a
Person determined to be other than an Eligible Citizen.
(c) Nothing in this Section 4.9 shall prevent the recipient of a notice
of redemption from transferring his Limited Partner Interests before the
redemption date if such transfer is otherwise permitted under this Agreement.
Upon receipt of notice of such a transfer, the General Partner shall withdraw
the notice of redemption, provided the transferee of such Limited Partner
Interests certifies to the satisfaction of the General Partner in a Citizenship
Certification delivered in connection with the Transfer Application that he is
an Eligible Citizen. If the transferee fails to make such certification, such
redemption shall be effected from the transferee on the original redemption
date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF
PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions
The Partners (or their predecessors) have heretofore made Capital
Contributions to the Partnership as provided in the Previous Agreement.
5.2 Additional Contributions by General Partner
Upon the issuance of any additional Limited Partner Interests, the
General Partner shall be required to make an additional Capital Contribution
equal to 1/99th of any amount contributed to the Partnership by the Limited
Partners in exchange for such additional Limited Partner Interests. Except as
set forth in the immediately preceding sentence and Article XII, the General
Partner shall not be obligated to make any Capital Contributions to the
Partnership.
5.3 Interest and Withdrawal
No interest shall be paid by the Partnership on Capital Contributions.
No Partner or Assignee shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent, if any, that distributions made
pursuant to this Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided for in this
Agreement. Except to the extent expressly provided in this Agreement, no Partner
or Assignee shall have priority over any other Partner or Assignee either as to
the return of Capital Contributions or as to profits, losses or distributions.
Any such return shall be a compromise to which all Partners and Assignees agree
within the meaning of Section 17-502(b) of the Delaware Act.
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5.4 Capital Accounts
(a) The Partnership shall maintain for each Partner (or a beneficial
owner of Partnership Interests held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in accordance
with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement (including the Previous Agreement) and (ii) all items of Partnership
income and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 5.4(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1, and decreased by (x) the amount of
cash or Net Agreed Value of all actual and deemed distributions of cash or
property made with respect to such Partnership Interest pursuant to this
Agreement (including the Previous Agreement) and (y) all items of Partnership
deduction and loss computed in accordance with Section 5.4(b) and allocated with
respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.4, the Partnership
shall be treated as owning directly its proportionate share (as
determined by the General Partner based upon the provisions of the
Genesis OLP Partnership Agreement) of all property owned by Genesis OLP
or any other Subsidiary that is classified as a partnership for federal
income tax purposes.
(ii) All underwriting discounts and commissions incurred by
the Partnership in connection with the issuance of Partnership
Securities that can neither be deducted nor amortized under Section 709
of the Code shall, for purposes of Capital Account maintenance, be
treated as an item of deduction at the time such costs are incurred and
shall be allocated 100% to the holders of such Partnership Securities
in accordance with their relative Percentage Interests. All other fees
and other expenses incurred by the Partnership to promote the sale of
(or to sell) Partnership Securities that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for purposes of
Capital Account maintenance, be treated as an item of deduction at the
time such fees and other expenses are incurred and shall be allocated
among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership and,
as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of
the Code, without regard to the fact that such items are not includable
in gross income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b)
or 743(b) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m) to be taken into account in determining
Capital Accounts, the amount of such adjustment in the Capital Accounts
shall be treated as an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(v) In accordance with the requirements of Section 704(b) of
the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it was
acquired by the Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 5.4(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and
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(B) using a rate of depreciation, cost recovery or amortization derived
from the same method and useful life (or, if applicable, the remaining
useful life) as is applied for federal income tax purposes; provided,
however, that, if the asset has a zero adjusted basis for federal
income tax purposes, depreciation, cost recovery or amortization
deductions shall be determined using any reasonable method that the
General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or
cost recovery property is reduced for federal income tax purposes
pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of
such reduction shall, solely for purposes hereof, be deemed to be an
additional depreciation or cost recovery deduction in the year such
property is placed in service and shall be allocated among the Partners
pursuant to Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible, be
allocated in the same manner to the Partners to whom such deemed
deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for
cash or Contributed Property or the conversion of the General Partner's Combined
Interest to Common Units pursuant to Section 11.3(b), the Capital Account of all
Partners and the Carrying Value of each Partnership property immediately prior
to such issuance shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been allocated to the
Partners at such time pursuant to Section 6.1 in the same manner as any item of
gain or loss actually recognized during such period would have been allocated.
In determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Securities shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided, however,
that the General Partner, in arriving at such valuation, must take fully into
account the fair market value of the Partnership Interests of all Partners at
such time. The General Partner shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its discretion to
be reasonable) to arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior
to such distribution for an amount equal to its fair market value, and
had been allocated to the Partners, at such time, pursuant to Section
6.1 in the same manner as any item of gain or loss actually recognized
during such period would have been allocated. In determining such
Unrealized Gain or Unrealized Loss the aggregate cash amount and fair
market value of all Partnership assets (including, without limitation,
cash or cash equivalents) immediately prior to a distribution shall (A)
in the case of an actual distribution which is not made pursuant to
Section 12.4 or in the case of a deemed contribution and/or
distribution occurring as a result of a termination of the Partnership
pursuant to Section 708 of the Code, be determined and allocated in the
same manner as that provided in Section 5.4(d)(i) or (B) in the case of
a liquidating distribution pursuant to Section 12.4, be determined and
allocated by the Liquidator using such reasonable method of valuation
as it may adopt.
5.5 Issuances of Additional Partnership Securities
(a) The Partnership may issue additional Partnership Securities and
options, rights, warrants and appreciation rights relating to Partnership
Securities for any Partnership purpose at any time and from time to time to such
Persons for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole discretion, all without the
approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.5(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations, preferences,
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rights, powers and duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General Partner in the
exercise of its sole discretion, including (i) the right to share Partnership
profits and losses or items thereof; (ii) the right to share in Partnership
distributions; (iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem such Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which such Partnership Security will be issued, evidenced by
certificates and assigned or transferred; and (vii) the right, if any, of such
Partnership Security to vote on Partnership matters, including matters relating
to the relative rights, preferences and privileges of such Partnership Security.
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities pursuant to this Section 5.5, (ii) the
conversion of a General Partner Interest into Common Units pursuant to the terms
of this Agreement, (iii) the admission of Additional Limited Partners and (iv)
all additional issuances of Partnership Securities. The General Partner is
further authorized and directed to specify the relative rights, powers and
duties of the holders of Partnership Securities being so issued. The General
Partner shall do all things necessary to comply with the Delaware Act and is
authorized and directed to do all things it deems to be necessary or advisable
in connection with any future issuance of Partnership Securities or in
connection with the conversion of a General Partner Interest into Common Units
pursuant to the terms of this Agreement, including compliance with any statute,
rule, regulation or guideline of any federal, state or other governmental agency
or any National Securities Exchange on which the Common Units or other
Partnership Securities are listed for trading.
(d) No fractional Common Units shall be issued by the Partnership.
5.6 Limited Preemptive Right
Except as provided in this Section 5.6 and in Section 5.2, no Person
shall have any preemptive, preferential or other similar right with respect to
(a) additional Capital Contributions; (b) the issuance of any class or series of
Partnership Interests, whether unissued, held in the treasury or hereafter
created; (c) issuance of obligations, evidence of indebtedness or other
securities of the Partnership convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase or subscribe to, any such
Partnership Interests; (d) issuance of any right of subscription to or right to
receive, or any warrant or option for the purchase of, any such Partnership
Interests; or (e) issuance or sale of any other securities that may be issued or
sold by the Partnership. The General Partner shall have the right, which it may
from time to time assign in whole or in part to any of its Affiliates, to
purchase Partnership Securities from the Partnership whenever, and on the same
terms that, the Partnership issues Partnership Securities to Persons other than
the General Partner and its Affiliates, to the extent necessary to maintain the
Percentage Interests of the General Partner and its Affiliates equal to that
which existed immediately prior to the issuance of such Partnership Securities.
5.7 Splits and Combination
(a) Subject to Section 5.7(d), the Partnership may make a Pro Rata
distribution of Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as, after any such
event, each Partner shall have the same Percentage Interest in the Partnership
as before such event, and any amounts calculated on a per Unit basis or stated
as a number of Units are proportionately adjusted retroactive to the beginning
of the Partnership.
(b) Whenever such a distribution, subdivision or combination of
Partnership Securities is declared, the General Partner shall select a Record
Date as of which the distribution, subdivision or combination shall be effective
and shall send notice thereof at least 20 days prior to such Record Date to each
Record Holder as of a date not less than 10 days prior to the date of such
notice. The General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Partnership Securities to
be held by each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be entitled to rely on any
certificate provided by such firm as conclusive evidence of the accuracy of such
calculation.
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(c) Promptly following any such distribution, subdivision or
combination, the Partnership may issue Certificates to the Record Holders of
Partnership Securities as of the applicable Record Date representing the new
number of Partnership Securities held by such Record Holders, or the General
Partner may adopt such other procedures as it may deem appropriate to reflect
such changes. If any such combination results in a smaller total number of
Partnership Securities Outstanding, the Partnership shall require, as a
condition to the delivery to a Record Holder of such new Certificate, the
surrender of any Certificate held by such Record Holder immediately prior to
such Record Date.
(d) The Partnership shall not issue fractional Common Units upon any
distribution, subdivision or combination of Common Units. If a distribution,
subdivision or combination of Common Units would result in the issuance of
fractional Common Units but for the provisions of Section 5.5(d) and this
Section 5.7(d), each fractional Common Unit shall be rounded to the nearest
whole Common Unit (and a 0.5 Common Unit shall be rounded to the next higher
Common Unit).
5.8 Fully Paid and Non-Assessable Nature of Limited Partner Interests
All Limited Partner Interests issued pursuant to, and in accordance
with the requirements of, this Article V shall be fully paid and non-assessable
Limited Partner Interests in the Partnership, except as such non-assessability
may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.4(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided hereinbelow.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.1(c), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner until the aggregate Net
Income allocated to the General Partner pursuant to this Section
6.1(a)(i) for the current taxable year and all previous taxable years
is equal to the aggregate Net Loss allocated to the General Partner
pursuant to Section 6.1(b)(ii) for all previous taxable years; and
(ii) Second, the balance, if any, 100% to the Partners in
accordance with their respective Percentage Interests.
(b) Net Loss. After giving effect to the special allocations set forth
in Section 6.1(c), Net Losses for each taxable period and all items of income,
gain, loss and deduction taken into account in computing Net Losses for such
taxable period shall be allocated among the Partners as follows:
(i) First, 100% to the Partners in accordance with their
respective Percentage Interests; provided, that Net Loss shall not be
allocated pursuant to this Section 6.1(b)(i) 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
(ii) Second, the balance, if any, 100% to the General Partner.
(c) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
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(i) Partnership Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 6.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For
purposes of this Section 6.1(c), each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the application of
any other allocations pursuant to this Section 6.1(c) with respect to
such taxable period (other than an allocation pursuant to Sections
6.1(c)(v) and 6.1(c)(vi)). This Section 6.1(c)(i) is intended to comply
with the Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(c)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704- 2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(c), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 6.1(c), other than Section 6.1(c)(i) and other
than an allocation pursuant to Sections 6.1(c)(v) and 6.1(c)(vi), with
respect to such taxable period. This Section 6.1(c)(ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704- 1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations promulgated under Section 704(b)
of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise eliminated
pursuant to Section 6.1(c)(i) or 6.1(c)(ii).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and
(B) the amount such Partner is deemed obligated to restore pursuant to
Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership gross income and gain
in the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 6.1(c)(iv) shall be made only if
and to the extent that such Partner would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this Section
6.1(c)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner
determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury Regulations
promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the other Partners, to revise the prescribed
ratio to the numerically closest ratio that does satisfy such
requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation Section
1.704-2(i). If more than one Partner bears the Economic Risk of Loss
with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among
such Partners in accordance with the ratios in which they share such
Economic Risk of Loss.
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(vii) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the sum of (A) the amount
of Partnership Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Section 734(b) or 743(c) of the Code is required, pursuant to
Treasury Regulation Section 1.704- 1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to
such Section of the Treasury Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the Required
Allocations shall be taken into account in making the Agreed
Allocations so that, to the extent possible, the net amount of
items of income, gain, loss and deduction allocated to each
Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of
such items that would have been allocated to each such Partner
under the Agreed Allocations had the Required Allocations and
the related Curative Allocation not otherwise been provided in
this Section 6.1. Notwithstanding the preceding sentence,
Required Allocations relating to (1) Nonrecourse Deductions
shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2)
Partner Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this
Section 6.1(c)(ix)(A) shall only be made with respect to
Required Allocations to the extent the General Partner
reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners.
Further, allocations pursuant to this Section 6.1(c)(ix)(A)
shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner
reasonably determines that such allocations are likely to be
offset by subsequent Required Allocations.
(B) The General Partner shall have reasonable
discretion, with respect to each taxable period, to (1) apply
the provisions of Section 6.1(c)(ix)(A) in whatever order is
most likely to minimize the economic distortions that might
otherwise result from the Required Allocations, and (2) divide
all allocations pursuant to Section 6.1(c)(ix)(A) among the
Partners in a manner that is likely to minimize such economic
distortions.
6.2 Allocations for Tax Purposes
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the
manner provided under Section 704(c) of the Code that takes into
account the variation between the Agreed Value of such property and its
adjusted basis at the time of contribution; and (B) any item of
Residual Gain or Residual Loss attributable to a Contributed Property
shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to
Section 6.1.
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(ii)(A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 5.4(d)(i) or 5.4(d)(ii),
and (2) second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual
Loss attributable to an Adjusted Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 6.1.
(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the General Partner shall have sole discretion to (i) adopt
such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury
Regulations under Section 704(b) or 704(c) of the Code or (y) otherwise to
preserve or achieve uniformity of the Limited Partner Interests (or any class or
classes thereof). The General Partner may adopt such conventions, make such
allocations and make such amendments to this Agreement as provided in this
Section 6.2(c) only if such conventions, allocations or amendments would not
have a material adverse effect on the Partners, the holders of any class or
classes of Limited Partner Interests issued and Outstanding or the Partnership,
and if such allocations are consistent with the principles of Section 704 of the
Code.
(d) The General Partner in its discretion may determine to depreciate
or amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-l(a)(6) or Treasury
Regulation Section 1.197-2(g)(3). If the General Partner determines that such
reporting position cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all purchasers acquiring
Limited Partner Interests in the same month would receive depreciation and
amortization deductions, based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If the General
Partner chooses not to utilize such aggregate method, the General Partner may
use any other reasonable depreciation and amortization conventions to preserve
the uniformity of the intrinsic tax characteristics of any Limited Partner
Interests that would not have a material adverse effect on the Limited Partners
or the Record Holders of any class or classes of Limited Partner Interests.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction
attributable to a transferred Partnership Interest, shall for federal income tax
purposes, be determined on an annual basis and prorated on a monthly basis and
shall be allocated to the Partners as of the opening of the New York Stock
Exchange on the first Business Day of each month; provided, however, that gain
or loss on a sale or other disposition of any assets of the Partnership other
than in the ordinary course of business shall be allocated to the Partners as of
the opening of the New York Stock Exchange on the first Business Day of the
month in which such gain or loss is recognized for federal income tax purposes.
The General
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Partner may revise, alter or otherwise modify such methods of allocation as it
determines necessary, to the extent permitted or required by Section 706 of the
Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under
the provisions of this Article VI shall instead be made to the beneficial owner
of Limited Partner Interests held by a nominee in any case in which the nominee
has furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
6.3 Distributions to Record Holders
(a) Within 45 days following the end of each Quarter, an amount equal
to 100% of Available Cash with respect to such Quarter shall, subject to Section
17-607 of the Delaware Act, be distributed in accordance with this Article VI by
the Partnership to the Partners as of the Record Date selected by the General
Partner in its reasonable discretion in accordance with their respective
Percentage Interests. The immediately preceding sentence shall not require any
distribution of cash if and to the extent such distribution would be prohibited
by applicable law or by any loan agreement, security agreement, mortgage, debt
instrument or other agreement or obligation to which the Partnership is a party
or by which it is bound or its assets are subject. All distributions required to
be made under this Agreement shall be made subject to Section 17-607 of the
Delaware Act.
(b) In the event of the dissolution and liquidation of the Partnership,
all receipts received during or after the Quarter in which the Liquidation Date
occurs, other than from borrowings described in (a)(ii) of the definition of
Available Cash, shall be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid
by the Partnership on behalf of, or amounts withheld with respect to, all or
less than all of the Partners, as a distribution of Available Cash to such
Partners.
(d) Each distribution in respect of a Partnership Interest shall be
paid by the Partnership, directly or through the Transfer Agent or through any
other Person or agent, only to the Record Holder of such Partnership Interest as
of the Record Date set for such distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment by reason of an assignment or otherwise.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management
(a) The General Partner shall conduct, direct and manage all activities
of the Partnership. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership shall be
exclusively vested in the General Partner, and no Limited Partner or Assignee
shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into
Partnership Securities, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
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(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the assets of
the Partnership or the merger or other combination of the Partnership
with or into another Person (the matters described in this clause
(iii) being subject, however, to any prior approval that may be
required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on
hand) for any purpose consistent with the terms of this Agreement,
including the financing of the conduct of the operations of the
Partnership Group, subject to Section 7.6 the lending of funds to
other Persons (including Genesis OLP and any Group Member), the
repayment of obligations of Genesis OLP and any Group Member and the
making of capital contributions to any Group Member;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the
contract to have no recourse against the General Partner or its assets
other than its interest in the Partnership, even if same results in
the terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including
employees having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside attorneys,
accountants, consultants and contractors and the determination of
their compensation and other terms of employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or
appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further
limited or general partnerships, joint ventures, corporations or other
relationships (including the acquisition of interests in, and the
contributions of property to, Genesis OLP from time to time), subject,
however, to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and defending
of actions at law or in equity and otherwise engaging in the conduct
of litigation and the incurring of legal expense and the settlement of
claims and litigation;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any National
Securities Exchange and the delisting of some or all of the Limited
Partner Interests from, or requesting that trading be suspended on,
any such exchange (subject to any prior approval that may be required
under Section 4.7);
(xiii) the purchase, sale or other acquisition or disposition of
Partnership Securities, and the issuance of additional Partnership
Securities and options, rights, warrants and appreciation rights
relating to Partnership Securities; and
(xiv) the undertaking of any action in connection with the
Partnership's participation as a partner of Genesis OLP.
(b) Notwithstanding any other provision of this Agreement, the Genesis
OLP Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and each other Person who may acquire an
interest in the Partnership hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of this Agreement,
the Genesis OLP Partnership Agreement and the other agreements described in or
filed as part of the Proxy Statement; (ii) agrees that the General Partner (on
its own or through any officer of the Partnership) is authorized to execute,
deliver and perform the agreements referred to in clause (i) of this sentence
and the other agreements, acts, transactions and matters described in or
contemplated by the Proxy Statement on behalf of the
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Partnership without any further act, approval or vote of the Partners or the
other Persons who may acquire an interest in the Partnership; and (iii) agrees
that the execution, delivery or performance by the General Partner, any Group
Member or any Affiliate of any of them, of this Agreement or any agreement
authorized or permitted under this Agreement (including the exercise by the
General Partner or any Affiliate of the General Partner of the rights accorded
pursuant to Article XV), shall not constitute a breach by the General Partner of
any duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement (or any other agreements) or
of any duty stated or implied by law or equity.
7.2 Certificate of Limited Partnership
The General Partner has caused the Certificate of Amended and Restated
Limited Partnership to be filed with the Secretary of State of the State of
Delaware as required by the Delaware Act and shall use all reasonable efforts to
cause to be filed such other certificates or documents as may be determined by
the General Partner in its sole discretion to be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the General Partner in its sole discretion to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a partnership or other
entity in which the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the Partnership may elect
to do business or own property. Subject to the terms of Section 3.4(a), the
General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner or Assignee.
7.3 Restrictions on General Partner's Authority
(a) The General Partner may not, without written approval of the
specific act by holders of all of the Outstanding Limited Partner Interests or
by other written instrument executed and delivered by holders of all of the
Outstanding Limited Partner Interests subsequent to the date of this Agreement,
take any action in contravention of this Agreement, including, except as
otherwise provided in this Agreement (i) committing any act that would make it
impossible to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner; or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner may
not sell, exchange or otherwise dispose of all or substantially all of the
assets of the Partnership Group in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination) or
approve on behalf of the Partnership the sale, exchange or other disposition of
all or substantially all of the assets of the Partnership, without the approval
of holders of a Majority Interest; provided, however, that this provision shall
not preclude or limit the General Partner's ability to mortgage, pledge,
hypothecate or grant a security interest in all or substantially all of the
assets of the Partnership Group and shall not apply to any forced sale of any or
all of the assets of the Partnership Group pursuant to the foreclosure of, or
other realization upon, any such encumbrance; and provided, further, that this
provision shall not preclude or limit the ability of Genesis OLP to sell,
exchange or otherwise dispose of all of the assets of Genesis OLP in a single
transaction or a series of related transactions that is approved by the limited
partners of Genesis OLP as provided in Section 7.3(b) of the Genesis OLP
Partnership Agreement.
(c) Without the approval of holders of a Majority Interest, the General
Partner shall not, on behalf of the Partnership, (i) consent to any amendment to
the Genesis OLP Partnership Agreement or, except as expressly permitted by
Section 7.9(d), take any action permitted to be taken by a partner of Genesis
OLP, in either case, that would have a material adverse effect on the
Partnership as a partner of Genesis OLP or (ii) except as permitted under
Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to elect a successor
general partner of Genesis OLP.
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7.4 Reimbursement of the General Partner
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the Genesis OLP Partnership Agreement, the General Partner shall
not be compensated for its services as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person, including Affiliates of the
General Partner, to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) The General Partner, in its sole discretion and without the
approval of the Limited Partners (who shall have no right to vote in respect
thereof), may propose and adopt on behalf of the Partnership employee benefit
plans, employee programs and employee practices (including plans, programs and
practices involving the issuance of Partnership Securities or options to
purchase Partnership Securities), or cause the Partnership to issue Partnership
Securities pursuant to any employee benefit plan, employee program or employee
practice maintained or sponsored by the General Partner or any of its
Affiliates, in each case for the benefit of employees of the General Partner,
any Group Member or any Affiliate, or any of them, in respect of services
performed, directly or indirectly, for the benefit of the Partnership Group. The
Partnership agrees to issue and sell to the General Partner or any of its
Affiliates any Partnership Securities that the General Partner or such Affiliate
is obligated to provide to any employees pursuant to any such employee benefit
plans, employee programs or employee practices. Expenses incurred by the General
Partner in connection with any such plans, programs and practices (including the
net cost to the General Partner or such Affiliate of Partnership Securities
purchased by the General Partner or such Affiliate from the Partnership to
fulfill options or awards under such plans, programs and practices) shall be
reimbursed in accordance with Section 7.4(b). Any and all obligations of the
General Partner under any employee benefit plans, employee programs or employee
practices adopted by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder and shall be
assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.6.
7.5 Outside Activities
(a) After the Restructuring Closing Date, the General Partner, for so
long as it is the general partner of the Partnership (i) agrees that its sole
business will be to act as a general partner or managing member, as the case may
be, of the Partnership, Genesis OLP and any other partnership or limited
liability company of which the Partnership or Genesis OLP is, directly or
indirectly, a partner or member and to undertake activities that are ancillary
or related thereto (including being a limited partner or member in the
Partnership or any such other partnership or limited liability company) and (ii)
shall not, directly or indirectly, engage in any business or activity or incur
any debts or liabilities except in connection with or incidental to (A) its
performance as general partner or managing member, as the case may be, of one or
more Group Members or as described in or contemplated by the Registration
Statement or the Proxy Statement or (B) the acquiring, owning or disposing of
debt or equity securities of any Group Member.
(b) Salomon, Basis Petroleum, Inc. and Howell continue to be parties to
the Non-Competition Agreement, which agreement sets forth certain restrictions
on their ability to engage in the business of (i) crude oil gathering at the
wellhead in the states of Alabama, Florida, Kansas, Louisiana, Mississippi, New
Mexico, Oklahoma or Texas, or any states contiguous to such states, and (ii)
transporting for third parties crude oil by pipeline along the routes of the
Partnership's crude oil pipelines owned as of the Initial Closing Date. The
Non-Competition Agreement remains in effect in accordance with its terms.
(c) Except as specifically restricted by Section 7.5(a) and the
Non-Competition Agreement, each Indemnitee (other than the General Partner)
shall have the right to engage in businesses of every type and description and
other activities for profit and to engage in and possess an interest in other
business ventures of any and every type or description, whether in businesses
engaged in or anticipated to be engaged in by any Group Member, independently or
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with others, including business interests and activities in direct competition
with the business and activities of any Group Member, and none of the same shall
constitute a breach of this Agreement or any duty express or implied by law to
any Group Member or any Partner. Neither any Group Member, any Limited Partner
nor any other Person shall have any rights by virtue of this Agreement, the
Genesis OLP Partnership Agreement or the partnership relationship established
hereby or thereby in any business ventures of any Indemnitee.
(d) Subject to the terms of Sections 7.5(a), 7.5(b) and 7.5(c) and the
Non-Competition Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners and
(ii) it shall be deemed not to be a breach of the General Partner's fiduciary
duty or any other obligation of any type whatsoever of the General Partner for
the Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the
Partnership, and the General Partner and the Indemnitees shall have no
obligation to present business opportunities to the Partnership.
(e) The General Partner and any of its Affiliates may acquire
Partnership Securities in addition to those heretofore acquired and, except as
otherwise provided in this Agreement, shall be entitled to exercise all rights
relating to such Partnership Securities.
(f) The term "Affiliates" when used in Section 7.5 with respect to the
General Partner shall not include any Group Member or any Subsidiary of the
Group Member.
7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partner
(a) The General Partner or any Affiliate thereof may lend to any Group
Member, and any Group Member may borrow from the General Partner or any of its
Affiliates, funds needed or desired by the Group Member for such periods of time
and in such amounts as the General Partner may determine; provided, however,
that in any such case the lending party may not charge the borrowing party
interest at a rate greater than the rate that would be charged the borrowing
party or impose terms less favorable to the borrowing party than would be
charged or imposed on the borrowing party by unrelated lenders on comparable
loans made on an arm's-length basis (without reference to the lending party's
financial abilities or guarantees). The borrowing party shall reimburse the
lending party for any costs (other than any additional interest costs) incurred
by the lending party in connection with the borrowing of such funds. For
purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member"
shall include any Affiliate of a Group Member that is controlled by the Group
Member. No Group Member may lend funds to the General Partner or any of its
Affiliates (other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third parties
or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply to
the rendering of services described in this Section 7.6(c).
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(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3 of the Previous
Agreement, the Conveyance Agreement and any other transactions described in or
contemplated by the Registration Statement or the Proxy Statement, (ii) any
transaction approved by Special Approval, (iii) any transaction, the terms of
which are no less favorable to the Partnership than those generally being
provided to or available from unrelated third parties, or (iv) any transaction
that, taking into account the totality of the relationships between the parties
involved (including other transactions that may be particularly favorable or
advantageous to the Partnership), is equitable to the Partnership. With respect
to any contribution of assets to the Partnership in exchange for Partnership
Securities, the Audit Committee, in determining whether the appropriate number
of Partnership Securities are being issued, may take into account, among other
things, the fair market value of the assets, the liquidated and contingent
liabilities assumed, the tax basis in the assets, the extent to which tax-only
allocations to the transferor will protect the existing partners of the
Partnership against a low tax basis, and such other factors as the Audit
Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement or the Proxy
Statement are hereby approved by all Partners.
7.7 Indemnification
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or 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 create a presumption that the
Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, it being agreed that the General Partner shall not be
personally liable for such indemnification and shall have no obligation to
contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of any undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the holders of Outstanding Limited Partner
Interests, as a matter of law or otherwise, both as to actions in the
Indemnitee's capacity as an Indemnitee and as to actions in any other capacity
(including any capacity under the Underwriting Agreement dated November 26, 1996
among the Partnership, Genesis OLP, and the underwriters and other parties named
therein), and shall continue as to
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an Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
7.8 Liability of Indemnitees
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partners, the Assignees or any other Persons who have
acquired interests in Partnership Securities, for losses sustained or
liabilities incurred as a result of any act or omission if such Indemnitee acted
in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 7.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partner and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
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(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the Indemnitees under this Section 7.8 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
7.9 Resolution of Conflicts of Interest
(a) Unless otherwise expressly provided in this Agreement or the
Genesis OLP Partnership Agreement, whenever a potential conflict of interest
exists or arises between the General Partner or any of its Affiliates, on the
one hand, and the Partnership, Genesis OLP, any Partner, or any Assignee on the
other, any resolution or course of action by the General Partner or its
Affiliates in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this Agreement,
of the Genesis OLP Partnership 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 General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any conflict of interest and any resolution
of such conflict of interest shall be conclusively deemed fair and reasonable to
the Partnership if such conflict of interest or resolution is (i) approved by
Special Approval (as long as the material facts known to the General Partner or
any of its Affiliates regarding any proposed transaction were disclosed to the
Audit Committee at the time it gave its approval), (ii) on terms no less
favorable to the Partnership than those generally being provided to or available
from unrelated third parties or (iii) fair to the Partnership, taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner (including
the Audit Committee in connection with Special Approval) shall be authorized in
connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Audit Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the General Partner (including the Audit Committee) to
consider the interests of any Person other than the Partnership. In the absence
of bad faith by the General Partner, the resolution, action or terms so made,
taken or provided by the General Partner with respect to such matter shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or a breach of any standard of care or duty imposed herein or therein or, to the
extent permitted by law, under the Delaware Act or any other law, rule or
regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership,
Genesis OLP, any Limited Partner or any Assignee, (ii) it may make such decision
in its sole discretion (regardless of whether there is a reference to "sole
discretion" or "discretion") unless another express standard is provided for, or
(iii) in "good faith" or under another express standard, the General Partner or
such Affiliate shall act under such express standard and shall not be subject to
any other or different standards imposed by this Agreement, the Genesis OLP
Partnership Agreement, any other agreement contemplated hereby or under the
Delaware Act or any other law, rule or regulation. In addition, any actions
taken by the General Partner or such Affiliate consistent with the standards of
"reasonable discretion" set forth in the definition of Available Cash shall not
constitute a breach of any duty of the General Partner to the Partnership or the
Limited Partners. The General Partner shall have no duty, express or implied, to
sell or otherwise dispose of any asset of the Partnership Group other than in
the ordinary course of business. No borrowing by any Group Member or the
approval thereof by the General Partner shall be deemed to constitute a breach
of any duty of the General Partner to the Partnership or the Limited Partners or
the Assignees by reason of the fact that the purpose or effect of such borrowing
is directly or indirectly to enable Genesis OLP to make Incentive Compensation
Payments to the General Partner.
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(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Limited Partners hereby authorize the General Partner, on
behalf of the Partnership as a partner of a Group Member, to approve of actions
by the general partner of such Group Member similar to those actions permitted
to be taken by the General Partner pursuant to this Section 7.9.
7.10 Other Matters Concerning the General Partner
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement contemplated
by this Agreement and to make any decision pursuant to the authority prescribed
in this Agreement, so long as such action is reasonably believed by the General
Partner to be in, or not inconsistent with, the best interests of the
Partnership.
7.11 Purchase or Sale of Partnership Securities
The General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities. As long as Partnership Securities are held by
any Group Member, such Partnership Securities shall not be considered
Outstanding for any purpose, except as otherwise provided herein. The General
Partner and any Affiliate of the General Partner may also purchase or otherwise
acquire and sell or otherwise dispose of Partnership Securities for its own
account, subject to the provisions of Articles IV and X.
7.12 Registration Rights of the General Partner and its Affiliates
(a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an Affiliate of
the General Partner at the date hereof notwithstanding that it may later cease
to be an Affiliate of the General Partner) holds Partnership Securities that it
desires to sell and (ii) Rule 144 of the Securities Act (or any successor rule
or regulation to Rule 144) or another exemption from registration is not
available to enable such holder of Partnership Securities (the "Holder") to
dispose of the number of Partnership Securities it desires to sell at the time
it desires to do so without registration under the Securities Act, then upon the
request of the General Partner or any of its Affiliates, the Partnership shall
file with the Commission as promptly as practicable after receiving such
request, and use all reasonable efforts to cause to become effective and remain
effective for a period of not less than six months following its effective date
or such shorter period as shall terminate when all Partnership Securities
covered by such registration statement have been sold, a registration statement
under the Securities Act registering the offering and sale of the number of
Partnership Securities specified by the Holder; provided, however, that the
Partnership shall not be required to effect more than three registrations
pursuant to this Section 7.12(a); and provided further, however, that if the
Audit Committee determines in its good faith judgment that a postponement of the
requested registration for up to six months would be in the best interests of
the Partnership and its Partners due to
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a pending transaction, investigation or other event, the filing of such
registration statement or the effectiveness thereof may be deferred for up to
six months, but not thereafter. In connection with any registration pursuant to
the immediately preceding sentence, the Partnership shall promptly prepare and
file (x) such documents as may be necessary to register or qualify the
Partnership Securities subject to such registration under the securities laws of
such states as the Holder shall reasonably request; provided, however, that no
such qualification shall be required in any jurisdiction where, as a result
thereof, the Partnership would become subject to general service of process or
to taxation or qualification to do business as a foreign corporation or
partnership doing business in such jurisdiction solely as a result of such
registration and (y) such documents as may be necessary to apply for listing or
to list the Partnership Securities subject to such registration on such National
Securities Exchange as the Holder shall reasonably request, and do any and all
other acts and things that may reasonably be necessary or advisable to enable
the Holder to consummate a public sale of such Partnership Securities in such
states. Except as set forth in Section 7.12(c), all costs and expenses of any
such registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of Partnership Securities for
cash (other than an offering relating solely to an employee benefit plan), the
Partnership shall use all reasonable efforts to include such number or amount of
Partnership Securities held by the Holder in such registration statement as the
Holder shall request. If the proposed offering pursuant to this Section 7.12(b)
shall be an underwritten offering, then, in the event that the managing
underwriter or managing underwriters of such offering advise the Partnership and
the Holder in writing that in their opinion the inclusion of all or some of the
Holder's Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such offering only
that number or amount, if any, of Partnership Securities held by the Holder
which, in the opinion of the managing underwriter or managing underwriters, will
not so adversely and materially affect the offering. Except as set forth in
Section 7.12(c), all costs and expenses of any such registration and offering
(other than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters. Further, in
addition to and not in limitation of the Partnership's obligation under Section
7.7, the Partnership shall, to the fullest extent permitted by law, indemnify
and hold harmless the Holder, its officers, directors and each Person who
controls the Holder (within the meaning of the Securities Act) and any agent
thereof (collectively, "Indemnified Persons") against any losses, claims,
demands, actions, causes of action, assessments, damages, liabilities (joint or
several), costs and expenses (including interest, penalties and reasonable
attorneys' fees and disbursements), resulting to, imposed upon, or incurred by
the Indemnified Persons, directly or indirectly, under the Securities Act or
otherwise (hereinafter referred to in this Section 7.12(c) as a "claim" and in
the plural as "claims") based upon, arising out of or resulting from any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which any Partnership Securities were registered
under the Securities Act or any state securities or Blue Sky laws, in any
preliminary prospectus (if used prior to the effective date of such registration
statement), or in any summary or final prospectus or in any amendment or
supplement thereto (if used during the period the Partnership is required to
keep the registration statement current), or arising out of, based upon or
resulting from the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements made therein
not misleading; provided, however, that the Partnership shall not be liable to
any Indemnified Person to the extent that any such claim arises out of, is based
upon or results from an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, such preliminary,
summary or final prospectus or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Partnership by or on
behalf of such Indemnified Person specifically for use in the preparation
thereof.
(d) The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partner (and any of the General Partner's
Affiliates) after it ceases to be a General Partner of the Partnership, during a
period of two years subsequent to the effective date of such cessation and for
so long thereafter as is required for the Holder to sell all of the Partnership
Securities with respect to which it has requested during such two-year period
inclusion in a registration statement otherwise filed or that a registration
statement be filed; provided, however, that the Partnership shall not be
required to file successive registration statements covering the same
Partnership Securities for
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which registration was demanded during such two-year period. The provisions of
Section 7.12(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this
Section 7.12 shall (i) specify the Partnership Securities intended to be offered
and sold by the Person making the request, (ii) express such Person's present
intent to offer such shares for distribution, (iii) describe the nature or
method of the proposed offer and sale of Partnership Securities, and (iv)
contain the undertaking of such Person to provide all such information and
materials and take all action as may be required in order to permit the
Partnership to comply with all applicable requirements in connection with the
registration of such Partnership Securities.
7.13 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer or its representatives be obligated to
ascertain that the terms of the Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
any such officer or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership, appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including the record of the Record Holders
and Assignees of Units or other Partnership Securities, books of account and
records of Partnership proceedings, may be kept on, or be in the form of,
computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device; provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with U.S. GAAP.
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 fiscal year of the Partnership, the General Partner shall
cause to be mailed or furnished to each Record Holder of a Limited Partner
Interest as of a date selected by the General Partner in its discretion, an
annual report containing financial statements
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of the Partnership for such fiscal year of the Partnership, presented in
accordance with U.S. GAAP, including a balance sheet and statements of
operations, Partnership equity and cash flows, such statements to be audited by
a firm of independent public accountants selected by the General Partner.
(b) As soon as practicable, but in no event later than 90 days after
the close of each Quarter except the last Quarter of each year, the General
Partner shall cause to be mailed or furnished to each Record Holder of a Limited
Partner Interest, as of a date selected by the General Partner in its
discretion, a report containing unaudited financial statements of the
Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which Limited Partner
Interests are listed for trading, or as the General Partner determines to be
necessary or appropriate.
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information
The Partnership shall timely file all returns of the Partnership that
are required for federal, state and local income tax purposes on the basis of
the accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
9.2 Tax Elections
(a) The Partnership has made the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners. Notwithstanding any other provision herein contained, for the purposes
of computing the adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a convention whereby the
price paid by a transferee of a Limited Partner Interest will be deemed to be
the lowest quoted closing price of such Limited Partner Interests on any
National Securities Exchange on which such Limited Partner Interests are traded
during the calendar month in which such transfer is deemed to occur pursuant to
Section 6.2(g) without regard to the actual price paid by such transferee.
(b) The Partnership has elected to deduct expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
9.3 Tax Controversies
Subject to the provisions hereof, the General Partner is designated as
the Tax Matters Partner (as defined in the Code) and is authorized and required
to represent the Partnership (at the Partnership's expense) in connection with
all examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
9.4 Withholding
Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines in its discretion to
be necessary or appropriate to cause the Partnership to comply with any
withholding requirements established under the Code or any other federal, state
or local law including, without limitation, pursuant to Sections 1441, 1442,
1445 and 1446 of the Code. To the extent that the Partnership is required or
elects to withhold
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and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
10.1 Admission of Substituted Limited Partner
By transfer of a Limited Partner Interest in accordance with Article
IV, the transferor shall be deemed to have given the transferee the right to
seek admission as a Substituted Limited Partner subject to the conditions of,
and in the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) the right to transfer the right to request admission
as a Substituted Limited Partner to such purchaser or other transferee in
respect of the transferred Limited Partner Interests. Each transferee of a
Limited Partner Interest (including any nominee holder or an agent acquiring
such Limited Partner Interest for the account of another Person) who executes
and delivers a Transfer Application shall, by virtue of such execution and
delivery, be an Assignee and be deemed to have applied to become a Substituted
Limited Partner with respect to the Limited Partner Interest so transferred to
such Person. Such Assignee shall become a Substituted Limited Partner (x) at
such time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership. With
respect to voting rights attributable to Limited Partner Interests that are held
by Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such
Limited Partner Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee who is the Record Holder of such Limited
Partner Interests. If no such written direction is received, such Limited
Partner Interests will not be voted. An Assignee shall have no other rights of a
Limited Partner.
10.2 Admission of Successor General Partner
A successor General Partner approved pursuant to Section 11.1 or 11.2
or the transferee of or successor to all of the General Partner Interest
pursuant to Section 4.6 who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the General Partner pursuant
to Section 11.1 or 11.2 or the transfer of the General Partner Interest pursuant
to Section 4.6; provided, however, that no such successor shall be admitted to
the Partnership until compliance with the terms of Section 4.6 has occurred and
such successor has executed and delivered such other documents or instruments as
may be required to effect such admission. Any such successor shall, subject to
the terms hereof, carry on the business of the Group Members without
dissolution.
10.3 Admission of Additional Limited Partners
(a) A Person (other than the General Partner or a Substituted Limited
Partner) who makes a Capital Contribution to the Partnership in accordance with
this Agreement in exchange for Limited Partner Interests shall be admitted to
the Partnership as an Additional Limited Partner only upon furnishing to the
General Partner (i) evidence of acceptance in form satisfactory to the General
Partner of all of the terms and conditions of this Agreement, including the
power of attorney granted in Section 2.6, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner to
effect such Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
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10.4 Amendment of Agreement and Certificate of Limited Partnership
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) the General Partner voluntarily withdraws from the
Partnership by giving written notice to the Limited Partners (and it
shall be deemed that the General Partner has withdrawn pursuant to
this Section 11.1(a)(i) if the General Partner voluntarily withdraws
as a general partner of Genesis OLP);
(ii) the General Partner transfers all of its General Partner
Interest pursuant to Section 4.6;
(iii) the General Partner is removed pursuant to Section 11.2;
(iv) the General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for
relief under Chapter 7 of the United States Bankruptcy Code; (C) files
a petition or answer seeking for itself a liquidation, dissolution or
similar relief (but not a reorganization) under any law; (D) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the General Partner in a
proceeding of the type described in clauses (A)-(C) of this Section
11.1(a)(iv); or (E) seeks, consents to or acquiesces in the
appointment of a trustee (but not a debtor in possession), receiver or
liquidator of the General Partner or of all or any substantial part of
its properties;
(v) a final and non-appealable order of relief under Chapter 7 of
the United States Bankruptcy Code is entered by a court with
appropriate jurisdiction pursuant to a voluntary or involuntary
petition by or against the General Partner; or
(vi) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General
Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation; (B) in the
event the General Partner is a partnership or a limited liability
company, the dissolution and commencement of winding up of the General
Partner; (C) in the event the General Partner is acting in such
capacity by virtue of being a trustee of a trust, the termination of
the trust; (D) in the event the General Partner is a natural person,
his death or adjudication of incompetency; and (E) otherwise in the
event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B),
(C) or (E) occurs, the withdrawing General Partner shall give notice to the
Limited Partners within 30 days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this Section 11.1 shall result
in the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Initial Closing Date and ending at 12:00 midnight, Eastern
Standard Time, on December 31, 2006, the General Partner voluntarily withdraws
by giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners; provided that prior to the effective date of such withdrawal,
the withdrawal is approved by the holders
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of a Majority Interest and the General Partner delivers to the Partnership an
Opinion of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal
(following the selection of the successor General Partner) would not result in
the loss of the limited liability of any Limited Partner or any limited partner
of Genesis OLP or cause the Partnership or Genesis OLP to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously treated as such); (ii)
at any time after 12:00 midnight, Eastern Standard Time, on December 31, 2006,
the General Partner voluntarily withdraws by giving at least 90 days' advance
notice to the Limited Partners, such withdrawal to take effect on the date
specified in such notice; (iii) at any time that the General Partner ceases to
be the General Partner pursuant to Section 11.1(a)(ii) or is removed pursuant to
Section 11.2; or (iv) notwithstanding clause (i) of this sentence, at any time
that the General Partner voluntarily withdraws by giving at least 90 days'
advance notice of its intention to withdraw to the Limited Partners, such
withdrawal to take effect on the date specified in the notice, if at the time
such notice is given one Person and its Affiliates (other than the General
Partner and its Affiliates) own beneficially or of record or control at least
50% of the Outstanding Limited Partner Interests. The withdrawal of the General
Partner from the Partnership upon the occurrence of an Event of Withdrawal shall
also constitute the withdrawal of the General Partner as general partner or
managing member of the other Group Members. If the General Partner gives a
notice of withdrawal pursuant to Section 11.1(a)(i), the holders of a Majority
Interest, may, prior to the effective date of such withdrawal, elect a successor
General Partner. The Person so elected as successor General Partner shall
automatically become a successor general partner or managing member of the other
Group Members of which the General Partner is a general partner. If, prior to
the effective date of the General Partner's withdrawal, a successor is not
selected by the Limited Partners as provided herein or the Partnership does not
receive a Withdrawal Opinion of Counsel, the Partnership shall be dissolved in
accordance with Section 12.1. Any successor General Partner elected in
accordance with the terms of this Section 11.1 shall be subject to the
provisions of Section 10.3.
11.2 Removal of the General Partner
The General Partner may not be removed without Cause. If Cause exists
the General Partner may be removed if such removal is approved by the holders of
a Two-Thirds Interest (including Limited Partner Interests held by the General
Partner and its Affiliates). Any such action by such holders for removal of the
General Partner must also provide for the election of a successor General
Partner by the holders of a Two-Thirds Interest (including Limited Partner
Interests held by the General Partner and its Affiliates). Such removal shall be
effective immediately following the admission of a successor General Partner
pursuant to Section 10.3. The removal of the General Partner shall also
automatically constitute the removal of the General Partner as general partner
of the other Group Members of which the General Partner is a general partner. If
a Person is elected as a successor General Partner in accordance with the terms
of this Section 11.2, such Person shall, upon admission pursuant to Section
10.3, automatically become a successor general partner or managing member of the
other Group Members of which the General Partner is a general partner. The right
of the Limited Partners to remove the General Partner pursuant to this Section
11.2 shall not exist or be exercised unless the Partnership has received an
opinion opining as to the matters covered by a Withdrawal Opinion of Counsel.
Any successor General Partner elected in accordance with the terms of this
Section 11.2 shall be subject to the provisions of Section 10.3.
11.3 Interest of Departing Partner and Successor General Partner
(a) In the event of the withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement, if a
successor General Partner is elected in accordance with the terms of Section
11.1 or 11.2, the Departing Partner shall have the option exercisable prior to
the effective date of the departure of such Departing Partner to require its
successor to purchase its General Partner Interest and its partnership interest
as a general partner or managing member in the other Group Members and if the
General Partner has delivered a Conversion Election as provided in Section 7.13
of the Genesis OLP Partnership Agreement, its right to participate in
distributions as provided in Section 7.13 of the Genesis OLP Partnership
Agreement (collectively, the "Combined Interest") in exchange for an amount in
cash equal to the fair market value of such Combined Interest, such amount to be
determined and payable as of the effective date of its departure. If the General
Partner is removed by the Partners under circumstances where Cause exists or if
the General Partner withdraws under circumstances where such withdrawal violates
this Agreement or the Genesis OLP Partnership Agreement, and if a successor
General Partner is elected in accordance with the terms of Section 11.1 or 11.2,
such successor shall have the option, exercisable prior to the effective date of
the departure of such Departing Partner, to purchase the Combined Interest of
the Departing Partner for such fair market value of such
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Combined Interest. In either event, the Departing Partner shall be entitled to
receive all reimbursements due such Departing Partner pursuant to Section 7.4,
including any employee-related liabilities (including severance liabilities),
incurred in connection with the termination of any employees employed by the
General Partner for the benefit of the Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value of the
Departing Partner's Combined Interest shall be determined by agreement between
the Departing Partner and its successor or, failing agreement within 30 days
after the effective date of such Departing Partner's departure, by an
independent investment banking firm or other independent expert selected by the
Departing Partner and its successor, which, in turn, may rely on other experts,
and the determination of which shall be conclusive as to such matter. If such
parties cannot agree upon one independent investment banking firm or other
independent expert within 45 days after the effective date of such departure,
then the Departing Partner shall designate an independent investment banking
firm or other independent expert, the Departing Partner's successor shall
designate an independent investment banking firm or other independent expert,
and such firms or experts shall mutually select a third independent investment
banking firm or independent expert, which third independent investment banking
firm or other independent expert shall determine the fair market value of the
Combined Interest. In making its determination, such third independent
investment banking firm or other independent expert may consider the then
current trading price of Common Units on any National Securities Exchange on
which Common Units are then listed, the value of the Partnership's assets, the
rights and obligations of the General Partner and other factors it may deem
relevant.
(b) If the Combined Interest is not purchased in the manner set forth
in Section 11.3(a), the Departing Partner will have the right to convert the
Combined Interest into Common Units or to receive cash from the Partnership in
exchange for such Combined Interest. The Departing Partner's Combined Interest
shall be converted into Common Units pursuant to a valuation made by an
investment banking firm or other independent expert selected pursuant to Section
11.3(a), without reduction in such Combined Interest (but subject to
proportionate dilution by reason of the admission of its successor). Any
successor General Partner shall indemnify the Departing Partner as to all debts
and liabilities of the Partnership arising on or after the date on which the
Departing Partner becomes a Limited Partner. For purposes of this Agreement,
conversion of the General Partner's Combined Interest to Common Units will be
characterized as if the General Partner contributed its Combined Interest to the
Partnership in exchange for the newly issued Common Units.
(c) If a successor General Partner is elected in accordance with the
terms of Section 11.1 or 11.2 and the option described in Section 11.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
Partnership cash in the amount necessary to acquire a General Partner Interest
equal to the General Partner Interest of the Departing Partner. In such event,
such successor General Partner shall be entitled to such Percentage Interest of
all Partnership allocations and distributions and any other allocations and
distributions to which the Departing Partner was entitled.
11.4 Withdrawal of Limited Partners
No Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of a Limited Partner's
Limited Partner Interest becomes a Record Holder of the Limited Partner Interest
so transferred, such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
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(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected
and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner that
is approved by the holders of a Majority Interest;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the dissolution of Genesis OLP; or
(f) the sale of all or substantially all of the assets and properties
of the Partnership Group.
12.2 Continuation of the Business of the Partnership After Dissolution
Upon (a) dissolution of the Partnership following an Event of
Withdrawal caused by the withdrawal or removal of the General Partner as
provided in Section 11.1(a)(i) or (iii) and the failure of the Partners to
select a successor to such Departing Partner pursuant to Section 11.1 or 11.2,
then within 90 days thereafter, or (b) dissolution of the Partnership upon an
event constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v)
or (vi), then, to the maximum extent permitted by law, within 180 days
thereafter, the holders of a Majority Interest may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as the successor general partner a
Person approved by the holders of a Majority Interest. Unless such an election
is made within the applicable time period as set forth above, the Partnership
shall conduct only activities necessary to wind up its affairs. If such an
election is so made, then:
(i) the reconstituted Partnership shall continue until the end
of the term set forth in Section 2.7 unless earlier dissolved in
accordance with this Article XII;
(ii) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be
treated in the manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this
Agreement and the Certificate of Limited Partnership and to enter into
and, as necessary, to file a new partnership agreement and certificate
of limited partnership, and the successor general partner may for this
purpose exercise the powers of attorney granted the General Partner
pursuant to Section 2.6; provided, that the right of the holders of a
Majority Interest to approve a successor General Partner and to
reconstitute and to continue the business of the Partnership shall not
exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result
in the loss of limited liability of any Limited Partner and (y) neither
the Partnership, the reconstituted limited partnership, Genesis OLP nor
any Group Member would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
12.3 Liquidator
Upon dissolution of the Partnership, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 12.2, the General Partner shall select one or more Persons
to act as Liquidator. The Liquidator (if other than the General Partner) shall
be entitled to receive such compensation for its services as may be approved by
the holders of a Majority Interest. The Liquidator (if other than the General
Partner) shall agree not to resign at any time without 15 days' prior notice and
may be removed at any time, with or without cause, by notice of removal approved
by the holders of a Majority Interest. Upon dissolution, removal or resignation
of the Liquidator, a successor and substitute Liquidator (who shall have and
succeed to all rights, powers and duties of
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the original Liquidator) shall within 30 days thereafter be approved by the
holders of a Majority Interest. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to refer also to any
such successor or substitute Liquidator approved in the manner herein provided.
Except as expressly provided in this Article XII, the Liquidator approved in the
manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the General Partner under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the limitation on sale set forth in
Section 7.3(b)) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Partnership as provided for herein.
12.4 Liquidation
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up its affairs in
such manner and over such period as the Liquidator determines to be in the best
interest of the Partners, subject to Section 17-804 of the Delaware Act and the
following:
(a) Disposition of Assets. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such terms as
the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale of all or some of the Partnership's
assets would be impractical or would cause undue loss to the partners. The
Liquidator may, in its absolute discretion, distribute the Partnership's assets,
in whole or in part, in kind if it determines that a sale would be impractical
or would cause undue loss to the partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reasonable reserve of cash or other assets to provide for its payment. When
paid, any unused portion of the reserve shall be distributed as additional
liquidation proceeds.
(c) Liquidation Distributions. All property and all cash in excess of
that required to discharge liabilities as provided in Section 12.4(b) shall be
distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
12.5 Cancellation of Certificate of Limited Partnership
Upon the completion of the distribution of Partnership cash and
property as provided in Section 12.4 in connection with the liquidation of the
Partnership, the Partnership shall be terminated and the Certificate of Limited
Partnership and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
12.6 Return of Contributions
The General Partner shall not be personally liable for, and shall have
no obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
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12.7 Waiver of Partition
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
12.8 Capital Account Restoration
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1 Amendment to be Adopted Solely by the General Partner
Each Partner agrees that the General Partner, without the approval of
any Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that no
Group Member will be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
(d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable (A) 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 the Delaware Act), (B) to facilitate the trading of Limited
Partner Interests (including the division of any class or classes of Outstanding
Limited Partner Interests into different classes to facilitate uniformity of tax
consequences within such classes of Limited Partner Interests) or comply with
any rule, regulation, guideline or requirement of any National Securities
Exchange on which Limited Partner Interests are or will be listed for trading,
compliance with any of which the General Partner determines in its discretion to
be in the best interests of the Partnership and the Limited Partners or (C) in
connection with action taken by the General Partner pursuant to Section 5.7, or
(iii) is required to effect the intent expressed in the Registration Statement
or the Proxy Statement or the intent of the provisions of this Agreement or is
otherwise contemplated by this Agreement;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
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(g) an amendment that, in the discretion of the General Partner, is
necessary or advisable in connection with the authorization of issuance of any
class or series of Partnership Securities pursuant to Section 5.5;
(h) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
13.2 Amendment Procedures
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or with the consent of the
General Partner, which consent may be given or withheld in its sole discretion.
A proposed amendment shall be effective upon its approval by the holders of a
Majority Interest, unless a greater or different percentage is required under
this Agreement or by Delaware law. Each proposed amendment that requires the
approval of the holders of a specified percentage of Outstanding Limited Partner
Interests shall be set forth in a writing that contains the text of the proposed
amendment. If such an amendment is proposed, the General Partner shall seek the
written approval of the requisite percentage of Outstanding Limited Partner
Interests or call a meeting of the Limited Partners to consider and vote on such
proposed amendment. The General Partner shall notify all Record Holders upon
final adoption of any such proposed amendments.
13.3 Amendment Requirements
(a) Notwithstanding the provisions of Sections 13.1 and 13.2, no
provision of this Agreement that establishes a percentage of Outstanding Limited
Partner Interests (including Limited Partner Interests deemed owned by the
General Partner) required to take any action shall be amended, altered, changed,
repealed or rescinded in any respect that would have the effect of reducing such
voting percentage unless such amendment is approved by the written consent or
the affirmative vote of holders of Outstanding Limited Partner Interests
(including Limited Partner Interests deemed owned by the General Partner) whose
aggregate Outstanding Limited Partner Interests constitute not less than the
voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 13.1 and 13.2, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner without its consent, unless such shall be deemed to have occurred as a
result of an amendment approved pursuant to Section 13.3(c), (ii) enlarge the
obligations of, restrict in any way any action by or rights of, or reduce in any
way the amounts distributable, reimbursable or otherwise payable to, the General
Partner or any of its Affiliates without its consent, which may be given or
withheld in its sole discretion, (iii) change Section 12.1(a) or 12.1(c), or
(iv) change the term of the Partnership or, except as set forth in Section
12.1(c) or 12.1(e), give any Person the right to dissolve the Partnership.
(c) Except as provided in Section 14.3, and except as otherwise
provided, and without limitation of the General Partner's authority to adopt
amendments to this Agreement as contemplated in Section 13.1, any amendment that
would have a material adverse effect on the rights or preferences of any class
of Partnership Interests in relation to other classes of Partnership Interests
must be approved by the holders of not less than a majority of the Outstanding
Partnership Interests of the class affected.
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(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 7.3 or 13.1 and except as otherwise provided by
Section 14.3(b), no amendments shall become effective without the approval of
the holders of a Ninety Percent Interest unless the Partnership obtains an
Opinion of Counsel to the effect that such amendment will not affect the limited
liability of any Limited Partner under applicable law.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of a Ninety Percent Interest.
13.4 Special Meetings
All acts of Limited Partners to be taken pursuant to this Agreement
shall be taken in the manner provided in this Article XIII. Special meetings of
the Limited Partners may be called by the General Partner or by Limited Partners
owning 20% or more of the Outstanding Limited Partner Interests of the class or
classes for which a meeting is proposed and which are entitled to vote thereat.
Limited Partners shall call a special meeting by delivering to the General
Partner one or more requests in writing stating that the signing Limited
Partners wish to call a special meeting and indicating the general or specific
purposes for which the special meeting is to be called. Within 60 days after
receipt of such a call from Limited Partners or within such greater time as may
be reasonably necessary for the Partnership to comply with any statutes, rules,
regulations, listing agreements or similar requirements governing the holding of
a meeting or the solicitation of proxies for use at such a meeting, the General
Partner shall send a notice of the meeting to the Limited Partners either
directly or indirectly through the Transfer Agent. A meeting shall be held at a
time and place determined by the General Partner on a date not less than 10 days
nor more than 60 days after the mailing of notice of the meeting. Limited
Partners shall not vote on matters that would cause the Limited Partners to be
deemed to be taking part in the management and control of the business and
affairs of the Partnership so as to jeopardize the Limited Partners' limited
liability under the Delaware Act or the law of any other state in which the
Partnership is qualified to do business.
13.5 Notice of a Meeting
Notice of a meeting called pursuant to Section 13.4 shall be given to
the Record Holders of the class or classes of Limited Partner Interests for
which a meeting is proposed in writing by mail or other means of written
communication in accordance with Section 16.1. The notice shall be deemed to
have been given at the time when deposited in the mail or sent by other means of
written communication.
13.6 Record Date
For purposes of determining the Limited Partners entitled to notice of
or to vote at a meeting of the Limited Partners or to give approvals without a
meeting as provided in Section 13.11, the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 days before (a) the date of the
meeting (unless such requirement conflicts with any rule, regulation, guideline
or requirement of any National Securities Exchange on which Limited Partner
Interests are listed for trading, in which case the rule, regulation, guideline
or requirement of such exchange shall govern) or (b) in the event that approvals
are sought without a meeting, the date by which Limited Partners are requested
in writing by the General Partner to give such approvals.
13.7 Adjournment
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting and a new Record Date need not be fixed, if
the time and place thereof are announced at the meeting at which the adjournment
is taken, unless such adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 45
days or if a new Record Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this Article XIII.
13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes
The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if occurred at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by
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proxy, and if, either before or after the meeting, Limited Partners representing
such quorum who were present in person or by proxy and entitled to vote, sign a
written waiver of notice or an approval of the holding of the meeting or an
approval of the minutes thereof. All waivers and approvals shall be filed with
the Partnership records or made a part of the minutes of the meeting. Attendance
of a Limited Partner at a meeting shall constitute a waiver of notice of the
meeting, except when the Limited Partner does not approve, at the beginning of
the meeting, of the transaction of any business because the meeting is not
lawfully called or convened; and except that attendance at a meeting is not a
waiver of any right to disapprove the consideration of matters required to be
included in the notice of the meeting, but not so included, if the disapproval
is expressly made at the meeting.
13.9 Quorum
The holders of a majority of the Outstanding Limited Partner Interests
(including Limited Partner Interests deemed owned by the General Partner) of the
class or classes for which a meeting has been called and which are entitled to
vote represented in person or by proxy shall constitute a quorum at a meeting of
Limited Partners of such class or classes unless any such action by the Limited
Partners requires approval by holders of a greater percentage of such Limited
Partner Interests, in which case the quorum shall be such greater percentage. At
any meeting of the Limited Partners duly called and held in accordance with this
Agreement at which a quorum is present, the act of Limited Partners holding
Outstanding Limited Partner Interests (including Limited Partner Interests
deemed owned by the General Partner) that in the aggregate represent a majority
of the Outstanding Limited Partner Interests (including Limited Partner
Interests deemed owned by the General Partner) entitled to vote and be present
in person or by proxy at such meeting shall be deemed to constitute the act of
all Limited Partners, unless a greater or different percentage is required with
respect to such action under the provisions of this Agreement, in which case the
act of the Limited Partners holding Outstanding Limited Partner Interests
(including Limited Partner Interests deemed owned by the General Partner) that
in the aggregate represent at least such greater or different percentage shall
be required. The Limited Partners present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Limited Partners to leave less than a
quorum, if any action taken (other than adjournment) is approved by the required
percentage of Outstanding Limited Partner Interests (including Limited Partner
Interests deemed owned by the General Partner) 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 holders of at least a majority of the
Outstanding Limited Partner Interests (including Limited Partner Interests
deemed owned by the General Partner) entitled to vote at such meeting
represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 13.7.
13.10 Conduct of a Meeting
The General Partner shall have full power and authority concerning the
manner of conducting any meeting of the Partners or solicitation of approvals in
writing, including the determination of Persons entitled to vote, the existence
of a quorum, the satisfaction of the requirements of Section 13.4, the conduct
of voting, the validity and effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or during the
meeting or voting. The General Partner shall designate a Person to serve as
chairman of any meeting and shall further designate a Person to take the minutes
of any meeting. All minutes shall be kept with the records of the Partnership
maintained by the General Partner. The General Partner may make such other
regulations consistent with applicable law and this Agreement as it may deem
advisable concerning the conduct of any meeting of the 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.
13.11 Action Without a Meeting
If authorized by the General Partner, any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners owning
not less than the minimum percentage of the Outstanding Limited Partner
Interests (including Limited Partner Interests deemed owned by the General
Partner) that would be necessary to authorize or take such action at a meeting
at which all the Limited Partners were present and voted (unless such provision
conflicts with any rule, regulation, guideline or requirement of any National
Securities Exchange on which Limited Partner Interests are listed for trading,
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in which case the rule, regulation, guideline or requirement of such exchange
shall govern). Prompt notice of the taking of action without a meeting shall be
given to the Limited Partners who have not approved in writing. The General
Partner may specify that any written ballot submitted to Limited Partners for
the purpose of taking any action without a meeting shall be returned to the
Partnership within the time period, which shall be not less than 20 days,
specified by the General Partner. If a ballot returned to the Partnership does
not vote all of the Limited Partner Interests held by a Limited Partner the
Partnership shall be deemed to have failed to receive a ballot for the Limited
Partner Interests that were not voted. If approval of the taking of any action
by the Limited Partners is solicited by any Person other than by or on behalf of
the General Partner, the written approvals shall have no force and effect unless
and until (a) they are deposited with the Partnership in care of the General
Partner, (b) approvals sufficient to take the action proposed are dated as of a
date not more than 90 days prior to the date sufficient approvals are deposited
with the Partnership and (c) an Opinion of Counsel is delivered to the General
Partner to the effect that the exercise of such right and the action proposed to
be taken with respect to any particular matter (i) will not cause the Limited
Partners to be deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to jeopardize the Limited
Partners' limited liability, and (ii) is otherwise permissible under the state
statutes then governing the rights, duties and liabilities of the Partnership
and the Partners.
13.12 Voting and Other Rights
(a) Only those Record Holders of the Limited Partner Interests on the
Record Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to matters
as to which the holders of the Outstanding Limited Partner Interests have the
right to vote or to act. All references in this Agreement to votes of, or other
acts that may be taken by, the Outstanding Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such
Outstanding Limited Partner Interests.
(b) With respect to Limited Partner Interests that are held for a
Person's account by another Person (such as a broker, dealer, bank, trust
company or clearing corporation, or an agent of any of the foregoing), in whose
name such Limited Partner Interests are registered, such other Person shall, in
exercising the voting rights in respect of such Limited Partner Interests on any
matter, and unless the arrangement between such Persons provides otherwise, vote
such Limited Partner Interests in favor of, and at the direction of, the Person
who is the beneficial owner, and the Partnership shall be entitled to assume it
is so acting without further inquiry. The provisions of this Section 13.12(b)
(as well as all other provisions of this Agreement) are subject to the
provisions of Section 4.3.
ARTICLE XIV
MERGER
14.1 Authority
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
14.2 Procedure for Merger or Consolidation
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
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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 partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership, certificate of formation or limited liability company
agreement or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
14.3 Approval by Limited Partners of Merger or Consolidation
(a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the holders of a
Majority Interest unless the Merger Agreement contains any provision that, if
contained in an amendment to this Agreement, the provisions of this Agreement or
the Delaware Act would require the vote or consent of a greater percentage of
the Outstanding Limited Partner Interests or of any class of Limited Partners,
in which case such greater percentage vote or consent shall be required for
approval of the Merger Agreement.
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the General Partner has received an Opinion of Counsel
that the merger or conveyance, as the case may be, would not result in the loss
of the limited liability of any Limited Partner or any limited partner in
Genesis OLP or cause the Partnership or Genesis OLP to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously treated as such), (ii)
the sole purpose of such merger or conveyance is to effect a mere change in the
legal form of the Partnership into another limited liability entity
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and (iii) the governing instruments of the new entity provide the Limited
Partners and the General Partner with the same rights and obligations as are
herein contained.
14.4 Certificate of Merger
Upon the required approval by the General Partner and the Limited
Partners of a Merger Agreement, a certificate of merger shall be executed and
filed with the Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
14.5 Effect of Merger
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all property,
real, personal and mixed, and all debts due to any of those business
entities and all other things and causes of action belonging to each
of those business entities shall be vested in the Surviving Business
Entity and after the merger or consolidation shall be the property of
the Surviving Business Entity to the extent they were of each
constituent business entity;
(ii) the title to any real property vested by deed or otherwise
in any of those constituent business entities shall not revert and is
not in any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity, and
may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article XIV
shall not be deemed to result in a transfer or assignment of assets or
liabilities from one entity to another.
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
15.1 Right to Acquire Limited Partner Interests
(a) Notwithstanding any other provision of this Agreement, if at any
time not more than 20% of the total Limited Partner Interests of any class then
Outstanding are held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15.1(b) is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any such
Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "Current Market Price" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per Limited Partner Interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), the last
quoted price on such day or, if not so quoted, the average of the high bid and
low asked
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prices on such day in the over-the-counter market, as reported by the Nasdaq
Stock Market or such other system then in use, or, if on any such day such
Limited Partner Interests of such class are not quoted by any such organization,
the average of the closing bid and asked prices on such day as furnished by a
professional market maker making a market in such Limited Partner Interests of
such class selected by the General Partner, or if on any such day no market
maker is making a market in such Limited Partner Interests of such class, the
fair value of such Limited Partner Interests on such day as determined
reasonably and in good faith by the General Partner; and (iii) "Trading Day"
means a day on which the principal National Securities Exchange on which such
Limited Partner Interests of any class are listed or admitted to trading is open
for the transaction of business or, if Limited Partner Interests of a class are
not listed or admitted to trading on any National Securities Exchange, a day on
which banking institutions in New York City generally are open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner Interests of such
class (as of a Record Date selected by the General Partner) at least 10, but not
more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published for a period of at least three consecutive days
in at least two daily newspapers of general circulation printed in the English
language and published in the Borough of Manhattan, New York. The Notice of
Election to Purchase shall specify the Purchase Date and the price (determined
in accordance with Section 15.1(a)) at which Limited Partner Interests will be
purchased and state that the General Partner, its Affiliate or the Partnership,
as the case may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner Interests in
exchange for payment, at such office or offices of the Transfer Agent as the
Transfer Agent may specify, or as may be required by any National Securities
Exchange on which such Limited Partner Interests are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of
Limited Partner Interests at his address as reflected in the records of the
Transfer Agent shall be conclusively presumed to have been given regardless of
whether the owner receives such notice. On or prior to the Purchase Date, the
General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of such Limited Partner Interests to be
purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 days prior to the
Purchase Date, and if on or prior to the Purchase Date the deposit described in
the preceding sentence has been made for the benefit of the holders of Limited
Partner Interests subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor, without
interest, upon surrender to the Transfer Agent of the Certificates representing
such Limited Partner Interests, and such Limited Partner Interests shall
thereupon be deemed to be transferred to the General Partner, its Affiliate or
the Partnership, as the case may be, on the record books of the Transfer Agent
and the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the owner
of all such Limited Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited Partner Interests (including all
rights as owner of such Limited Partner Interests pursuant to Articles IV, V, VI
and XII).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Addresses and Notices
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee at
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the address described below. Any notice, payment or report to be given or made
to a Partner or Assignee hereunder shall be deemed conclusively to have been
given or made, and the obligation to give such notice or report or to make such
payment shall be deemed conclusively to have been fully satisfied, upon sending
of such notice, payment or report to the Record Holder of such Partnership
Security at his address as shown on the records of the Transfer Agent or as
otherwise shown on the records of the Partnership, regardless of any claim of
any Person who may have an interest in such Partnership Security by reason of
any assignment or otherwise. An affidavit or certificate of making of any
notice, payment or report in accordance with the provisions of this Section 16.1
executed by the General Partner, the Transfer Agent or the mailing organization
shall be prima facie evidence of the giving or making of such notice, payment or
report. If any notice, payment or report addressed to a Record Holder at the
address of such Record Holder appearing on the books and records of the Transfer
Agent or the Partnership is returned by the United States 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 General Partner at the principal office of the
Partnership designated pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document from a Partner,
Assignee or other Person if believed by it to be genuine.
16.2 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
16.3 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
16.4 Integration
This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
16.5 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
16.6 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
16.7 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute an agreement binding on all the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto or, in the case of a Person acquiring a Limited
Partner Interest, upon accepting the certificate evidencing such Limited Partner
Interest or executing and delivering a Transfer Application as herein described,
independently of the signature of any other party.
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16.8 Applicable Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law.
16.9 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
16.10 Consent of Partners
Each Partner hereby expressly consents and agrees that, whenever in
this Agreement it is specified that an action may be taken upon the affirmative
vote or consent of less than all of the Partners, such action may be so taken
upon the concurrence of less than all of the Partners and each Partner shall be
bound by the results of such action.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER
GENESIS ENERGY, L.L.C.,
By:
----------------------------------------
Name: Mark J. Gorman
Title: President and Chief Executive
Officer
LIMITED PARTNERS
All Limited Partners previously and
hereafter admitted as Limited Partners of
the Partnership, pursuant to powers of
attorney previously and hereafter executed
in favor of, and granted and delivered to
the General Partner.
By: Genesis Energy, L.L.C.
General Partner, as attorney-in-fact
for all Limited Partners pursuant to
the Powers of Attorney granted pursuant
to Section 2.6.
By:
----------------------------------------
Name: Mark J. Gorman
Title: President and Chief Executive
Officer
115
ANNEX C
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS CRUDE OIL, L.P.
116
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions.....................................................................................2
1.2 Construction...................................................................................11
ARTICLE II
ORGANIZATION
2.1 Continuation of Existence......................................................................11
2.2 Name...........................................................................................11
2.3 Registered Office; Registered Agent; Principal Office; Other Offices...........................11
2.4 Purpose and Business...........................................................................12
2.5 Powers.........................................................................................12
2.6 Power of Attorney..............................................................................12
2.7 Term...........................................................................................13
2.8 Title to Partnership Assets....................................................................13
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability........................................................................14
3.2 Management of Business.........................................................................14
3.3 Outside Activities of Limited Partners.........................................................14
3.4 Rights of Limited Partners.....................................................................14
ARTICLE IV
TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
4.1 Transfer Generally.............................................................................15
4.2 Transfer of General Partner's Partnership Interest.............................................15
4.3 Transfer of a Limited Partner Interest.........................................................15
4.4 Restrictions on Transfers......................................................................16
4.5 Elimination and Cancellation of Subordinated LP Units and APIs.................................16
4.6 Conversion of General Partner Interests........................................................16
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions.................................................................16
5.2 Additional Contributions by General Partner....................................................16
5.3 Interest and Withdrawal........................................................................16
5.4 Capital Accounts...............................................................................17
5.5 Issuances of Additional Partnership Securities.................................................18
5.6 Limited Preemptive Right.......................................................................19
5.7 Fully Paid and Non-Assessable Nature of Limited Partner Interests..............................19
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes.......................................................19
6.2 Allocations for Tax Purposes...................................................................22
6.3 Requirement and Characterization of Distributions; Distributions to Record Holders.............24
6.4 Distributions of Available Cash from Operating Surplus.........................................24
6.5 Distributions of Available Cash from Capital Surplus...........................................24
6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution Levels....................25
6.7 Entity-Level Taxation..........................................................................25
6.8 Characterization of Distributions as Advances or Drawings......................................25
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management.....................................................................................26
7.2 Certificate of Limited Partnership.............................................................27
7.3 Restrictions on the General Partner's Authority................................................27
7.4 Reimbursement of the General Partner...........................................................28
7.5 Outside Activities.............................................................................28
7.6 Loans from the General Partner; Loans or Contributions from the Partnership; Contracts with
Affiliates; Certain Restrictions on the General Partner........................................39
7.7 Indemnification................................................................................30
7.8 Liability of Indemnitees.......................................................................31
7.9 Resolution of Conflicts of Interest............................................................32
7.10 Other Matters Concerning the General Partner...................................................33
7.11 Reliance by Third Parties......................................................................33
7.12 Incentive Compensation Payments to the General Partner.........................................34
7.13 Conversion of General Partner's Incentive Compensation Payment Rights..........................34
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting.........................................................................35
8.2 Fiscal Year....................................................................................35
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information....................................................................35
9.2 Tax Elections..................................................................................35
9.3 Tax Controversies..............................................................................36
9.4 Withholding....................................................................................36
ARTICLE X
ADMISSION OF PARTNERS
10.1 Status of General Partner......................................................................36
10.2 Admission of Successor General Partner.........................................................36
10.3 Admission of Substituted Limited Partner.......................................................36
10.4 Admission of Additional Limited Partners.......................................................37
10.5 Amendment of Agreement and Certificate of Limited Partnership..................................37
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner..............................................................37
11.2 Removal of the General Partner.................................................................38
11.3 Interest of Departing Partner..................................................................38
11.4 Withdrawal of Limited Partners.................................................................39
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution....................................................................................39
12.2 Continuation of the Business of the Partnership After Dissolution..............................39
12.3 Liquidator.....................................................................................40
12.4 Liquidation....................................................................................41
12.5 Cancellation of Certificate of Limited Partnership.............................................41
12.6 Return of Contributions........................................................................41
12.7 Waiver of Partition............................................................................41
12.8 Capital Account Restoration....................................................................41
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
13.1 Amendment to be Adopted Solely by General Partner..............................................41
13.2 Amendment Procedures...........................................................................43
ARTICLE XIV
MERGER
14.1 Authority......................................................................................43
14.2 Procedure for Merger or Consolidation..........................................................43
14.3 Approval by Limited Partners of Merger or Consolidation........................................44
14.4 Certificate of Merger..........................................................................44
14.5 Effect of Merger...............................................................................44
ARTICLE XV
GENERAL PROVISIONS
15.1 Addresses and Notices..........................................................................45
15.2 Further Action.................................................................................45
15.3 Binding Effect.................................................................................45
15.4 Integration....................................................................................45
15.5 Creditors......................................................................................45
15.6 Waiver.........................................................................................46
15.7 Counterparts...................................................................................46
15.8 Applicable Law.................................................................................46
15.9 Invalidity of Provisions.......................................................................46
15.10 Consent of Partners............................................................................46
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SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS CRUDE OIL, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of
Genesis Crude Oil, L.P., dated as of ______________, 2000, is entered into by
and among Genesis Energy, L.L.C., a Delaware limited liability company, as the
General Partner, Genesis Energy, L.P. ("Genesis MLP"), a Delaware limited
partnership, as the Limited Partner, together with any other Persons who become
Partners in the Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
RECITALS
WHEREAS, immediately prior to the execution of this Agreement,
the partners of the Partnership were Genesis Energy, L.L.C., as the
operating general partner, Genesis MLP, as the managing general
partner, and Salomon Smith Barney Holdings Inc. ("Salomon") and Howell
Corporation ("Howell") as limited partners, all in accordance with the
Amended and Restated Agreement of Limited Partnership of Genesis Crude
Oil, L.P. dated as of December 3, 1996 (the "Previous Agreement"); and
WHEREAS, the partners of the Partnership and of Genesis MLP
have approved by requisite vote a restructuring (the "Restructuring")
of the Partnership and Genesis MLP pursuant to which (a) all
outstanding Subordinated LP Units and APIs will be abandoned by their
respective holders and cancelled by the Partnership, (b) the Previous
Agreement and the Genesis MLP Partnership Agreement will be amended to,
among other things, reduce the amounts of Minimum Quarterly
Distribution, the First Target Distribution, the Second Target
Distribution and the Third Target Distribution as provided in the
Previous Agreement and provide that the Common Units will not accrue
arrearages if the Minimum Quarterly Distribution is not paid in full in
any Quarter, (c) Salomon will contribute to the Partnership the
remaining $___________ of its distribution support obligation under the
Distribution Support Agreement, (d) the Partnership will make a special
distribution of $________ to Genesis MLP and Genesis MLP will make a
special distribution of $___________ to the holders of MLP Common
Units, (e) the Distribution Support Agreement will be terminated, (f)
Genesis MLP will withdraw as a general partner of the Partnership and
Genesis MLP's 80.01% general partner interest in the Partnership
represented by _____________ Subordinated GP Units will be converted to
a 99.99% limited partner interest, (g) the General partner's 0.40%
general partner interest in the Partnership represented by
_________________ Subordinated GP Units will be converted into a 0.01%
general partner interest and (h) Salomon's $300 million credit support
obligation under the Master Credit Support Agreement will be extended
until December 31, 2001 on the current terms and conditions; and
WHEREAS, Genesis Energy, L.L.C., as the sole general partner,
and Genesis MLP, as the sole limited partner, now desire to amend and
restate the Previous Agreement to reflect the Restructuring and such
other changes that, in the discretion of the General Partner, do not
adversely affect the Limited Partners in any material respect;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby amend and restate
the Previous Agreement in its entirety:
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ARTICLE I
DEFINITIONS
1.1 Definitions
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such transaction.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 10.4 and who is shown as such on the
books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership (a) increased
by any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of the end of
such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii) and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1(d)(i)
or 6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.4(d)(i) or 5.4(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
(i) directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question or (ii)
owns, beneficially, directly or indirectly, 20% or more of the outstanding
capital stock, shares or other equity interests of the Person in question. As
used herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative Allocation
(if appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt. The General Partner shall, in its discretion, use such method as
it deems reasonable and appropriate to allocate the aggregate Agreed Value of
Contributed Properties contributed to the Partnership in a single or integrated
transaction among each separate property on a basis proportional to the fair
market value of each Contributed Property.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership of Genesis Crude Oil, L.P., as it may be amended, supplemented or
restated from time to time.
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"APIs" mean the non-voting Limited Partner Interests issued to Salomon
pursuant to Section 5.6 of the Previous Agreement and in accordance with the
Distribution Support Agreement.
"Assets" means all of the assets now owned or hereafter acquired by the
Partnership.
"Assignee" means a Person to whom one or more Limited Partner Interests
have been transferred in a manner permitted under this Agreement and who has
executed and delivered a Transfer Application as required by this Agreement, but
who has not been admitted as a Substituted Limited Partner.
"Audit Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
officers nor employees of the General Partner or officers, directors or
employees of any Affiliate of the General Partner.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership Group on hand at the end of such Quarter and (ii) all
additional cash and cash equivalents of the Partnership Group on hand
on the date of determination of Available Cash with respect to such
Quarter resulting from borrowings for working capital purposes, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i)
provide for the proper conduct of the business of the Partnership Group
(including reserves for future capital expenditures and for anticipated
future credit needs of the business of the Partnership Group)
subsequent to such Quarter, (ii) comply with applicable law or any loan
agreement (including the Master Credit Support Agreement), security
agreement (including the Security Agreement), mortgage, debt instrument
or other agreement or obligation to which any Group Member is a party
or by which it is bound or its assets are subject or (iii) provide
funds for distributions under Section 6.4 or 6.5 or to make Incentive
Compensation Payments to the General Partner in respect of any one or
more of the next four Quarters; provided, however, that the General
Partner may not establish cash reserves pursuant to (iii) above if the
effect of such reserves would be that Genesis MLP is unable to
distribute an amount equal to the Minimum Quarterly Distribution on all
MLP Common Units and the MLP General Partner Interest with respect to
such Quarter; and, provided further, that disbursements made by a Group
Member or cash reserves established, increased or reduced after the end
of such Quarter but on or before the date of determination of Available
Cash with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the General Partner so
determines, less
(c) the amount necessary to make Incentive Compensation
Payments to the General Partner pursuant to Section 7.12 with respect
to such Quarter.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"Book-Tax Disparity" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 5.4 and the hypothetical balance of such
Partner's Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Texas shall not be regarded as a Business
Day.
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"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.4.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property contributed to the Partnership pursuant to
this Agreement (or the Previous Agreement) or the Conveyance Agreement.
"Capital Improvement" means any (a) addition or improvement to the
capital assets owned by any Group Member or (b) acquisition of existing or the
construction of new capital assets (including pipeline systems, storage
facilities and related assets), made to increase the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section
6.3(a).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property and (b) with
respect to any other Partnership property, the adjusted basis of such property
for federal income tax purposes, all as of the time of determination. The
Carrying Value of any property shall be adjusted from time to time in accordance
with Sections 5.4(d)(i) and 5.4(d)(ii) and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Certificate of Limited Partnership" means the Amended and Restated
Certificate of Limited Partnership of the Partnership filed with the Secretary
of State of the State of Delaware as referenced in Section 7.2, as such
Certificate of Limited Partnership may be amended, supplemented or restated from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Commission" means the United States Securities and Exchange
Commission.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.4(d), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
"Conversion Election" has the meaning assigned to such term in Section
7.13.
"Conveyance Agreement" means that certain Purchase & Sale and
Contribution & Conveyance Agreement, dated as of November 26, 1996, among the
Partnership, Genesis MLP, Genesis Energy, L.L.C., Howell and a Subsidiary of
Salomon, together with the additional conveyance documents and instruments
contemplated or referenced thereunder.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. 17-101, et seq., as amended, supplemented or restated from time to
time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
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"Distribution Support Agreement" means the Distribution Support
Agreement, dated as of December 3, 1996, between the Partnership and Salomon,
which sets forth the agreement of the Partnership and Salomon relating to the
purchase of APIs.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"First Target Distribution" means with respect to any Quarter, an
amount equal to the product of (a) the total number of MLP Units entitled to
receive distributions of Available Cash (as defined in the Genesis MLP
Partnership Agreement) from Genesis MLP on the Record Date (as defined in the
Genesis MLP Partnership Agreement) for such Quarter and (b) $0.25, subject to
adjustment in accordance with Section 6.6.
"General Partner" means Genesis Energy, L.L.C. and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it), which may be evidenced by
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which the General Partner is entitled as
provided in this Agreement (other than the right of the General Partner to
receive Incentive Compensation Payments pursuant to Section 7.12), together with
all obligations of the General Partner to comply with the terms and provisions
of this Agreement.
"Genesis MLP" means Genesis Energy, L.P., a Delaware limited
partnership, and its successors.
"Genesis MLP Partnership Agreement" means the Second Amended and
Restated Agreement of Limited Partnership of Genesis Energy, L.P., as it may be
amended, supplemented or restated from time to time.
"Group Member" means a member of the Partnership Group.
"Howell" means Howell Corporation, a Delaware corporation, and its
Subsidiaries.
"Incentive Compensation Payment" means a payment made to the General
Partner pursuant to Section 7.12.
"Indemnitee" means (a) the General Partner, any Departing Partner and
any Person who is or was an Affiliate of the General Partner or any Departing
Partner, (b) any Person who is or was a director, officer, employee, agent or
trustee of a Group Member, (c) any Person who is or was a member, officer,
director, employee, agent, or trustee of the General Partner or any Departing
Partner or any Affiliate of the General Partner or any Departing Partner, or any
Affiliate of any such Person and (d) any Person who is or was serving at the
request of the General Partner or any Departing Partner or any such Affiliate as
a director, officer, employee, member, partner, agent, fiduciary or trustee of
another Person; provided, however, that a Person shall not be an Indemnitee by
reason of providing, on a fee-for-services basis, trustee, fiduciary or
custodial services.
"Initial Closing Date" means December 3, 1996.
"Initial Unit Price" means, with respect to any MLP Common Unit
$20.625, adjusted as appropriate to give effect to any distribution, subdivision
or combination of MLP Common Units.
"Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings
of indebtedness and sales of debt securities (other than for working capital
purposes and other than for items purchased on open account in the ordinary
course of business) by any Group Member; (b) sales of equity interests by any
Group Member; and (c) sales or other voluntary or involuntary dispositions of
any assets of any Group Member other than (i) sales or other dispositions of
inventory in the ordinary course of business,
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(ii) sales or other dispositions of other current assets, including receivables
and accounts in the ordinary course of business and (iii) sales or other
dispositions of assets as part of normal retirements or replacements.
"Limited Partner" means, unless the context otherwise requires, (a)
Genesis MLP, each Substituted Limited Partner, each Additional Limited Partner
and (b) solely for purposes of Articles V, VI, VII and IX and Section 12.4, each
Assignee.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Units or other
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which such Limited Partner or Assignee is
entitled as provided in this Agreement, together with all obligations of such
Limited Partner or Assignee to comply with the terms and provisions of this
Agreement.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time period
during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made and (b) in the case of any other event giving rise to the
dissolution of the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner
to perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"Majority Interest" means at least a majority in Voting Power of the
Limited Partner Interests.
"Master Credit Support Agreement" means the Master Credit Support
Agreement dated December 3, 1996, among the Partnership and Salomon which sets
forth the agreement of the Partnership and Salomon relating to the credit
support to be provided by Salomon to the Partnership.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"Minimum Quarterly Distribution" means, with respect to any Quarter, an
amount equal to the product of (a) the total number of MLP Units entitled to
receive distributions of Available Cash (as defined in the Genesis MLP
Partnership Agreement) from Genesis MLP on the Record Date (as defined in the
Genesis MLP Partnership Agreement) for such Quarter and (b) $0.20, subject to
adjustment in accordance with Section 6.6.
"MLP Common Unit" has the meaning assigned to the term "Common Unit" in
the Genesis MLP Partnership Agreement.
"MLP General Partner Interest" has the meaning assigned to the term
"General Partner Interest" in the Genesis MLP Partnership Agreement.
"MLP Partnership Security" has the meaning assigned to the term
"Partnership Security" in the Genesis MLP Partnership Agreement.
"MLP Unit" has the meaning assigned to the term "Unit" in the Genesis
MLP Partnership Agreement.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject when
contributed and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.4(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the time
of distribution, in either case, as determined under Section 752 of the Code.
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"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Income shall be determined in accordance with Section 5.4(b) and shall
not include any items specially allocated under Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Loss shall be determined in accordance with Section 5.4(b) and shall not
include any items specially allocated under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if
positive, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the determination
of Net Termination Gain shall be determined in accordance with Section 5.4(b)
and shall not include any items of income, gain or loss specially allocated
under Section 6.1(d).
"Net Termination Loss" means, for any taxable period, the sum, if
negative, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the determination
of Net Termination Loss shall be determined in accordance with Section 5.4(b)
and shall not include any items of income, gain or loss specially allocated
under Section 6.1(d).
"Non-Competition Agreement" means the Non-Competition Agreement dated
December 3, 1996, among the Partnership, Genesis MLP, Salomon, Basis Petroleum,
Inc. and Howell.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (including, without limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with the principles of
Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse
Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General Partner,
Incentive Compensation Payments to the General Partner, debt service payments,
guarantee fees and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and
premium on indebtedness shall not be an Operating Expenditure if the
payment is (i) required in connection with the sale or other
disposition of assets or (ii) made in connection with the refinancing
or refunding of indebtedness with the proceeds from new indebtedness or
from the sale of equity interests. For purposes of the foregoing, at
the election and in the reasonable discretion of the General Partner,
any payment of principal or premium shall be deemed to be refunded or
refinanced by any indebtedness incurred or to be incurred by the
Partnership Group within 180 days before or after such payment to the
extent of the principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital
expenditures made for Acquisitions or for Capital Improvements, (ii)
payment of transaction expenses relating to Interim Capital
Transactions or (iii) distributions to Partners. Where capital
expenditures are made in part for Acquisitions or for Capital
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Improvements and in part for other purposes, the General Partner's good
faith allocation between the amounts paid for each shall be conclusive.
"Operating Surplus" means, with respect to any period ending prior to
the Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $20 million plus all cash and cash
equivalents of the Partnership Group on hand as of the close of
business on the Initial Closing Date, (ii) all cash receipts of the
Partnership Group for the period beginning on the Initial Closing Date
and ending with the last day of such period, other than cash receipts
from Interim Capital Transactions (except to the extent specified in
Section 6.5) and (iii) all cash receipts of the Partnership Group after
the end of such period but on or before the date of determination of
Operating Surplus with respect to such period resulting from borrowings
for working capital purposes, less
(b) the sum of (i) Operating Expenditures for the period
beginning on the Initial Closing Date and ending with the last day of
such period and (ii) the amount of cash reserves that is necessary or
advisable in the reasonable discretion of the General Partner to
provide funds for future Operating Expenditures provided, however, that
disbursements made (including contributions to a Group Member or
disbursements on behalf of a Group Member) or cash reserves
established, increased or reduced after the end of such period but on
or before the date of determination of Available Cash with respect to
such period shall be deemed to have been made, established, increased
or reduced for purposes of determining Operating Surplus, within such
period if the General Partner so determines.
Notwithstanding the foregoing, "Operating Surplus" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Outstanding" means, with respect to Partnership Securities, all
Partnership Securities that are issued by the Partnership and reflected as
Outstanding on the Partnership's books and records as of the date of
determination.
"Partner" means the General Partner and each Limited Partner.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704- 2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"Partnership" means Genesis Crude Oil, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership and any Subsidiary of the
Partnership, treated as a single consolidated entity.
"Partnership Interest" means an ownership interest in the Partnership
which shall include General Partner Interests and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
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"Partnership Security" means any class or series of equity interest in
the Partnership.
"Percentage Interest" means (a) as to the General Partner, .01% and (b)
as to Genesis MLP, 99.99%, subject to adjustment to reflect the issuance of any
additional Partnership Securities in accordance with Section 5.5.
"Person" means an individual or a corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other entity.
"Previous Agreement" has the meaning assigned to such term in the
recitals to this Agreement.
"Pro Rata" means (a) when modifying Units or any class thereof,
apportioned among all designated Units in accordance with their relative
Percentage Interests and (b) when modifying Partners and Assignees, apportioned
among all Partners and Assignees in accordance with their respective Percentage
Interests.
"Proxy Statement" means the definitive Proxy Statement filed by Genesis
MLP with the Commission under the Securities Exchange Act of 1934, as amended,
for the purpose of soliciting the votes of the holders of MLP Common Units with
respect to the Restructuring, as it has been or as it may be amended or
supplemented from time to time.
"Quarter" means, unless the context requires otherwise, a calendar
quarter.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 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.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-11545) as amended, filed by Genesis MLP with the
Commission under the Securities Act to register the initial offering and sale of
MLP Common Units to the public.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Loss or Net Termination Loss under Section 6.1(b) or Section
6.1(c) and (b) any allocation of an item of income, gain, loss or deduction
pursuant to Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or
6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to
eliminate Book-Tax Disparities.
"Restructuring" has the meaning set forth in the recitals to this
Agreement.
"Restructuring Closing Date" means the date on which the Restructuring
is closed.
"Salomon" means Salomon Smith Barney Holdings Inc., a Delaware
corporation.
"Second Target Distribution" means, with respect to any Quarter, an
amount equal to the product of (a) the total number of MLP Units entitled to
receive distributions of Available Cash (as defined in the Genesis MLP
Partnership Agreement) from Genesis MLP on the Record Date (as defined in the
Genesis MLP Partnership Agreement) for such Quarter and (b) $0.28, subject to
adjustment in accordance with Section 6.6.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such statute.
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"Security Agreement" means the Security Agreement, dated as of December
3, 1996, among the Partnership, Salomon and the Secured Parties (as defined in
the Security Agreement) securing the obligations of the Partnership under the
Master Credit Support Agreement and creating a security interest in the
Collateral (as defined in the Security Agreement) in favor of the Collateral
Agent (as defined in the Security Agreement).
"Special Approval" means approval by a majority of the members of the
Audit Committee.
"Subordinated GP Units" means the Subordinated GP Units representing a
General Partner Interest held by the General Partner and Genesis MLP immediately
prior to the closing of the Restructuring.
"Subordinated LP Units" means the Subordinated LP Units representing a
Limited Partner Interest held by Salomon and Howell immediately prior to the
closing of the Restructuring.
"Subsidiary" means, with respect to any Person, (a) a corporation of
which more than 50% of the voting power of shares entitled (without regard to
the occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of such partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 10.3 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Third Target Distribution" means, with respect to any Quarter, an
amount equal to the product of (a) the total number of MLP Units entitled to
receive distributions of Available Cash (as defined in the Genesis MLP
Partnership Agreement) from Genesis MLP on the Record Date (as defined in the
Genesis MLP Partnership Agreement) for such Quarter and (b) $0.33, subject to
adjustment in accordance with Section 6.6.
"transfer" has the meaning assigned to such term in Section 4.1(a).
"Transfer Application" means an application and agreement for transfer
of Partnership Securities in the form set forth on the back of a Certificate or
in a form substantially to the same effect in a separate instrument.
"Unit" means a Partnership Security that is designated as a "Unit."
"Unitholder" means a holder of a Unit.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
5.4(d)) over (b) the Carrying Value of such property as of such date (prior to
any adjustment to be made pursuant to Section 5.4(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant
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to Section 5.4(d) as of such date) over (b) the fair market value of such
property as of such date (as determined under Section 5.4(d)).
"Unrecovered Capital" means at any time, with respect to a MLP Common
Unit, the Initial Unit Price less the sum of (i) all distributions constituting
Capital Surplus theretofore made in respect of an MLP Common Unit sold in the
initial offering and sale of MLP Common Units to the public, as described in the
Registration Statement and (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 a MLP Common
Unit, adjusted as the General Partner determines to be appropriate to give
effect to any distribution, subdivision or combination of such MLP Common Units.
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Voting Power" means the right, if any, of the holder of a Partnership
Security to vote on Partnership matters. Each Common Unit shall entitle the
holder thereof to one vote. Each additional Partnership Security shall entitle
the holder thereof to such vote, if any, as shall be established at the time of
issuance of such Partnership Security.
1.2 Construction
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
2.1 Continuation of Existence
The General Partner and the Limited Partner hereby amend and restate
the Previous Agreement in its entirety to continue the Partnership as a limited
partnership pursuant to the provisions of the Delaware Act and to set forth the
rights and obligations of the Partners and certain matters related thereto. This
amendment and restatement shall become effective on the date of this Agreement.
Except as expressly provided to the contrary in this Agreement, the rights,
duties (including fiduciary duties), liabilities and obligations of the Partners
and the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.
2.2 Name
The name of the Partnership shall be "Genesis Crude Oil, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws of
any jurisdiction that so requires. The General Partner in its discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
2.3 Registered Office; Registered Agent; Principal Office; Other Offices
Unless and until changed by the General Partner, the registered office
of the Partnership in the State of Delaware shall be located at 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 CT Corporation System. The principal office of the
Partnership shall be located at 500 Dallas, Suite 2500, Houston, Texas 77002 or
such other place as the General Partner may from time to time designate by
notice to the Limited Partner. The Partnership may
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maintain offices at such other place or places within or outside the State of
Delaware as the General Partner deems necessary or appropriate. The address of
the General Partner shall be 500 Dallas, Suite 2500, Houston, Texas 77002 or
such other place as the General Partner may from time to time designate by
notice to the Limited Partner.
2.4 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) acquire, manage and operate the Assets and any
similar assets or properties, and to engage directly in, or to enter into or
form any corporation, partnership, joint venture, limited liability company or
other arrangement to engage indirectly in, any type of business or activity
associated with, or reasonably related to, the Assets and, in connection
therewith, to exercise all of the rights and powers conferred upon the
Partnership pursuant to the agreements relating to such business activity, (b)
engage directly in, or to enter into or form any corporation, partnership, joint
venture, limited liability company or other arrangement to engage indirectly in,
any business activity that is approved by the General Partner and which lawfully
may be conducted by a limited partnership organized pursuant to the Delaware Act
and, in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity, and (c) do anything necessary or appropriate to the foregoing,
including the making of capital contributions or loans to a Group Member or
Genesis MLP; provided however, in the case of (b) above, that the General
Partner reasonably determines, as of the date of the acquisition or commencement
of such activity, that such activity (i) generates "qualifying income" (as such
term is defined pursuant to Section 7704 of the Code) or (ii) enhances the
operations of an activity of the Partnership that generates qualifying income.
The General Partner has no obligation or duty to the Partnership, the Partners,
or the Assignees to propose or approve, and in its discretion may decline to
propose or approve, the conduct by the Partnership of any business.
2.5 Powers
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
2.6 Power of Attorney
(a) The Limited Partner and each Assignee hereby constitutes and
appoints the General Partner and, if a Liquidator shall have been selected
pursuant to Section 12.3, the Liquidator, severally (and any successor to the
Liquidator by merger, transfer, assignment, election or otherwise) and each of
their authorized officers and attorneys-in- fact, as the case may be, with full
power of substitution, as his true and lawful agent and attorney-in-fact, with
full power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (A) all certificates, documents and
other instruments (including this Agreement and the Certificate of
Limited Partnership and all amendments or restatements hereof or
thereof) that the General Partner or the Liquidator deems necessary or
appropriate to form, qualify or continue the existence or qualification
of the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware
and in all other jurisdictions in which the Partnership may conduct
business or own property; (B) all certificates, documents and other
instruments that the General Partner or the Liquidator deems necessary
or appropriate to reflect, in accordance with its terms, any amendment,
change, modification or restatement of this Agreement; (C) all
certificates, documents and other instruments (including conveyances
and a certificate of cancellation) that the General Partner or the
Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this
Agreement; (D) all certificates, documents and other instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article IV, X, XI or
XII; (E) all certificates, documents and other instruments relating to
the determination of the rights, preferences and privileges of any
class or series of Partnership Securities issued pursuant to Section
5.5; and (F) all certificates, documents and other instruments
(including agreements and a certificate of merger) relating to a merger
or consolidation of the Partnership pursuant to Article XIV; and
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(ii) execute, swear to, acknowledge, deliver, file and record
all ballots, consents, approvals, waivers, certificates, documents and
other instruments necessary or appropriate, in the discretion of the
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms
of this Agreement or is necessary or appropriate, in the discretion of
the General Partner or the Liquidator, to effectuate the terms or
intent of this Agreement; provided, that when required by any provision
of this Agreement that establishes a percentage of the Limited Partners
or of the Limited Partners of any class or series required to take any
action, the General Partner and the Liquidator may exercise the power
of attorney made in this Section 2.6(a)(ii) only after the necessary
vote, consent or approval of the Limited Partners or of the Limited
Partners of such class or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as
authorizing the General Partner to amend this Agreement except in accordance
with Article XIII or as may be otherwise expressly provided for in this
Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Interest and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner and Assignee hereby agrees to be
bound by any representation made by the General Partner or the Liquidator acting
in good faith pursuant to such power of attorney; and each such Limited Partner
and Assignee, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner and Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator deems necessary to effectuate this
Agreement and the purposes of the Partnership.
2.7 Term
The term of the Partnership shall continue until the close of
Partnership business on December 31, 2086 or until the earlier dissolution of
the Partnership in accordance with the provisions of Article XII. The existence
of the Partnership as a separate legal entity shall continue until the
cancellation of the Certificate of Limited Partnership as provided in the
Delaware Act.
2.8 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partner or Assignee, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner, one or more of the General Partner's
Affiliates or one or more nominees, as the General Partner may determine. The
General Partner hereby declares and warrants that any Partnership assets for
which record title is held in the name of the General Partner or one or more of
its Affiliates or one or more nominees shall be held by the General Partner or
such Affiliate or nominee for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use reasonable efforts to cause record title to such
assets (other than those assets in respect of which the General Partner
determines that the expense and difficulty of conveyancing makes transfer of
record title to the Partnership impracticable) to be vested in the Partnership
as soon as reasonably practicable; provided, further, that, prior to the
withdrawal or removal of the General Partner or as soon thereafter as
practicable, the General Partner shall use reasonable efforts to effect the
transfer of record title to the Partnership and, prior to any such transfer,
will provide for the use of such assets in a manner
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satisfactory to the General Partner. All Partnership assets shall be recorded as
the property of the Partnership in its books and records, irrespective of the
name in which record title to such Partnership assets is held.
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability
The Limited Partners and the Assignees shall have no liability under
this Agreement except as expressly provided in this Agreement or the Delaware
Act.
3.2 Management of Business
No Limited Partner or Assignee, in its capacity as such, shall
participate in the operation, management or control (within the meaning of the
Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. Any action taken by any Affiliate of the General Partner or any
officer, director, employee, member, general partner, agent or trustee of the
General Partner or any of its Affiliates, or any officer, director, employee,
member, general partner, agent or trustee of a Group Member, in its capacity as
such, shall not be deemed to be participation in the control of the business of
the Partnership by a limited partner of the Partnership (within the meaning of
Section 17-303(a) of the Delaware Act) and shall not affect, impair or eliminate
the limitations on the liability of the Limited Partners or Assignees under this
Agreement.
3.3 Outside Activities of Limited Partners
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Limited Partners or Assignees, any Limited Partner or
Assignee shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the Partnership
Group. Neither the Partnership nor any of the other Partners or Assignees shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee.
3.4 Rights of Limited Partners
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.4(b), each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon reasonable written demand
and at such Limited Partner's own expense:
(i) to obtain true and full information regarding the status
of the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of
the Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to him a current list of the name and
last known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant
to which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
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(v) to obtain true and full information regarding the amount
of cash and a description and statement of the Net Agreed Value of any
other Capital Contribution by each Partner and which each Partner has
agreed to contribute in the future, and the date on which each became a
Partner; and
(vi) to obtain such other information regarding the affairs of
the Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited Partners
and Assignees, for such period of time as the General Partner deems reasonable,
(i) any information that the General Partner reasonably believes to be in the
nature of trade secrets or (ii) other information the disclosure of which the
General Partner in good faith believes (A) is not in the best interests of
Genesis MLP or the Partnership Group, (B) could damage Genesis MLP or the
Partnership Group or (C) that any Group Member is required by law or by
agreement with any third party to keep confidential (other than agreements with
Affiliates of the Partnership the primary purpose of which is to circumvent the
obligations set forth in this Section 3.4).
ARTICLE IV
TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
4.1 Transfer Generally
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner (or an Assignee) or by which the holder of a Limited
Partner Interest assigns such Limited Partner Interest to another Person who
becomes a Limited Partner (or an Assignee), and includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any member of the General Partner of any or all of the issued and
outstanding membership interests of the General Partner.
4.2 Transfer of General Partner's Partnership Interest
If the General Partner transfers its interest as the general partner of
Genesis MLP to any Person in accordance with the provisions of the Genesis MLP
Partnership Agreement, the General Partner shall contemporaneously therewith
transfer all, but not less than all, of its General Partner Interest herein to
such Person, and the Limited Partners and Assignees, if any, hereby expressly
consent to such transfer. Except as set forth in the immediately preceding
sentence and in Section 5.2, the General Partner may not transfer all or any
part of its General Partner Interest.
4.3 Transfer of a Limited Partner Interest
A Limited Partner may transfer all, but not less than all, of its
Limited Partner Interest in connection with the merger, consolidation or other
combination of such Limited Partner with or into any other Person or the
transfer by such Limited Partner of all or substantially all of its assets to
another Person, and following any such transfer such Person may become a
Substituted Limited Partner pursuant to Article X. Except as set forth in the
immediately preceding sentence, or in connection with any pledge of (or any
related foreclosure on) a Limited Partner Interest solely for the purpose of
securing, directly or indirectly, indebtedness of the Partnership or Genesis
MLP, and except for the transfers contemplated by Section 10.3, a Limited
Partner may not transfer all or any part of its Limited Partner Interest or
withdraw from the Partnership.
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4.4 Restrictions on Transfers
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authorities with jurisdiction over such transfer, (ii) terminate
the existence or qualification of the Partnership or Genesis MLP under the laws
of the jurisdiction of its formation, or (iii) cause the Partnership or Genesis
MLP to be treated as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes (to the extent not already so
treated or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
Genesis MLP becoming taxable as a corporation or otherwise to be taxed as an
entity for federal income tax purposes.
The restrictions may be imposed by making such amendments to this Agreement as
the General Partner may determine to be necessary or appropriate to impose such
restrictions.
4.5 Elimination and Cancellation of Subordinated LP Units and APIs
At the closing of the Restructuring, notwithstanding any other
provision of this Agreement, the Outstanding Subordinated LP Units and
Outstanding APIs will be eliminated and cancelled.
4.6 Conversion of General Partner Interests
At the closing of the Restructuring, Genesis MLP's Subordinated GP
Units will be converted into a 99.99% Limited Partner Interest and the General
Partner's Subordinated GP Units will be converted into a .01% General Partner
Interest.
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions
The Partners (or their predecessors) have heretofore made Capital
Contributions to the Partnership as provided in the previous versions of the
partnership agreement superseded by this Agreement.
5.2 Additional Contributions by General Partner
Upon the issuance of any additional Limited Partner Interests, the
General Partner shall be required to make an additional Capital Contribution
equal to (i) .01 divided by 99.99 times (ii) the amount contributed to the
Partnership by the Limited Partners in exchange for such additional Limited
Partner Interests. Except as set forth in the immediately preceding sentence and
Article XII, the General Partner shall not be obligated to make any Capital
Contributions to the Partnership.
5.3 Interest and Withdrawal
No interest shall be paid by the Partnership on Capital Contributions.
No Partner or Assignee shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent, if any, that distributions made
pursuant to this Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided for in this
Agreement. Except to the extent expressly provided in this Agreement, no Partner
or Assignee shall have priority over any other Partner or Assignee either as to
the return of Capital Contributions or as to profits, losses or distributions.
Any such return shall be a compromise to which all Partners and Assignees agree
within the meaning of Section 17-502(b) of the Delaware Act.
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5.4 Capital Accounts
(a) The Partnership shall maintain for each Partner (or a beneficial
owner of Partnership Interests held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in accordance
with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement (including the Previous Agreement) and (ii) all items of Partnership
income and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 5.4(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1, and decreased by (x) the amount of
cash or Net Agreed Value of all actual and deemed distributions of cash or
property made with respect to such Partnership Interest pursuant to this
Agreement (including the Previous Agreement) and (y) all items of Partnership
deduction and loss computed in accordance with Section 5.4(b) and allocated with
respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can
neither be deducted nor amortized under Section 709 of the Code, if
any, shall, for purposes of Capital Account maintenance, be treated as
an item of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to Section
6.1.
(ii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership and,
as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of
the Code, without regard to the fact that such items are not includable
in gross income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b)
or 743(b) of the Code is required, pursuant to Treasury Regulation
Section 1.704- 1(b)(2)(iv)(m) to be taken into account in determining
Capital Accounts, the amount of such adjustment in the Capital Accounts
shall be treated as an item of gain or loss.
(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 on the date it was
acquired by the Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 5.4(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income
tax purposes; provided, however, that, if the asset has a zero adjusted
basis for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
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(v) If the Partnership's adjusted basis in a depreciable or
cost recovery property is reduced for federal income tax purposes
pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of
such reduction shall, solely for purposes hereof, be deemed to be an
additional depreciation or cost recovery deduction in the year such
property is placed in service and shall be allocated among the Partners
pursuant to Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible, be
allocated in the same manner to the Partners to whom such deemed
deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership
Interests for cash or Contributed Property, the conversion of the
General Partner's Partnership Interest to MLP Common Units pursuant to
Section 11.3(b) of the Genesis MLP Partnership Agreement, or the
conversion of the General Partner's right to Incentive Compensation
Payments pursuant to Section 7.13, the Capital Account of all Partners
and the Carrying Value of each Partnership property immediately prior
to such issuance or conversion shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property immediately
prior to such issuance and had been allocated to the Partners at such
time pursuant to Section 6.1(c) in the same manner as any item of gain
or loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized Loss, the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately
prior to the issuance of additional Partnership Interests shall be
determined by the General Partner using such reasonable method of
valuation as it may adopt; provided, however, that the General Partner,
in arriving at such valuation, must take fully into account the fair
market value of the Partnership Interests of all Partners at such time.
The General Partner shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its
discretion to be reasonable) to arrive at a fair market value for
individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior
to such distribution for an amount equal to its fair market value, and
had been allocated to the Partners, at such time, pursuant to Section
6.1(c) in the same manner as any item of gain or loss actually
recognized during such period would have been allocated. In determining
such Unrealized Gain or Unrealized Loss the aggregate cash amount and
fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to a
distribution shall (A) in the case of an actual distribution which is
not made pursuant to Section 12.4 or in the case of a deemed
contribution and/or distribution occurring as a result of a termination
of the Partnership pursuant to Section 708 of the Code, be determined
and allocated in the same manner as that provided in Section 5.4(d)(i)
or (B) in the case of a liquidating distribution pursuant to Section
12.4, be determined and allocated by the Liquidator using such
reasonable method of valuation as it may adopt.
5.5 Issuances of Additional Partnership Securities
(a) The Partnership may issue additional Partnership Securities and
options, rights, warrants and appreciation rights relating to Partnership
Securities for any Partnership purpose at any time and from time to time to such
Persons for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole discretion, all without the
approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.5(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations,
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preferences, rights, powers and duties (which may be senior to existing classes
and series of Partnership Securities), as shall be fixed by the General Partner
in the exercise of its sole discretion, including (i) the right to share
Partnership profits and losses or items thereof; (ii) the right to share in
Partnership distributions; (iii) the rights upon dissolution and liquidation of
the Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem such Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which such Partnership Security will be issued, evidenced by
Certificates and assigned or transferred; and (vii) the right, if any, of such
Partnership Security to vote on Partnership matters, including matters relating
to the relative rights, preferences and privileges of such Partnership Security.
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities pursuant to this Section 5.5, (ii) the
admission of Additional Limited Partners and (iii) all additional issuances of
Partnership Securities. The General Partner is further authorized and directed
to specify the relative rights, powers and duties of the holders of Partnership
Securities being so issued. The General Partner shall do all things necessary to
comply with the Delaware Act and is authorized and directed to do all things it
deems to be necessary or advisable in connection with any future issuance of
Partnership Securities pursuant to the terms of this Agreement, including
compliance with any statute, rule, regulation or guideline of any federal, state
or other governmental agency.
5.6 Limited Preemptive Right
Except as provided in this Section 5.6 and in Section 5.5, no Person
shall have any preemptive, preferential or other similar right with respect to
(a) additional Capital Contributions; (b) the issuance of any class or series of
Partnership Interests, whether unissued, held in the treasury or hereafter
created; (c) issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase or subscribe to, any such
Partnership Interests; (d) issuance of any right of subscription to or right to
receive, or any warrant or option for the purchase of, any such Partnership
Interests; or (e) issuance or sale of any other securities that may be issued or
sold by the Partnership.
5.7 Fully Paid and Non-Assessable Nature of Limited Partner Interests
All Limited Partner Interests issued to Limited Partners pursuant to,
and in accordance with the requirements of, this Article V shall be fully paid
and non-assessable Limited Partner Interests in the Partnership, except as such
non- assessability may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.4(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner until the aggregate Net
Income allocated to the General Partner pursuant to this Section
6.1(a)(i) for the current taxable year and all previous taxable years
is equal to the aggregate Net Loss allocated to the General Partner
pursuant to Section 6.1(b)(ii) for all previous taxable years;
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(ii) Second, 100% to the Partners in accordance with their
respective Percentage Interests, until the aggregate Net Income
allocated to the Partners pursuant to this Section 6.1(a)(ii) for the
current taxable year and all previous taxable years is equal to the
aggregate Net Loss allocated to the Partners pursuant to Section
6.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the Partners in
accordance with their respective Percentage Interests.
(b) Net Loss. After giving effect to the special allocations set forth
in Section 6.1(d), Net Loss for each taxable period and all items of income,
gain, loss and deduction taken into account in computing Net Loss for such
taxable period shall be allocated among the Partners as follows:
(i) First, 100% to the Partners in accordance with their
respective Percentage Interests, until the aggregate Net Loss allocated
pursuant to this Section 6.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income allocated
to the Partners pursuant to Section 6.1(a)(iii) for all previous
taxable years; provided, however, that Net Loss shall not be allocated
to a Limited Partner pursuant to this Section 6.1(b)(i) to the extent
that such allocation would cause a Limited Partner to have a deficit
balance in its Adjusted Capital Account at the end of such taxable year
(or increase any existing deficit balance in such Limited Partner's
Adjusted Capital Account);
(ii) Second, the balance, if any, 100% to the General Partner.
(c) Net Termination Gain and Loss. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder. All
allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under Sections 6.4
and 6.5 have been made with respect to the taxable period ending on or before
the Liquidation Date; provided, however, that solely for purposes of this
Section 6.1(c), Capital Accounts shall not be adjusted for distributions made
pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 5.4(d)), such Net Termination Gain shall
be allocated among the Partners in the following manner (and the
Capital Accounts of the Partners shall be increased by the amount so
allocated in each of the following subclauses, in the order listed,
before an allocation is made pursuant to the next succeeding
subclause):
(A) First, to each Partner having a deficit balance
in its Capital Account, in the proportion that such deficit
bears to the total deficit balances in the Capital Accounts of
all Partners, until each Partner has been allocated Net
Termination Gain equal to any such deficit balance in its
Capital Account; and
(B) Second, the balance, if any, 100% to the Partners
in accordance with their respective Percentage Interests.
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.4(d)), such Net Termination Loss shall
be allocated to the Partners in the following manner:
(A) First, to the Partners in proportion to, and to
the extent of, the positive balances in their respective
Capital Accounts; and
(B) Second, the balance, if any, 100% to the General
Partner.
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(d) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 6.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For
purposes of this Section 6.1(d), each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the application of
any other allocations pursuant to this Section 6.1(d) with respect to
such taxable period (other than an allocation pursuant to Sections
6.1(d)(v) and 6.1(d)(vi)). This Section 6.1(d)(i) is intended to comply
with the Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704- 2(i)(4) and
1.704- 2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(d), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 6.1(d), other than Section 6.1(d)(i) and other
than an allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi), with
respect to such taxable period. This Section 6.1(d)(ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),
1.704- 1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations promulgated under Section 704(b)
of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise eliminated
pursuant to Section 6.1(d)(i) or 6.1(d)(ii).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and
(B) the amount such Partner is deemed obligated to restore pursuant to
Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership gross income and gain
in the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 6.1(d)(iv) shall be made only if
and to the extent that such Partner would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this Section
6.1(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner
determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury Regulations
promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the other Partners, to revise the prescribed
ratio to the numerically closest ratio that does satisfy such
requirements.
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(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation Section
1.704-2(i). If more than one Partner bears the Economic Risk of Loss
with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among
such Partners in accordance with the ratios in which they share such
Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the sum of (A) the amount
of Partnership Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Section 734(b) or 743(c) of the Code is required, pursuant to
Treasury Regulation Section 1.704- 1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to
such Section of the Treasury Regulations.
(ix) Curative Allocation. (A) Notwithstanding any other
provision of this Section 6.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the Agreed
Allocations so that, to the extent possible, the net amount of items of
income, gain, loss and deduction allocated to each Partner pursuant to
the Required Allocations and the Agreed Allocations, together, shall be
equal to the net amount of such items that would have been allocated to
each such Partner under the Agreed Allocations had the Required
Allocations and the related Curative Allocation not otherwise been
provided in this Section 6.1. Notwithstanding the preceding sentence,
Required Allocations relating to (1) Nonrecourse Deductions shall not
be taken into account except to the extent that there has been a
decrease in Partnership Minimum Gain and (2) Partner Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partner Nonrecourse Debt Minimum Gain.
Allocations pursuant to this Section 6.1(d)(ix)(A) shall only be made
with respect to Required Allocations to the extent the General Partner
reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners. Further,
allocations pursuant to this Section 6.1(d)(ix)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and (2) hereof to
the extent the General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(ix)(A) in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required Allocations,
and (2) divide all allocations pursuant to Section 6.1(d)(ix)(A) among
the Partners in a manner that is likely to minimize such economic
distortions.
6.2 Allocations for Tax Purposes
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the
manner provided under Section 704(c) of the Code that takes into
account the variation
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between the Agreed Value of such property and its adjusted basis at the
time of contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among
the Partners in the same manner as its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner consistent with
the principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 5.4(d)(i) or 5.4(d)(ii),
and (2) second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual
Loss attributable to an Adjusted Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 6.1.
(iii) The General Partner shall apply the principles of
Treasury Regulation Section 1.704-3(d) to eliminate Book-Tax
Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of Partnership Interests (or any class or classes
thereof), the General Partner shall have sole discretion to (i) adopt such
conventions as it deems appropriate in determining the amount of depreciation,
amortization and cost recovery deductions; (ii) make special allocations for
federal income tax purposes of income (including, without limitation, gross
income) or deductions; and (iii) amend the provisions of this Agreement as
appropriate (x) to reflect the proposal or promulgation of Treasury regulations
under Section 704(b) or 704(c) of the Code or (y) otherwise to preserve or
achieve uniformity of Units or other limited partner interests of Genesis MLP
(or any class or classes thereof). The General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement as
provided in this Section 6.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the holders
of any class or classes of Units or other limited partner interests of Genesis
MLP issued and outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to depreciate
or amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-l(a)(6) or Treasury
Regulation Section 1.197-2(g)(3). If the General Partner determines that such
reporting position cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all purchasers acquiring
limited partnership interests of Genesis MLP in the same month would receive
depreciation and amortization deductions, based upon the same applicable rate as
if they had purchased a direct interest in the Partnership's property. If the
General Partner chooses not to utilize such aggregate method, the General
Partner may use any other reasonable depreciation and amortization conventions
to preserve the uniformity of the intrinsic tax characteristics of any limited
partnership interests of Genesis MLP that would not have a material adverse
effect on the Partners or the holders of any class or classes of limited
partnership interests of Genesis MLP.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard
to any election under Section 754 of the Code which may be made by the
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
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(g) The General Partner may adopt such methods of allocation of income,
gain, loss or deduction between a transferor and a transferee of a Partnership
Interest as it determines necessary, to the extent permitted or required by
Section 706 of the Code and the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders
(a) Within 45 days following the end of each Quarter, an amount equal
to 100% of Available Cash with respect to such Quarter shall, subject to Section
17-607 of the Delaware Act, be distributed in accordance with this Article VI by
the Partnership to the Partners in accordance with their respective Percentage
Interests. All amounts of Available Cash distributed by the Partnership on any
date from any source shall be deemed to be Operating Surplus until the sum of
all amounts of Available Cash theretofore distributed by the Partnership to the
Partners pursuant to Section 6.4 equals the Operating Surplus from the Initial
Closing Date through the close of the immediately preceding Quarter. Any
remaining amounts of Available Cash distributed by the Partnership on such date
shall, except as otherwise provided in Section 6.5, be deemed to be "Capital
Surplus." All distributions required to be made under this Agreement shall be
made subject to Section 17-607 of the Delaware Act.
(b) In the event of the dissolution and liquidation of the Partnership,
all receipts received during or after the Quarter in which the Liquidation Date
occurs, other than from borrowings described in (a)(ii) of the definition of
Available Cash, shall be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid
by the Partnership on behalf of, or amounts withheld with respect to, all or
less than all of the Partners, as a distribution of Available Cash to such
Partners.
6.4 Distributions of Available Cash from Operating Surplus
Available Cash that is deemed to be Operating Surplus pursuant to the
provisions of Section 6.3 or 6.5 shall, subject to Section 17-607 of the
Delaware Act and except as otherwise required by Section 5.5(b) (in respect of
additional Partnership Securities issued pursuant thereto) or permitted by
Section 6.8, be distributed:
(a) First, 100% to all Partners, in accordance with their relative
Percentage Interests, until there has been distributed to the Partners an amount
equal to the Minimum Quarterly Distribution for such Quarter; and
(b) Thereafter, 100% to all Partners, in accordance with their
respective Percentage Interests.
6.5 Distributions of Available Cash from Capital Surplus
Available Cash with respect to any Quarter that is deemed to be Capital
Surplus pursuant to the provisions of Section 6.3 shall, subject to Section
17-607 of the Delaware Act, be distributed as follows, unless the provisions of
Section 6.3 require otherwise:
(a) First, 100% to all Partners, in accordance with their respective
Percentage Interests, until there has been distributed to the Partners an amount
such that, after giving effect to the distribution of such amount by Genesis
MLP, a hypothetical holder of a MLP Common Unit acquired on the Initial Closing
Date has received with respect to such MLP Common Unit, during the period since
the Initial Closing Date through such date, distributions of Available Cash that
are deemed to be Capital Surplus in an aggregate amount equal to the Initial
Unit Price; and
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(b) Thereafter, all Available Cash that is deemed to be Capital Surplus
pursuant to the provisions of Section 6.3 shall be distributed as if it were
Operating Surplus and shall be distributed in accordance with Section 6.4.
6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels
(a) The Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution shall be
proportionately adjusted in the event of any distribution, combination or
subdivision (whether effected by a distribution payable in MLP Units or
otherwise) of MLP Units or other Partnership Securities of Genesis MLP in
accordance with Section 5.8 of the Genesis MLP Partnership Agreement. In the
event of a distribution of Available Cash that is deemed to be from Capital
Surplus, the then applicable Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution shall be
adjusted proportionately downward to equal the product obtained by multiplying
the otherwise applicable Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution, as the
case may be, by a fraction of which the numerator is the Unrecovered Capital of
the MLP Common Units immediately after giving effect to such distribution and of
which the denominator is the Unrecovered Capital of the MLP Common Units
immediately prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution shall also be subject
to adjustment pursuant to Section 6.7.
6.7 Entity-Level Taxation
If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership or
Genesis MLP to be treated as an association taxable as a corporation or
otherwise subjects the Partnership or Genesis MLP to entity-level taxation for
federal income tax purposes, the then applicable Minimum Quarterly Distribution,
First Target Distribution, Second Target Distribution and Third Target
Distribution shall be adjusted to equal the product obtained by multiplying (a)
the amount thereof by (b) one minus the sum of (i) the highest marginal federal
corporate (or other entity, as applicable) income tax rate of the Partnership or
Genesis MLP for the taxable year of the Partnership or Genesis MLP in which such
Quarter occurs (expressed as a percentage) plus (ii) the effective overall state
and local income tax rate (expressed as a percentage) applicable to the
Partnership or Genesis MLP for the calendar year next preceding the calendar
year in which such Quarter occurs (after taking into account the benefit of any
deduction allowable for federal income tax purposes with respect to the payment
of state and local income taxes), but only to the extent of the increase in such
rates resulting from such legislation or interpretation. Such effective overall
state and local income tax rate shall be determined for the taxable year next
preceding the first taxable year during which the Partnership or Genesis MLP is
taxable for federal income tax purposes as an association taxable as a
corporation or is otherwise subject to entity-level taxation by determining such
rate as if the Partnership had been subject to such state and local taxes during
such preceding taxable year.
6.8 Characterization of Distributions as Advances or Drawings
Any distribution made to a Partner pursuant to Section 6.4, Section 6.5
or Section 12.4 of this Agreement shall be treated as an advance or drawing
against such Partner's share of Partnership income under Treasury Regulation
Section 1.731-1(a)(1)(ii). Any other distribution made to a Partner pursuant to
the terms of this Agreement shall not be treated as an advance or drawing
against such Partner's share of Partnership income under Treasury Regulation
Section 1.731-1(a)(1)(ii).
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management
(a) The General Partner shall conduct, direct and manage all activities
of the Partnership. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership shall be
exclusively vested in the General Partner, and no Limited Partner or Assignee
shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing
of money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into a
Partnership Interest, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the assets of
the Partnership or the merger or other combination of the Partnership
with or into another Person (the matters described in this clause (iii)
being subject, however, to any prior approval that may be required by
Section 7.3);
(iv) the use of the assets of the Partnership (including cash
on hand) for any purpose consistent with the terms of this Agreement,
including the financing of the conduct of the operations of the
Partnership Group, subject to Section 7.6, the lending of funds to
other Persons (including Genesis MLP and any Group Member), the
repayment of obligations of Genesis MLP or any Group Member and the
making of capital contributions to any member of the Partnership Group;
(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including instruments that
limit the liability of the Partnership under contractual arrangements
to all or particular assets of the Partnership, with the other party to
the contract to have no recourse against the General Partner or its
assets other than its interest in the Partnership, even if same results
in the terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including
employees having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside attorneys,
accountants, consultants and contractors and the determination of their
compensation and other terms of employment or hiring;
(viii) the maintenance of such insurance for the benefit of
the Partnership Group and the Partners as it deems necessary or
appropriate;
(ix) the formation of, or acquisition of an interest in, and
the contribution of property and the making of loans to, any further
limited or general partnerships, joint ventures, corporations or other
relationships subject, however, to the restrictions set forth in
Section 2.4;
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(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and defending of
actions at law or in equity and otherwise engaging in the conduct of
litigation and the incurring of legal expense and the settlement of
claims and litigation;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law; and
(xii) the purchase, sale or other acquisition or disposition
of Partnership Securities, or, unless restricted or prohibited by
Section 5.5, the issuance of additional Partnership Securities and
options, rights, warrants and appreciation rights relating to
Partnership Securities.
(b) Notwithstanding any other provision of this Agreement, the Genesis
MLP Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and Assignees and each other Person who may
acquire an interest in the Partnership hereby (i) approves, ratifies and
confirms the execution, delivery and performance by the parties thereto of this
Agreement, the Genesis MLP Partnership Agreement, and the other agreements
described in or filed as part of the Proxy Statement; (ii) agrees that the
General Partner (on its own or through any officer of the Partnership) is
authorized to execute, deliver and perform the agreements referred to in clause
(i) of this sentence and the other agreements, acts, transactions and matters
described in or contemplated by the Proxy Statement on behalf of the Partnership
without any further act, approval or vote of the Partners or the Assignees or
the other Persons who may acquire an interest in the Partnership; and (iii)
agrees that the execution, delivery or performance by the General Partner,
Genesis MLP, any Group Member or any Affiliate of any of them, of this Agreement
or any agreement authorized or permitted under this Agreement, shall not
constitute a breach by the General Partner of any duty that the General Partner
may owe the Partnership or the Limited Partners or any other Persons under this
Agreement (or any other agreements) or of any duty stated or implied by law or
equity.
7.2 Certificate of Limited Partnership
The General Partner has caused the Amended and Restated Certificate of
Limited Partnership to be filed with the Secretary of State of the State of
Delaware as required by the Delaware Act and shall use all reasonable efforts to
cause to be filed such other certificates or documents as may be determined by
the General Partner in its sole discretion to be reasonable and necessary or
appropriate for the formation, continuation, qualification and operation of a
limited partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the General Partner in its sole discretion to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a partnership or other
entity in which the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the Partnership may elect
to do business or own property. Subject to the terms of Section 3.4(a), the
General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner or Assignee.
7.3 Restrictions on the General Partner's Authority
(a) The General Partner may not, without written approval of the
specific act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner; or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner may
not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
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(including by way of merger, consolidation or other combination) or approve on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Partnership, without the approval of
holders of a Majority Interest; provided, however, that this provision shall not
preclude or limit the General Partner's ability to mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the assets of the
Partnership and shall not apply to any forced sale of any or all of the assets
of the Partnership pursuant to the foreclosure of, or other realization upon,
any such encumbrance.
7.4 Reimbursement of the General Partner
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or the Genesis MLP Partnership Agreement, the General Partner shall
not be compensated for its services as General Partner, general partner of
Genesis MLP or as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person, including Affiliates of the
General Partner, to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Expenses incurred by the General Partner in connection with any
employee benefit plans, employee programs and employee practices (including the
net cost to the General Partner or such Affiliate of MLP Units or other MLP
Partnership Securities purchased by the General Partner or such Affiliate from
the Partnership to fulfill options or awards under such plans, programs and
practices) shall be reimbursed in accordance with Section 7.4(b). Any and all
obligations of the General Partner under any employee benefit plans, employee
programs or employee practices adopted by the General Partner as permitted by
this Section 7.4(c) shall constitute obligations of the General Partner
hereunder and shall be assumed by any successor General Partner approved
pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the
General Partner's General Partner Interest pursuant to Section 4.2.
7.5 Outside Activities
(a) After the Restructuring Closing Date, the General Partner, for so
long as it is the General Partner of the Partnership, (i) agrees that its sole
business will be to act as a general partner or managing member, as the case may
be, of the Partnership, Genesis MLP and any other partnership or limited
liability company of which the Partnership or Genesis MLP is, directly or
indirectly, a partner or member, and to undertake activities that are ancillary
or related thereto (including being a limited partner or member in the Genesis
MLP or any other such partnership or limited liability company) and (ii) shall
not, directly or indirectly, engage in any business or activity or incur any
debts or liabilities except in connection with or incidental to (A) its
performance as general partner or managing member, as the case may be, of the
Partnership, Genesis MLP or one or more Group Members or as described in or
contemplated by the Registration Statement or the Proxy Statement or (B) the
acquiring, owning or disposing of debt or equity securities in any Group Member.
(b) Salomon, Basis Petroleum, Inc. and Howell continue to be parties to
the Non-Competition Agreement, which agreement sets forth certain restrictions
on their ability to engage in the business of (i) crude oil gathering at the
wellhead in the states of Alabama, Florida, Kansas, Louisiana, Mississippi, New
Mexico, Oklahoma or Texas, or any states contiguous to such states, and (ii)
transporting for third parties crude oil by pipeline along the routes of the
Partnership's crude oil pipelines owned as of the Initial Closing Date. The
Non-Competition Agreement remains in effect in accordance with its terms.
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(c) Except as specifically restricted by Section 7.5(a) and the
Non-Competition Agreement, each Indemnitee (other than the General Partner)
shall have the right to engage in businesses of every type and description and
other activities for profit and to engage in and possess an interest in other
business ventures of any and every type or description, whether in businesses
engaged in or anticipated to be engaged in by Genesis MLP or any Group Member,
independently or with others, including business interests and activities in
direct competition with the business and activities of Genesis MLP or any Group
Member, and none of the same shall constitute a breach of this Agreement or any
duty express or implied by law to Genesis MLP or any Group Member or any Partner
or Assignee. Neither Genesis MLP nor any Group Member, any Limited Partner nor
any other Person shall have any rights by virtue of this Agreement, the Genesis
MLP Partnership Agreement or the partnership relationship established hereby in
any business ventures of any Indemnitee.
(d) Subject to the terms of Sections 7.5(a), 7.5(b) and 7.5(c) and the
Non-Competition Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners and
(ii) it shall be deemed not to be a breach of the General Partner's fiduciary
duty or any other obligation of any type whatsoever of the General Partner for
the Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the
Partnership, and the General Partner and the Indemnitees shall have no
obligation to present business opportunities to the Partnership.
(e) The General Partner and any of its Affiliates may acquire
Partnership Securities in addition to those heretofore acquired and, except as
otherwise provided in this Agreement, shall be entitled to exercise all rights
relating to such Partnership Securities.
(f) The term "Affiliates" when used in this Section 7.5 with respect to
the General Partner shall not include any Group Member or any Subsidiary of
Genesis MLP or any Group Member.
7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partner
(a) The General Partner or any of its Affiliates may lend to Genesis
MLP or any Group Member, and Genesis MLP or any Group Member may borrow from the
General Partner or any of its Affiliates, funds needed or desired by Genesis MLP
or the Group Member for such periods of time and in such amounts as the General
Partner may determine; provided, however, that in any such case the lending
party may not charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms less favorable to
the borrowing party than would be charged or imposed on the borrowing party by
unrelated lenders on comparable loans made on an arm's-length basis (without
reference to the lending party's financial abilities or guarantees). The
borrowing party shall reimburse the lending party for any costs (other than any
additional interest costs) incurred by the lending party in connection with the
borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b),
the term "Group Member" shall include any Affiliate of a Group Member that is
controlled by the Group Member. No Group Member may lend funds to the General
Partner or any of its Affiliates (other than Genesis MLP or another Group
Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less
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favorable to the Partnership Group than those generally being provided to or
available from unrelated third parties or (iii) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership Group), is equitable to the Partnership Group. The provisions
of Section 7.4 shall apply to the rendering of services described in this
Section 7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.1, 5.2 and 5.3 of the Previous
Agreement, the Conveyance Agreement and any other transactions described in or
contemplated by the Registration Statement or the Proxy Statement, (ii) any
transaction approved by Special Approval, (iii) any transaction, the terms of
which are no less favorable to the Partnership than those generally being
provided to or available from unrelated third parties, or (iv) any transaction
that, taking into account the totality of the relationships between the parties
involved (including other transactions that may be particularly favorable or
advantageous to the Partnership), is equitable to the Partnership. With respect
to any contribution of assets to the Partnership in exchange for Partnership
Securities, the Audit Committee, in determining whether the appropriate number
of Partnership Securities are being issued, may take into account, among other
things, the fair market value of the assets, the liquidated and contingent
liabilities assumed, the tax basis in the assets, the extent to which tax-only
allocations to the transferor will protect the existing partners of the
Partnership against a low tax basis, and such other factors as the Audit
Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement or the Proxy
Statement are hereby approved by all Partners.
7.7 Indemnification
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or 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 create a presumption that the
Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, it being agreed that the General Partner shall not be
personally liable for such indemnification and shall have no obligation to
contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit
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or proceeding shall, from time to time, be advanced by the Partnership prior to
the final disposition of such claim, demand, action, suit or proceeding upon
receipt by the Partnership of any undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement dated November 26, 1996 among the Partnership, Genesis
MLP, and the underwriters and other parties named therein), and shall continue
as to an Indemnitee who has ceased to serve in such capacity and shall inure to
the benefit of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
7.8 Liability of Indemnitees
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partners, the Assignees or any other Persons who have
acquired interests in Partnership Securities or MLP Units, for losses sustained
or liabilities incurred as a result of any act or omission if such Indemnitee
acted in good faith.
(b) Subject to its obligations and duties as the General Partner set
forth in Section 7.1(a), the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents, and the General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by the General Partner in good faith.
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(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Limited Partners, the General Partner and any other Indemnitee acting
in connection with the Partnership's business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the Indemnitees under this Section 7.8 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
7.9 Resolution of Conflicts of Interest
(a) Unless otherwise expressly provided in this Agreement or the
Genesis MLP Partnership Agreement, whenever a potential conflict of interest
exists or arises between the General Partner or any of its Affiliates, on the
one hand, and the Partnership, Genesis MLP, any Partner, or any Assignee on the
other, any resolution or course of action by the General Partner or its
Affiliates in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and shall not constitute a breach of this Agreement,
of the Genesis MLP Partnership Agreement, of any agreement contemplated herein
or therein, or of any duty stated or implied by law or equity, if the resolution
or course of action is, or by operation of this Agreement is deemed to be, fair
and reasonable to the Partnership. The General Partner shall be authorized but
not required in connection with its resolution of such conflict of interest to
seek Special Approval of such resolution. Any conflict of interest and any
resolution of such conflict of interest shall be conclusively deemed fair and
reasonable to the Partnership if such conflict of interest or resolution is (i)
approved by Special Approval (as long as the material facts known to the General
Partner or any of its Affiliates regarding any proposed transaction were
disclosed to the Audit Committee at the time it gave its approval), (ii) on
terms no less favorable to the Partnership than those generally being provided
to or available from unrelated third parties or (iii) fair to the Partnership,
taking into account the totality of the relationships between the parties
involved (including other transactions that may be particularly favorable or
advantageous to the Partnership). The General Partner may also adopt a
resolution or course of action that has not received Special Approval. The
General Partner (including the Audit Committee in connection with Special
Approval) shall be authorized in connection with its determination of what is
"fair and reasonable" to the Partnership and in connection with its resolution
of any conflict of interest to consider (A) the relative interests of any party
to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interest; (B) any customary or accepted industry
practices and any customary or historical dealings with a particular Person; (C)
any applicable generally accepted accounting practices or principles; and (D)
such additional factors as the General Partner (including the Audit Committee)
determines in its sole discretion to be relevant, reasonable or appropriate
under the circumstances. Nothing contained in this Agreement, however, is
intended to nor shall it be construed to require the General Partner (including
the Audit Committee) to consider the interests of any Person other than the
Partnership. In the absence of bad faith by the General Partner, the resolution,
action or terms so made, taken or provided by the General Partner with respect
to such matter shall not constitute a breach of this Agreement or any other
agreement contemplated herein or a breach of any standard of care or duty
imposed herein or therein or, to the extent permitted by law, under the Delaware
Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, Genesis MLP, the
Partnership, any Limited Partner or any Assignee, (ii) it may make such decision
in its sole discretion (regardless of whether there is a reference to "sole
discretion" or "discretion") unless another express standard is provided for, or
(iii) in "good faith" or under another express standard, the General Partner or
such Affiliate shall act under such express standard and shall not be subject to
any other or different standards imposed by this Agreement, any
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other agreement contemplated hereby or under the Delaware Act or any other law,
rule or regulation. In addition, any actions taken by the General Partner or
such Affiliate consistent with the standards of "reasonable discretion" set
forth in the definitions of Available Cash or Operating Surplus shall not
constitute a breach of any duty of the General Partner to the Partnership or the
Limited Partner. The General Partner shall have no duty, express or implied, to
sell or otherwise dispose of any asset of the Partnership Group other than in
the ordinary course of business. No borrowing by any Group Member or the
approval thereof by the General Partner shall be deemed to constitute a breach
of any duty of the General Partner to the Partnership, any Limited Partner or
any Assignee by reason of the fact that the purpose or effect of such borrowing
is directly or indirectly to enable the General Partner to receive Incentive
Compensation Payments.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Limited Partner hereby authorizes the General Partner, on
behalf of the Partnership as a partner of a Group Member, to approve of actions
by the general partner of such Group Member similar to those actions permitted
to be taken by the General Partner pursuant to this Section 7.9.
7.10 Other Matters Concerning the General Partner
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement contemplated
by this Agreement and to make any decision pursuant to the authority prescribed
in this Agreement, so long as such action is reasonably believed by the General
Partner to be in, or not inconsistent with, the best interests of the
Partnership.
7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
any such officer or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that
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(a) at the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
7.12 Incentive Compensation Payments to the General Partner
(a) Within 45 days following the end of each Quarter and ending with
the Quarter immediately preceding the Quarter in which a Conversion Election is
made, the Partnership shall make the following payments to the General Partner
as compensation for management and other services provided to the Partnership
(such payments will be characterized for federal income tax purposes as
guaranteed payments within the meaning of Section 707(c) of the Code):
(i) An amount equal to 13/85ths of the amount distributed to
the Partners with respect to such Quarter pursuant to Section 6.4 that
is in excess of the First Target Distribution up to and including the
Second Target Distribution;
(ii) An amount equal to 23/75ths of the amount distributed to
the Partners with respect to such Quarter pursuant to Section 6.4 that
is in excess of the Second Target Distribution up to and including the
Third Target Distribution; and
(iii) An amount equal to 48/50ths of the amount distributed to
the Partners with respect to such Quarter pursuant to Section 6.4 that
is in excess of the Third Target Distribution.
(b) The General Partner shall not be entitled to transfer the right to
receive Incentive Compensation Payments to any Person; provided, however, that
upon the admission of a successor General Partner pursuant to Section 10.3(a),
such successor General Partner shall, unless a Conversion Election has been
previously made, be entitled to receive Incentive Compensation Payments and
shall have the right to elect to convert its right to receive Incentive
Compensation Payments into a right to participate with all other Partners in
distributions made in excess of the First Target Distribution as provided in
Section 7.13.
7.13 Conversion of General Partner's Incentive Compensation Payment Rights
At any time following the second anniversary of the Initial Closing
Date, the General Partner may elect to convert (a "Conversion Election") its
right to receive Incentive Compensation Payments pursuant to Section 7.12 into a
right to participate with all other Partners in distributions made in excess of
the First Target Distribution in a ratio which would result in the General
Partner receiving additional cash distributions with respect to the Quarter in
which the Conversion Election is made and for any subsequent Quarter in an
amount equal to the amount of Incentive Compensation Payments which would have
otherwise been made to the General Partner pursuant to Section 7.12 for such
Quarters. If the General Partner makes a Conversion Election, this Agreement
shall be amended to reflect the following:
(a) the General Partner's right to Incentive Compensation
Payments has been extinguished;
(b) the General Partner's right to participate in
distributions in excess of the First Target Distribution in a ratio
which would result in the General Partner receiving additional cash
distributions with respect to the Quarter in which the Conversion
Election is made and for any subsequent Quarter pursuant to such
provisions in an amount equal to the amount of Incentive Compensation
Payments which would have otherwise been made to the General Partner
pursuant to Section 7.12 for such Quarters;
(c) the special allocation of additional Net Income to the
General Partner in a manner which matches the General Partner's
increased share of subsequent distributions, but only to the extent
that the Partnership has sufficient net income to achieve such matching
in that year or later years;
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(d) the General Partner's right to participate in an increased
share of any gains realized (or deemed realized) by the Partnership
following the Conversion Election in connection with (i) an issuance of
additional Partnership Interests, (ii) distributions of Partnership
property, or (iii) the liquidation of the Partnership; and
(e) any special allocations or other matters associated with
and reasonably necessary to the implementation of the foregoing to the
extent such special allocations or other matters do not adversely
impact the interests of the other Partners.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal
office of the Partnership, appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, computer disks,
hard drives, punch cards, magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records so maintained
are convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial reporting
purposes, on an accrual basis in accordance with U.S. GAAP.
8.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information
The Partnership shall timely file all returns of the Partnership that
are required for federal, state and local income tax purposes on the basis of
the accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
9.2 Tax Elections
(a) The Partnership has made the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners.
(b) The Partnership has elected to deduct expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
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9.3 Tax Controversies
Subject to the provisions hereof, the General Partner is designated as
the Tax Matters Partner (as defined in the Code) and is authorized and required
to represent the Partnership (at the Partnership's expense) in connection with
all examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
9.4 Withholding
Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines in its discretion to
be necessary or appropriate to cause the Partnership to comply with any
withholding requirements established under the Code or any other federal, state
or local law including, without limitation, pursuant to Sections 1441, 1442,
1445 and 1446 of the Code. To the extent that the Partnership is required or
elects to withhold and pay over to any taxing authority any amount resulting
from the allocation or distribution of income to any Partner or Assignee
(including, without limitation, by reason of Section 1446 of the Code), the
amount withheld may at the discretion of the General Partner be treated by the
Partnership as a distribution of cash pursuant to Section 6.3 in the amount of
such withholding from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
10.1 Status of General Partner
Upon the execution of this Agreement, the General Partner shall be the
sole general partner of the Partnership.
10.2 Admission of Successor General Partner
A successor General Partner approved pursuant to Section 11.1 or 11.2
or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.6 who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective immediately prior to the withdrawal or removal of the
predecessor or transferring General Partner pursuant to Section 11.1 or 11.2 or
the transfer of the General Partner Interest pursuant to Section 4.2; provided,
however, that no such successor shall be admitted to the Partnership until
compliance with the terms of Section 4.4(a) has occurred and such successor has
executed and delivered such other documents or instruments as may be required to
effect such admission. Any such successor shall, subject to the terms hereof,
carry on the business of the Group Members without dissolution.
10.3 Admission of Substituted Limited Partner
By transfer of a Limited Partner Interest in accordance with Article
IV, the transferor shall be deemed to have given the transferee the right to
seek admission as a Substituted Limited Partner subject to the conditions of,
and in the manner permitted under, this Agreement. A transferor of a Limited
Partner Interest shall, however, only have the authority to convey to a
purchaser or other transferee (a) the right to negotiate such Limited Partner
Interest to a purchaser or other transferee and (b) the right to request
admission as a Substituted Limited Partner to such purchaser or other transferee
in respect of the transferred Limited Partner Interests. Each transferee of a
Limited Partner Interest shall be an Assignee and be deemed to have applied to
become a Substituted Limited Partner with respect to the Limited Partner
Interest so transferred to such Person. Such Assignee shall become a Substituted
Limited Partner (x) at such time as the General Partner consents thereto, which
consent may be given or withheld in the General Partner's discretion and (y)
when any such admission is shown on the books and records of the Partnership. If
such consent is withheld, such transferee shall be an Assignee. An Assignee
shall have an interest in the Partnership equivalent to that of a Limited
Partner with respect to allocations and distributions, including liquidating
distributions, of the Partnership. With respect to voting rights attributable to
Limited Partner Interests that are held by Assignees, the General Partner shall
be deemed
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to be the Limited Partner with respect thereto and shall, in exercising the
voting rights in respect of such Limited Partner Interests on any matter, vote
such Limited Partner Interests at the written direction of the Assignee. If no
such written direction is received, such Partnership Interests will not be
voted. An Assignee shall have no other rights of a Limited Partner.
10.4 Admission of Additional Limited Partners
(a) A Person (other than the General Partner, Genesis MLP or a
Substituted Limited Partner) who makes a Capital Contribution to the Partnership
in accordance with this Agreement in exchange for Limited Partner Interests
shall be admitted to the Partnership as an Additional Limited Partner only upon
furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including the power of attorney granted in Section 2.6, and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner to effect such Person's admission as an Additional Limited
Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
10.5 Amendment of Agreement and Certificate of Limited Partnership
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) the General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners (and it
shall be deemed that the General Partner has withdrawn pursuant to this
Section 11.1(a)(i) if the General Partner voluntarily withdraws as the
general partner of Genesis MLP);
(ii) the General Partner transfers all of its General Partner
Interest pursuant to Section 4.2;
(iii) the General Partner is removed pursuant to Section 11.2;
(iv) the General Partner (A) makes a general assignment for
the benefit of creditors; (B) files a voluntary bankruptcy petition for
relief under Chapter 7 of the United States Bankruptcy Code; (C) files
a petition or answer seeking for itself a liquidation, dissolution or
similar relief (but not a reorganization) under any law; (D) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the General Partner in a
proceeding of the type described in clauses (A) - (C) of this Section
11.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment
of a trustee (but not a debtor in possession), receiver or liquidator
of the General Partner or of all or any substantial part of its
properties;
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(v) a final and non-appealable order of relief under Chapter 7
of the United States Bankruptcy Code is entered by a court with
appropriate jurisdiction pursuant to a voluntary or involuntary
petition by or against the General Partner; or
(vi) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General
Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation; (B) in the event
the General Partner is a partnership or a limited liability company,
the dissolution and commencement of winding up of the General Partner;
(C) in the event the General Partner is acting in such capacity by
virtue of being a trustee of a trust, the termination of the trust; (D)
in the event the General Partner is a natural person, his death or
adjudication of incompetency; and (E) otherwise in the event of the
termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B),
(C) or (E) occurs, the withdrawing General Partner shall give notice to the
Partners within 30 days after such occurrence. The Partners hereby agree that
only the Events of Withdrawal described in this Section 11.1 shall result in the
withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) if the General Partner has
voluntarily withdrawn as the general partner of Genesis MLP and such withdrawal
was not in breach of the Genesis MLP Partnership Agreement or (ii) at any time
that the General Partner ceases to be the General Partner pursuant to Section
11.1(a)(ii) or is removed pursuant to Section 11.2. The withdrawal of the
General Partner from the Partnership upon the occurrence of an Event of
Withdrawal shall also constitute the withdrawal of the General Partner as
general partner or managing member of the other Group Members. If the General
Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i), the Person
elected as successor general partner of Genesis MLP shall, upon admission as a
successor general partner of Genesis MLP, automatically become the successor
General Partner and a successor general partner or managing member of the other
Group Members of which the General Partner is a general partner. If, prior to
the effective date of the General Partner's withdrawal, a successor General
Partner is not selected as provided herein, the Partnership shall be dissolved
in accordance with Section 12.1. Any successor General Partner selected in
accordance with the terms of this Section 11.1 shall be subject to the
provisions of Section 10.3.
11.2 Removal of the General Partner
The General Partner may not be removed as the general partner of the
Partnership unless the General Partner is removed as the general partner of
Genesis MLP pursuant to Section 11.2 of the Genesis MLP Partnership Agreement.
If the General Partner is removed as the general partner of Genesis MLP pursuant
to Section 11.2 of the Genesis MLP Partnership Agreement, the General Partner
shall be removed as the general partner of the Partnership. Such removal shall
be effective concurrently with the effectiveness of the removal of the General
Partner as the general partner of Genesis MLP pursuant to the terms of the
Genesis MLP Partnership Agreement. If a Person is elected as a successor general
partner of Genesis MLP in connection with the removal of the General Partner as
the general partner of Genesis MLP, such Person shall, upon admission as a
successor general partner of Genesis MLP, automatically become the successor
General Partner of the Partnership and a successor general partner of the other
Group Members of which the General Partner is the general partner.
11.3 Interest of Departing Partner
(a) The General Partner Interest of a Departing Partner departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into MLP Common Units pursuant to
Section 11.3(b) of the Genesis MLP Partnership Agreement) be purchased by the
successor to the Departing Partner for cash in the manner specified in the
Genesis MLP Partnership Agreement. Such purchase (or conversion into MLP Common
Units, as applicable) shall be a condition to the admission to the Partnership
of the successor as the General
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Partner. Any successor General Partner shall indemnify the Departing General
Partner as to all debts and liabilities of the Partnership arising on or after
the effective date of the withdrawal or removal of the Departing Partner.
(b) The Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.
11.4 Withdrawal of Limited Partners
Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is selected as provided in Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided
in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor
is elected and an Opinion of Counsel is received as provided in Section
11.1(b) or 11.2 and such successor is admitted to the Partnership
pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Majority Interest;
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Act;
(e) the dissolution of Genesis MLP; or
(f) the sale of all or substantially all of the assets and
properties of the Partnership Group.
12.2 Continuation of the Business of the Partnership After Dissolution
Upon (a) dissolution of the Partnership following an Event of
Withdrawal caused by the withdrawal or removal of the General Partner as
provided in Section 11.1(a)(i) or (iii) and the failure of the Partners to
select a successor to such Departing Partner pursuant to Section 11.1 or 11.2,
then within 90 days thereafter, or (b) dissolution of the Partnership upon an
event constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v)
or (vi), then, to the maximum extent permitted by law, within 180 days
thereafter, the holders of a Majority Interest may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as the general partner a Person
approved by the holders of a Majority Interest. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:
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(i) the reconstituted Partnership shall continue until the end
of the term set forth in Section 2.7 unless earlier dissolved in
accordance with this Article XII;
(ii) if the successor General Partner is not the former
General Partner, then the interest of the former General Partner shall
be treated in the manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this
Agreement and the Certificate of Limited Partnership and to enter into
and, as necessary, to file a new partnership agreement and certificate
of limited partnership, and the successor general partner may for this
purpose exercise the powers of attorney granted the General Partner
pursuant to Section 2.6; provided, that the right of the holders of a
Majority Interest to approve a successor General Partner and to
reconstitute and to continue the business of the Partnership shall not
exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result
in the loss of limited liability of any Limited Partner or any limited
partner of Genesis MLP and (y) neither the Partnership, the
reconstituted limited partnership, Genesis MLP nor any Group Member
would be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax purposes upon
the exercise of such right to continue.
12.3 Liquidator
Upon dissolution of the Partnership, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 12.2, the General Partner shall select one or more Persons
to act as Liquidator. The Liquidator (if other than the General Partner) shall
be entitled to receive such compensation for its services as may be approved by
the holders of a Majority Interest. The Liquidator (if other than the General
Partner) shall agree not to resign at any time without 15 days' prior notice and
may be removed at any time, with or without cause, by notice of removal approved
by the holders of a Majority Interest. Upon dissolution, removal or resignation
of the Liquidator, a successor and substitute Liquidator (who shall have and
succeed to all rights, powers and duties of the original Liquidator) shall
within 30 days thereafter be approved by the holders of a Majority Interest. The
right to approve a successor or substitute Liquidator in the manner provided
herein shall be deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as expressly provided
in this Article XII, the Liquidator approved in the manner provided herein shall
have and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, other than the
limitation on sale set forth in Section 7.3(b)) to the extent necessary or
desirable in the good faith judgment of the Liquidator to carry out the duties
and functions of the Liquidator hereunder for and during such period of time as
shall be reasonably required in the good faith judgment of the Liquidator to
complete the winding up and liquidation of the Partnership as provided for
herein.
12.4 Liquidation
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up its affairs in
such manner and over such period as the Liquidator determines to be in the best
interest of the Partners, subject to Section 17-804 of the Delaware Act and the
following:
(a) Disposition of Assets. The assets may be disposed of by
public or private sale or by distribution in kind to one or more
Partners on such terms as the Liquidator and such Partner or Partners
may agree. If any property is distributed in kind, the Partner
receiving the property shall be deemed for purposes of Section 12.4(c)
to have received cash equal to its fair market value; and
contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute
discretion, defer liquidation or distribution of the Partnership's
assets for a reasonable time if it determines that an immediate sale of
all or some of the Partnership's assets would be impractical or would
cause undue loss to the Partners. The Liquidator may, in its absolute
discretion, distribute the Partnership's assets, in whole or in part,
in kind if it determines that a sale would be impractical or would
cause undue loss to the Partners.
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(b) Discharge of Liabilities. Liabilities of the Partnership
include amounts owed to Partners otherwise than in respect of their
distribution rights under Article VI. With respect to any liability
that is contingent, conditional or unmatured or is otherwise not yet
due and payable, the Liquidator shall either settle such claim for such
amount as it thinks appropriate or establish a reasonable reserve of
cash or other assets to provide for its payment. When paid, any unused
portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in
excess of that required to discharge liabilities as provided in Section
12.4(b) shall be distributed to the Partners in accordance with, and to
the extent of, the positive balances in their respective Capital
Accounts, as determined after taking into account all Capital Account
adjustments (other than those made by reason of distributions pursuant
to this Section 12.4(c)) for the taxable year of the Partnership during
which the liquidation of the Partnership occurs (with such date of
occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end
of such taxable year (or, if later, within 90 days after said date of
such occurrence).
12.5 Cancellation of Certificate of Limited Partnership
Upon the completion of the distribution of Partnership cash and
property as provided in Section 12.4 in connection with the liquidation of the
Partnership, the Partnership shall be terminated and the Certificate of Limited
Partnership, and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware, shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
12.6 Return of Contributions
The General Partner shall not be personally liable for, and shall have
no obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
12.7 Waiver of Partition
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
12.8 Capital Account Restoration
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
13.1 Amendment to be Adopted Solely by General Partner
Each Partner agrees that the General Partner, without the approval of
any Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
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(a) a change in the name of the Partnership, the location of
the principal place of business of the Partnership, the registered
agent of the Partnership or the registered office of the Partnership;
(b) the admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
(c) a change that, in the sole discretion of the General
Partner, is necessary or advisable to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability under
the laws of any state or to ensure that no Group Member will be treated
as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes;
(d) a change that, in the discretion of the General Partner,
(i) does not adversely affect the Limited Partners in any material
respect, (ii) is necessary or advisable (A) 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 the Delaware Act), (B) to facilitate the trading of limited
partner interests of Genesis MLP (including the division of any class
or classes of outstanding limited partner interests of Genesis MLP into
different classes to facilitate uniformity of tax consequences within
such classes of limited partner interests of Genesis MLP), or comply
with any rule, regulation, guideline or requirement of any National
Securities Exchange on which such limited partner interests are or will
be listed for trading, compliance with any of which the General Partner
determines in its discretion to be in the best interests of Genesis MLP
and the limited partners of Genesis MLP, (C) in connection with action
taken by the General Partner pursuant to Section 5.7, or (D) to effect
the conversion of the General Partner's Incentive Compensation Payment
as provided in Section 7.13, or (iii) is required to effect the intent
expressed in the Registration Statement or the Proxy Statement, or the
intent of the provisions of this Agreement or is otherwise contemplated
by this Agreement or (iv) is required to conform the provisions of this
Agreement with the provisions of the Genesis MLP Partnership Agreement
as the provisions of the Genesis MLP Partnership Agreement may be
amended, supplemented or restated from time to time;
(e) a change in the fiscal year or taxable year of the
Partnership and any changes that, in the discretion of the General
Partner, are necessary or advisable as a result of a change in the
fiscal year or taxable year of the Partnership including, if the
General Partner shall so determine, a change in the definition of
"Quarter" and the dates on which distributions are to be made by the
Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel,
to prevent the Partnership, or the General Partner or its directors,
officers, trustees or agents from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, the
Investment Advisers Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act
of 1974, as amended, regardless of whether such are substantially
similar to plan asset regulations currently applied or proposed by the
United States Department of Labor;
(g) an amendment that, in the discretion of the General
Partner, is necessary or advisable in connection with the authorization
of issuance of any class or series of Partnership Securities pursuant
to Section 5.5;
(h) any amendment expressly permitted in this Agreement to be
made by the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a
Merger Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General
Partner, is necessary or advisable to reflect, account for and deal
with appropriately the formation by the Partnership of, or investment
by the
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Partnership in, any corporation, partnership, joint venture, limited
liability company or other entity, in connection with the conduct by
the Partnership of activities permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the
foregoing.
13.2 Amendment Procedures
Except with respect to amendments of the type described in Section
13.1, all amendments to this Agreement shall be made in accordance with the
following requirements: Amendments to this Agreement may be proposed only by or
with the consent of the General Partner which consent may be given or withheld
in its sole discretion. A proposed amendment shall be effective upon its
approval by the holders of a Majority Interest.
ARTICLE XIV
MERGER
14.1 Authority
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
14.2 Procedure for Merger or Consolidation
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization
of each of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of
the business entity that is to survive the proposed merger or
consolidation (the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or
consolidation;
(d) The manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or into,
cash, property or general or limited partner interests, rights,
securities or obligations of the Surviving Business Entity; and (i) if
any general or limited partner interests, securities or rights of any
constituent business entity are not to be exchanged or converted solely
for, or into, cash, property or general or limited partner interests,
rights, securities or obligations of the Surviving Business Entity, the
cash, property or general or limited partner interests, rights,
securities or obligations of any limited partnership, corporation,
trust or other entity (other than the Surviving Business Entity) which
the holders of such general or limited partner interests, securities or
rights are to receive in exchange for, or upon conversion of their
general or limited partner interests, securities or rights, and (ii) in
the case of securities represented by certificates, upon the surrender
of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving
Business Entity or any general or limited partnership, corporation,
trust or other entity (other than the Surviving Business Entity), or
evidences thereof, are to be delivered;
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(e) A statement of any changes in the constituent documents or
the adoption of new constituent documents (the articles or certificate
of incorporation, articles of trust, declaration of trust, certificate
or agreement of limited partnership, certificate of formation or
limited liability company agreement or other similar charter or
governing document) of the Surviving Business Entity to be effected by
such merger or consolidation;
(f) The effective time of the merger, which may be the date of
the filing of the certificate of merger pursuant to Section 14.4 or a
later date specified in or determinable in accordance with the Merger
Agreement (provided, that if the effective time of the merger is to be
later than the date of the filing of the certificate of merger, the
effective time shall be fixed no later than the time of the filing of
the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger
or consolidation as are deemed necessary or appropriate by the General
Partner.
14.3 Approval by Limited Partners of Merger or Consolidation
(a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the holders of a
Majority Interest unless the Merger Agreement contains any provision that, if
contained in an amendment to this Agreement, the provisions of this Agreement or
the Delaware Act would require the vote or consent of a greater percentage of
the Outstanding Partnership Securities or of any class of Partners in which case
such greater percentage vote or consent shall be required for approval of the
Merger Agreement.
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the General Partner has received an Opinion of Counsel
that the merger or conveyance, as the case may be, would not result in the loss
of the limited liability of any Limited Partner or cause the Partnership or
Genesis MLP to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such), (ii) the sole purpose of such merger or
conveyance is to effect a mere change in the legal form of the Partnership into
another limited liability entity and (iii) the governing instruments of the new
entity provide the Limited Partners and the General Partner with the same rights
and obligations as are herein contained.
14.4 Certificate of Merger
Upon the required approval by the General Partner and the Limited
Partners of a Merger Agreement, a certificate of merger shall be executed and
filed with the Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
14.5 Effect of Merger
(a) At the effective time of the certificate of merger:
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(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all property,
real, personal and mixed, and all debts due to any of those business
entities and all other things and causes of action belonging to each of
those business entities shall be vested in the Surviving
Business Entity and after the merger or consolidation shall be the
property of the Surviving Business Entity to the extent they were of
each constituent business entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and is not in any way impaired because of the merger or
consolidation;
(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity, and
may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.
ARTICLE XV
GENERAL PROVISIONS
15.1 Addresses and Notices
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address described below. Any
notice to the Partnership shall be deemed given if received by the General
Partner at the principal office of the Partnership designated pursuant to
Section 2.3. The General Partner may rely and shall be protected in relying on
any notice or other document from a Partner, Assignee or other Person if
believed by it to be genuine.
15.2 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
15.3 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
15.4 Integration
This Agreement constitutes the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
15.5 Creditors
None of the provisions of this Agreement shall be for the benefit of,
or shall be enforceable by, any creditor of the Partnership.
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15.6 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
15.7 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute an agreement binding on all the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto, independently of the signature of any other
party.
15.8 Applicable Law
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to the principles of conflicts
of law.
15.9 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
15.10 Consent of Partners
Each Partner hereby expressly consents and agrees that, whenever in
this Agreement it is specified that an action may be taken upon the affirmative
vote or consent of less than all of the Partners, such action may be so taken
upon the concurrence of less than all of the Partners and each Partner shall be
bound by the results of such action.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER
GENESIS ENERGY, L.L.C.
By:
-----------------------------------------------
Name: Mark J. Gorman
Title: President and Chief Executive Officer
LIMITED PARTNER
GENESIS ENERGY, L.P.
By: GENESIS ENERGY, L.L.C.,
As General Partner
By:
-----------------------------------------------
Name: Mark J. Gorman
Title: President and Chief Executive Officer
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ANNEX D
GENESIS ENERGY, L.P. QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
167
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12295
GENESIS ENERGY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0513049
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Dallas, Suite 2500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 860-2500
(Registrant's telephone number, including area code)
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
-------- --------
This report contains 21 pages
168
GENESIS ENERGY, L.P.
Form 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 5
Consolidated Statement of Partners' Capital for the Six
Months Ended June 30, 2000 6
Notes to Consolidated Financial Statements 7
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
169
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2000 1999
-------- --------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 5,674 $ 6,664
Accounts receivable -
Trade 447,513 241,529
Related party - 7,030
Inventories 515 404
Insurance receivable for pipeline spill costs 7,000 16,586
Other 10,689 2,504
-------- --------
Total current assets 471,391 274,717
FIXED ASSETS, at cost 116,675 116,332
Less: Accumulated depreciation (25,839) (22,419)
-------- --------
Net fixed assets 90,836 93,913
OTHER ASSETS, net of amortization 11,297 11,962
-------- --------
TOTAL ASSETS $573,524 $380,592
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Short-term debt $ 21,000 $ 19,900
Accounts payable -
Trade 437,622 251,742
Related party 13,352 1,604
Accrued liabilities 18,157 19,290
-------- --------
Total current liabilities 490,131 292,536
COMMITMENTS AND CONTINGENCIES (Note 8)
ADDITIONAL PARTNERSHIP INTERESTS 8,700 3,900
MINORITY INTERESTS 30,428 30,571
PARTNERS' CAPITAL
Common unitholders, 8,625 units issued and
8,617 units and 8,620 units outstanding at
June 30, 2000 and December 31, 1999,
respectively 43,444 52,574
General partner 864 1,051
-------- --------
Subtotal 44,308 53,625
Treasury Units, 8 units and 5 units at June 30,
2000 and December 31, 1999, respectively (43) (40)
-------- --------
Total partners' capital 44,265 53,585
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $573,524 $380,592
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
170
GENESIS ENERGY, L.P.
STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---------- -------- ---------- --------
REVENUES:
Gathering and marketing revenues
Unrelated parties $1,161,271 $483,404 $2,159,701 $853,777
Related parties 29,820 25,638 29,820 34,892
Pipeline revenues 3,805 4,346 7,218 8,442
---------- -------- ---------- --------
Total revenues 1,194,896 513,388 2,196,739 897,111
COST OF SALES:
Crude costs, unrelated parties 1,124,027 467,287 2,081,523 833,204
Crude costs, related parties 60,598 34,856 95,379 42,273
Field operating costs 3,197 2,958 6,411 5,610
Pipeline operating costs 2,032 1,966 4,085 3,934
---------- -------- ---------- --------
Total cost of sales 1,189,854 507,067 2,187,398 885,021
---------- -------- ---------- --------
GROSS MARGIN 5,042 6,321 9,341 12,090
EXPENSES:
General and administrative 2,720 3,016 5,376 6,039
Depreciation and amortization 2,035 2,064 4,081 4,112
---------- -------- ---------- --------
OPERATING INCOME (LOSS) 287 1,241 (116) 1,939
OTHER INCOME (EXPENSE):
Interest income 47 39 84 69
Interest expense (354) (306) (702) (516)
Gain on asset disposals 32 31 20 900
---------- -------- ---------- --------
INCOME (LOSS) BEFORE MINORITY INTERESTS 12 1,005 (714) 2,392
Minority interests 2 201 (143) 479
---------- -------- ---------- --------
NET INCOME (LOSS) $ 10 $ 804 $ (571) $ 1,913
========== ======== ========== ========
NET INCOME (LOSS) PER COMMON
UNIT - BASIC AND DILUTED $ - $ 0.09 $ (0.06) $ 0.22
========== ======== ========== ========
NUMBER OF COMMON UNITS
OUTSTANDING 8,623 8,604 8,623 8,604
========== ======== ========== ========
The accompanying notes are an integral part of these consolidated financial
statements.
171
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2000 1999
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (571) $ 1,913
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities -
Depreciation 3,422 3,408
Amortization of intangible assets 659 704
Minority interests equity in earnings (143) 479
Gain on disposals of fixed assets (20) (900)
Other noncash charges 1,326 746
Changes in components of working capital -
Accounts receivable (198,954) 11,657
Inventories (111) (7,438)
Other current assets 1,401 362
Accounts payable 197,628 (14,039)
Accrued liabilities (2,365) (2,077)
--------- --------
Net cash provided by (used in) operating activities 2,272 (5,185)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (365) (1,284)
Change in other assets 6 3
Proceeds from sales of assets 40 1,014
--------- --------
Net cash used in investing activities (319) (267)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under Loan Agreement 1,100 8,700
Distributions to common unitholders (8,625) (8,603)
Distributions to general partner (176) (176)
Issuance of additional partnership interests 4,800 -
Purchase of treasury units (42) -
--------- --------
Net cash used in financing activities (2,943) (79)
--------- --------
Net decrease in cash and cash equivalents (990) (5,531)
Cash and cash equivalents at beginning of period 6,664 7,710
--------- --------
Cash and cash equivalents at end of period $ 5,674 $ 2,179
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
172
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)
(Unaudited)
Partners' Capital
-------------------------------------
Common General Treasury
Unitholders Partner Units Total
------- ------ ---- -------
Partners' capital at December 31, 1999 $52,574 $1,051 $(40) $53,585
Net loss for the six months ended June 30, 2000 (560) (11) - (571)
Distributions during the six months ended
June 30, 2000 (8,625) (176) - (8,801)
Purchase of treasury units - - (42) (42)
Issuance of treasury units to Restricted Unit
Plan participants - - 39 39
Excess of expense over cost of treasury units issued
for Restricted Unit Plan 55 - - 55
------- ------ ---- -------
Partners' capital at June 30, 2000 $43,444 $ 864 $(43) $44,265
======= ====== ==== =======
The accompanying notes are an integral part of these consolidated financial
statements.
173
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Offering
In December 1996, Genesis Energy, L.P. ("GELP") completed an initial public
offering of 8.6 million Common Units at $20.625 per unit, representing limited
partner interests in GELP of 98%. Genesis Energy, L.L.C. (the "General
Partner") serves as general partner of GELP and its operating limited
partnership, Genesis Crude Oil, L.P. Genesis Crude Oil, L.P. has two subsidiary
limited partnerships, Genesis Pipeline Texas, L.P. and Genesis Pipeline USA,
L.P. Genesis Crude Oil, L.P. and its subsidiary partnerships will be referred
to collectively as GCOLP. The General Partner owns a 2% general partner
interest in GELP.
Transactions at Formation
At the closing of the offering, GELP contributed the net proceeds of the
offering to GCOLP in exchange for an 80.01% general partner interest in GCOLP.
With the net proceeds of the offering, GCOLP purchased a portion of the crude
oil gathering, marketing and pipeline operations of Howell Corporation
("Howell") and made a distribution to Basis Petroleum, Inc. ("Basis") in
exchange for its conveyance of a portion of its crude oil gathering and
marketing operations. GCOLP issued an aggregate of 2.2 million subordinated
limited partner units ("Subordinated OLP Units") to Basis and Howell to obtain
the remaining operations.
Basis' Subordinated OLP units and its interest in the General Partner were
transferred to its then parent, Salomon Smith Barney Holdings Inc. ("Salomon")
in May 1997. In February 2000, Salomon acquired Howell's interest in the
General Partner. Salomon now owns 100% of the General Partner.
Unless the context otherwise requires, the term "the Partnership" hereafter
refers to GELP and its operating limited partnership.
2. Basis of Presentation
The accompanying consolidated financial statements and related notes present
the financial position as of June 30, 2000 and December 31, 1999 for GELP, the
results of operations for the three and six months ended June 30, 2000 and 1999,
cash flows for the six months ended June 30, 2000 and 1999 and changes in
partners' capital for the six months ended June 30, 2000.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
results for interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10 -K for the year
ended December 31, 1999 filed with the SEC.
Basic net income per Common Unit is calculated on the weighted average number
of outstanding Common Units. The weighted average number of Common Units
outstanding for the three months ended June 30, 2000 and 1999 was 8,623,000 and
8,604,000, respectively. For the 2000 and 1999 six month periods, the weighted
average number of Common Units outstanding was 8,623,000 and 8,604,000,
respectively. For this purpose, the 2% General Partner interest is excluded
from net income. Diluted net income per Common Unit did not differ from basic
net income per Common Unit for any period presented.
3. New Accounting Pronouncements
In November 1998, the Emerging Issues Task Force (EITF) reached a consensus
on EITF Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities". This consensus, effective in the first quarter of 1999, requires
that "energy trading" contracts be marked-to-market, with gains or losses
recognized in current earnings. The Partnership has determined that its
activities do not meet the definition in EITF Issue 98-10 of "energy trading"
activities and, therefore, is not required to make any change in its accounting,
except as
174
EITF 98 -10 relates to written option contracts. EITF 98-10 requires that
all written option contracts be marked-to-market. For the three and six months
ended June 30, 2000, the Partnership recorded unrealized losses of $0.8 million
and $0.6 million, respectively, as a result of marking these contracts to
market. These amounts are included in cost of crude in the statement of
operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. This standard was subsequently amended by SFAS 137 and
SFAS 138. This new standard, which the Partnership will be required to adopt
for its fiscal year 2001, will change the method of accounting for changes in
the fair value of certain derivative instruments by requiring that an entity
recognize the derivative at fair value as an asset or liability on its balance
sheet. Depending on the purpose of the derivative and the item it is hedging,
the changes in fair value of the derivative will be recognized in current
earnings or as a component of other comprehensive income in partners' capital.
The Partnership is in the process of evaluating the impact that this statement
will have on its results of operations and financial position. This new
standard could increase volatility in net income and comprehensive income.
4. Business Segment and Customer Information
Based on its management approach, the Partnership believes that all of its
material operations revolve around the gathering, transportation and marketing
of crude oil, and it currently reports its operations, both internally and
externally, as a single business segment. No customer accounted for more than
10% of the Partnership's revenues in any period.
5. Credit Resources
GCOLP has a Guaranty Facility with Salomon, pursuant to a Master Credit
Support Agreement, and a Working Capital Facility with BNP Paribas. GCOLP's
obligations under these facilities are secured by its receivables, inventories,
general intangibles and cash.
Guaranty Facility
Salomon is providing a Guaranty Facility through December 31, 2000, in
connection with the purchase, sale and exchange of crude oil by GCOLP. The
aggregate amount of the Guaranty Facility is limited to $300 million (to be
reduced in each case by the amount of any obligation to a third party to the
extent that such third party has a prior security interest in the collateral).
GCOLP pays a guarantee fee to Salomon of 0.50% of the utilized amount of
outstanding guarantees. This fee will increase after June 30, 2000, to 0.75%.
An additional fee of 1.00% is paid on any amounts in excess of the $300 million
commitment. At June 30, 2000, the aggregate amount of obligations covered by
guarantees was $290 million, including $186 million in payable obligations and
$104 million of estimated crude oil purchase obligations for July 2000.
The Master Credit Support Agreement contains various restrictive and
affirmative covenants including (i) restrictions on indebtedness other than (a)
pre-existing indebtedness, (b) indebtedness pursuant to Hedging Agreements (as
defined in the Master Credit Support Agreement) entered into in the ordinary
course of business and (c) indebtedness incurred in the ordinary course of
business by acquiring and holding receivables to be collected in accordance with
customary trade terms, (ii) restrictions on certain liens, investments,
guarantees, loans, advances, lines of business, acquisitions, mergers,
consolidations and sales of assets and (iii) compliance with certain risk
management policies, audit and receivable risk exposure practices and cash
management practices as may from time to time be revised or altered by Salomon
in its sole discretion.
Pursuant to the Master Credit Support Agreement, GCOLP is required to
maintain (a) Consolidated Tangible Net Worth of not less than $50 million, (b)
Consolidated Working Capital of not less than $1 million after exclusion of bank
debt from current liabilities, (c) a ratio of its Consolidated Current
Liabilities to Consolidated Working Capital plus net property, plant and
equipment of not more than 7.5 to 1, (d) a ratio of Consolidated Earnings before
Interest, Taxes, Depreciation and Amortization to Consolidated Fixed Charges of
at least 1.75 to 1 as of the last day of each fiscal quarter prior to December
31, 1999 and (e) a ratio of Consolidated Total Liabilities to Consolidated
Tangible Net Worth of not more than 10.0 to 1 (as such terms are defined in the
Master Credit Support Agreement).
175
An Event of Default could result in the termination of the Guaranty
Facility at the discretion of Salomon. Significant Events of Default include
(a) a default in the payment of (i) any principal on any payment obligation
under the Guaranty Facility when due or (ii) interest or fees or other amounts
within two business days of the due date, (b) the guaranty exposure amount
exceeding the maximum credit support amount on the first day of the month for
two consecutive calendar months, (c) failure to perform or otherwise comply with
any covenants contained in the Master Credit Support Agreement if such failure
continues unremedied for a period of 30 days after written notice thereof and
(d) a material misrepresentation in connection with any loan, letter of credit
or guarantee issued under the Guaranty Facility. Removal of the General Partner
will result in the termination of the Guaranty Facility and the release of all
of Salomon's obligations thereunder. The Partnership exceeded the $300 million
maximum credit limitation under the Guaranty Facility on May 1 and June 1, 2000,
due primarily to the rise in crude oil prices and additional outstanding
guarantees. A waiver of the resulting Event of Default was obtained from
Salomon.
There can be no assurance of the availability or the terms of credit for
the Partnership. At this time, Salomon does not intend to provide guarantees or
other credit support after the credit support period expires in December 31,
2000. Upon approval of a proposed restructuring discussed in Note 10, Salomon
will extend the expiration date of its credit support obligation to the
Partnership from December 31, 2000, to December 31, 2001, on the current terms
and conditions. If the General Partner is removed without its consent,
Salomon's credit support obligations will terminate. In addition, Salomon's
obligations under the Master Credit Support Agreement may be transferred or
terminated early subject to certain conditions. Management of the Partnership
intends to replace the Guaranty Facility with a letter of credit facility with
one or more third party lenders prior to December 2000 and has had preliminary
discussions with banks about a replacement letter of credit facility. The
General Partner may be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs. The General
Partner expects that the overall cost of a replacement facility may be
substantially greater than what the Partnership is incurring under its existing
Master Credit Support Agreement. Any significant decrease in the Partnership's
financial strength, regardless of the reason for such decrease, may increase the
number of transactions requiring letters of credit or other financial support,
make it more difficult for the Partnership to obtain such letters of credit,
and/or may increase the cost of obtaining them. This situation could in turn
adversely affect the Partnership's ability to maintain or increase the level of
its purchasing and marketing activities or otherwise adversely affect the
Partnership's profitability and Available Cash.
Working Capital Facility
On June 6, 2000, GCOLP entered into a credit agreement ("Credit Agreement")
with BNP Paribas to replace the Loan Agreement with Bank One. The Credit
Agreement provides for loans or letters of credit in the aggregate not to exceed
the lesser of $35 million or the Borrowing Base (as defined in the Credit
Agreement). The maximum amount the Credit Agreement will be reduced from $35
million to $25 million if BNP Paribas fails to assign loan commitments to other
lenders by September 7, 2000. Interest is calculated, at the Partnership's
option, by using either LIBOR plus 1.4% or BNP Paribas' prime rate minus 1%.
The Credit Agreement expires on the earlier of (a) February 28, 2003 or (b)
30 days prior to the termination of the Master Credit Support Agreement with
Salomon. As the Master Credit Support Agreement terminates on December 31,
2000, the Credit Agreement with BNP Paribas will expire on November 30, 2000.
See Note 10 for a discussion on the conditions under which Salomon may extend
the Master Credit Support Agreement. Should those conditions occur, the Credit
Agreement with BNP Paribas will automatically extend to November 30, 2001.
The Credit Agreement is collateralized by the accounts receivable, inventory,
cash accounts and margin accounts of GCOLP, subject to the terms of an
Intercreditor Agreement between BNP Paribas and Salomon. There is no
compensating balance requirement under the Credit Agreement. A commitment fee
of 0.35% on the available portion of the commitment is provided for in the
agreement. Material covenants and restrictions include the following: (a)
maintain a Current Ratio (calculated after the exclusion of debt under the
Credit Agreement from current liabilities) of 1.0 to 1.0; (b) maintain a
Tangible Capital Base (as defined in the Credit Agreement) in GCOLP of not less
than $65 million; and (c) maintain a Maximum Leverage Ratio (as defined in the
Credit Agreement) of not more than 5.0 to 1.0. Additionally the Credit
Agreement imposes restrictions on the ability of GCOLP to sell its assets, incur
other indebtedness, create liens and engage in mergers and acquisitions. The
176
Partnership was not in compliance with the covenant regarding a Maximum
Leverage Ratio at June 30, 2000. A waiver for the period was obtained from BNP
Paribas.
At December 31, 1999, and June 30, 2000, the Partnership had $19.9 million
and $21.0 million, respectively, of outstanding debt. The Partnership had no
letters of credit outstanding at June 30, 2000. At June 30, 2000, $14 million
was available to be borrowed under the Credit Agreement.
Distributions
Generally, GCOLP will distribute 100% of its Available Cash within 45 days
after the end of each quarter to Unitholders of record and to the General
Partner. Available Cash consists generally of all of the cash receipts less
cash disbursements of GCOLP adjusted for net changes to reserves. A full
definition of Available Cash is set forth in the Partnership Agreement.
Distributions of Available Cash to the holders of Subordinated OLP Units are
subject to the prior rights of holders of Common Units to receive the minimum
quarterly distribution ("MQD") for each quarter during the subordination period
(which will not end earlier than December 31, 2001) and to receive any
arrearages in the distribution of the MQD on the Common Units for prior quarters
during the subordination period. MQD is $0.50 per unit.
Salomon has committed, subject to certain limitations, to provide total
cash distribution support with respect to quarters ending on or before December
31, 2001, in an amount up to an aggregate of $17.6 million in exchange for
Additional Partnership Interests ("APIs"). Salomon's obligation to provide
distribution support will end no later than December 31, 2001 or until the $17.6
million is fully utilized, whichever comes first.
Through June 30, 2000, the Partnership utilized $8.7 million of the
distribution support from Salomon. On August 14, 2000, the Partnership will
utilize an additional $2.6 million of distribution support for the distribution
related to the second quarter. After the distribution in August 2000, $11.3
million of distribution support has been utilized and $6.3 million remains
available through December 31, 2001, or until such amount is fully utilized,
whichever comes first. See Note 10 for additional information regarding a
proposed restructuring which could affect distribution support. APIs purchased
by Salomon are not entitled to cash distributions or voting rights. The APIs
will be redeemed if and to the extent that Available Cash for any future quarter
exceeds the amount necessary to distribute the MQD on all Common Units and
Subordinated OLP Units and to eliminate any arrearages in the MQD on Common
Units for prior periods.
In addition, the Partnership Agreement authorizes the General Partner to
cause GCOLP to issue additional limited partner interests and other equity
securities, the proceeds from which could be used to provide additional funds
for acquisitions or other GCOLP needs.
6. Transactions with Related Parties
Sales, purchases and other transactions with affiliated companies, in the
opinion of management, are conducted under terms no more or less favorable than
those conducted with unaffiliated parties.
Sales and Purchases of Crude Oil
A summary of sales to and purchases from related parties of crude oil is as
follows (in thousands).
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
------- -------
Sales to affiliates $29,820 $34,892
Purchases from affiliates $95,379 $42,273
General and Administrative Services
The Partnership does not directly employ any persons to manage or operate
its business. Those functions are provided by the General Partner. The
Partnership reimburses the General Partner for all direct and indirect costs of
177
these services. Total costs reimbursed to the General Partner by the
Partnership were $8,408,000 and $8,542,000 for the six months ended June 30,
2000 and 1999, respectively.
Guaranty Facility
As discussed in Note 5, Salomon provides a Guaranty Facility to the
Partnership. For the six months ended June 30, 2000 and 1999, the Partnership
paid Salomon $749,000 and $312,000, respectively, for guarantee fees under the
Guaranty Facility.
7. Supplemental Cash Flow Information
Cash received by the Partnership for interest was $76,000 and $70,000 for the
six months ended June 30, 2000 and 1999, respectively. Payments of interest
were $835,000 and $500,000 for the six months ended June 30, 2000 and 1999,
respectively.
8. Contingencies
The Partnership is subject to various environmental laws and regulations.
Policies and procedures are in place to monitor compliance. The Partnership's
management has made an assessment of its potential environmental exposure and
determined that such exposure is not material to its consolidated financial
position, results of operations or cash flows. As part of the formation of the
Partnership, Basis and Howell agreed to be responsible for certain environmental
conditions related to their ownership and operation of their respective assets
contributed to the Partnership and for any environmental liabilities which Basis
or Howell may have assumed from prior owners of these assets.
The Partnership is subject to lawsuits in the normal course of business and
examination by tax and other regulatory authorities. Additionally, litigation
involving the Partnership has been filed related to the proposed restructuring.
See Note 10. Such matters presently pending are not expected to have a material
adverse effect on the financial position, results of operations or cash flows of
the Partnership.
As part of the formation of the Partnership, Basis and Howell agreed to each
retain liability and responsibility for the defense of any future lawsuits
arising out of activities conducted by Basis and Howell prior to the formation
of the Partnership and have also agreed to cooperate in the defense of such
lawsuits.
Pipeline Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the
pipeline near Summerland, Mississippi and entered a creek nearby. Some of the
oil then flowed into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing maintenance and reduced clean-up
activity expected to continue for an undetermined period of time.
The estimated cost of the spill clean-up is expected to be $18 million.
This amount includes estimates for clean-up costs, ongoing maintenance and
settlement of potential liabilities to landowners in connection with the spill.
The incident was reported to insurers. At June 30, 2000, $15.4 million had been
paid to vendors and claimants for spill related costs, and $2.6 million was
included in accrued liabilities for estimated future expenditures. Current
assets included $3.3 million of expenditures submitted and approved by insurers
but not yet reimbursed, $1.1 million for expenditures not yet submitted to
insurers and $2.6 million for expenditures not yet incurred or billed to the
Partnership. At June 30, 2000, $11.0 million in reimbursements had been
received from insurers.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines or whether the governmental agencies
would prevail in imposing such fines.
178
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If Management of the Partnership determines that the costs of testing or
changes are too high, that segment of the system may not be restarted. If this
part of the Mississippi System is taken out of service, the net book value of
that portion of the pipeline would be written down to its net realizable value,
resulting in a non-cash write-off of approximately $6.0 million. Tariff
revenues for this segment of the system in the year 1999 were $0.6 million.
Crude Oil Contamination
In February and March 2000, the Partnership purchased crude oil from a
third party that was subsequently determined to contain organic chlorides.
These barrels were delivered into the Partnership's Texas pipeline system and
potentially contaminated 24,000 barrels of oil held in storage and 44,000
barrels of oil in the pipeline. The north end of the Texas pipeline system has
been temporarily shut down but is expected to be operational by the end of the
third quarter of 2000. As of June 30, 2000, the estimated volume of crude that
was potentially contaminated had been reduced to 21,000 barrels.
The Partnership has accrued costs associated with transportation, testing
and consulting in the amount of $188,000, of which $32,000 has been paid at June
30, 2000. The potentially contaminated barrels are reflected in inventory at
their cost of approximately $0.6 million.
The Partnership has recorded a receivable for $188,000 to reflect the
expected recovery of the accrued costs from the third party. The third party
has provided the Partnership with evidence that it has sufficient resources to
cover the total expected damages incurred by the Partnership. Management of the
Partnership believes that it will recover any damages incurred from the third
party.
9. Distributions
On July 14, 2000, the Board of Directors of the General Partner declared a
cash distribution of $0.50 per Unit for the quarter ended June 30, 2000. The
distribution will be paid August 14, 2000, to the General Partner and all Common
Unitholders of record as of the close of business on July 31, 2000. The
Subordinated OLP Unitholders will not receive a distribution for the quarter.
This distribution will be paid utilizing approximately $1.8 million cash
available from the Partnership and $2.6 million cash provided by Salomon
pursuant to Salomon's Distribution Support Agreement.
10. Proposed Restructuring
On May 10, 2000, the Partnership announced that based on the recommendation
of the Special Committee appointed by the General Partner, the General Partner
and the Board of Directors of the General Partner of the Partnership unanimously
approved a financial restructuring of the Partnership. The proposal for a
financial restructuring of the Partnership is subject to approval by holders of
a majority of the Partnership's outstanding public common units. Assuming
unitholder approval, the proposed restructuring is expected to be effective
beginning with distributions for the third quarter of 2000. Under the terms of
the restructuring, the partnership agreement of GCOLP will be amended to:
- eliminate without the payment of any consideration all of the
outstanding subordinated limited partner units in our operating partnership;
- terminate the subordination period and, as a result, eliminate the
requirement that the common limited partnership units accrue arrearages;
- eliminate without the payment of any consideration all of the
outstanding additional limited partner interests, or APIs, issued to Salomon
in exchange for its distribution support and, as a result, eliminate our
obligation to redeem the APIs issued to Salomon in exchange for its
distribution support;
179
- reduce the quarterly distribution from the current $0.50 per unit to a
targeted $0.20 per unit; and
- reduce the respective thresholds that must be achieved before the
general partner is entitled to incentive distributions from the current
threshold levels of $0.55, $0.635 and $0.825 to the new threshold levels of
$0.25, $0.28 and $0.33 per unit.
If the proposal is approved:
- Salomon will contribute to the operating partnership the unused
distribution support expected to be $6.3 million. After payment of
transaction costs associated with the restructuring estimated at $1.3
million, we will then declare a special distribution in the aggregate amount
of $5.0 million, or $0.58 per unit.
- Salomon will extend the expiration date of its credit support obligation
to the partnership from December 31, 2000 to December 31, 2001 on the current
terms and conditions.
In connection with the proposal for restructuring, the Partnership is
preparing a proxy statement to be mailed to all of the Partnership's public
unitholders that will contain a more detailed description of the proposal.
On June 7, 2000, Bruce E. Zoren, a holder of units of limited partner
interests in the Partnership, filed a putative class action complaint in the
Delaware Court of Chancery, No. 18096-NC, seeking to enjoin the restructuring
and seeking damages. Defendants named in the complaint include the Partnership,
Genesis Energy L.L.C., members of the board of directors of Genesis Energy,
L.L.C., and the owner of Genesis Energy L.L.C. The plaintiff alleges numerous
breaches of the duties of care and loyalty owed by the defendants to the
purported class in connection with making a proposal for restructuring.
Management of the Partnership believes that the complaint is without merit and
intends to vigorously defend the action.
180
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Genesis Energy, L.P., operates crude oil common carrier pipelines and is an
independent gatherer and marketer of crude oil in North America, with operations
concentrated in Texas, Louisiana, Alabama, Florida, Mississippi, New Mexico,
Kansas and Oklahoma. The following review of the results of operations and
financial condition should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.
Results of Operations
Selected financial data for this discussion of the results of operations
follows, in thousands, except barrels per day.
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Gross margin
Gathering and marketing $ 3,269 $ 3,941 $ 6,208 $ 7,582
Pipeline $ 1,773 $ 2,380 $ 3,133 $ 4,508
General and administrative expenses$ 2,720 $ 3,016 $ 5,376 $ 6,039
Depreciation and amortization $ 2,035 $ 2,064 $ 4,081 $ 4,112
Operating income (loss) $ 287 $ 1,241 $ (116) $ 1,939
Interest income (expense), net $ (307) $ (267) $ (618) $ (447)
Barrels per day
Wellhead 101,702 88,985 101,977 88,614
Bulk and exchange 361,973 263,187 325,775 268,026
Pipeline 92,493 95,590 90,333 92,190
Gross margins from gathering and marketing operations are a function of
volumes purchased and the difference between the price of crude oil at the point
of purchase and the price of crude oil at the point of sale, minus the
associated costs of aggregation and transportation. The absolute price levels
of crude oil do not necessarily bear a relationship to gross margin because
absolute price levels normally impact revenues and cost of sales by equivalent
amounts. As a result, the impact of period-to-period price variations on
revenues and cost of sales generally are not meaningful in analyzing the
variations in gross margins, and such changes are not addressed in the following
discussion.
Pipeline gross margins are primarily a function of the level of throughput
and storage activity and are generated by the difference between the regulated
published tariff and the fixed and variable costs of operating the pipeline.
Changes in revenues, volumes and pipeline operating costs, therefore, are
relevant to the analysis of financial results of the Partnership's pipeline
operations.
The price level of crude oil impacts gathering and marketing and pipeline
gross margins to the extent that oil producers adjust production levels. Short-
term and long-term price trends impact the amount of cash flow that producers
have available to maintain existing production and to invest in new reserves,
which in turn impacts the amount of supply that is available to be gathered and
marketed by the Partnership and its competitors.
Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999
Gross margin from gathering and marketing activities was $6.2 million for
the six months ended June 30, 2000, as compared to $7.6 million for the six
months ended June 30, 1999. The decrease of $1.4 million represents the net
effect of several factors.
Wellhead, bulk and exchange purchase volumes for the six months ended June
30, 2000, increased 20 percent from the same period in 1999. This rise resulted
in a $1.5 million increase in gathering and marketing gross
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margins. The gain was partially offset by a 9 percent decline in the
average difference between the price of crude oil at the point of purchase and
the price of crude oil at the point of sale, which reduced gross margin by $0.8
million. Also contributing to the decline in gross margin were a $0.6 million
unrealized loss on written option contracts (see Note 3 to the financial
statements), a $0.7 million increase in the cost of credit and a $0.8 million
increase in field operating costs. The $0.7 million increase in credit costs is
a function of the increase in purchase volumes and an 88 percent increase in the
absolute price level of crude oil. The increase in field operating costs was
primarily from a $0.3 million increase in payroll and benefits costs and a $0.4
million increase in fuel costs.
Pipeline gross margin declined $1.4 million, from $4.5 million for the six
month period in 1999 to $3.1 million for the six month period in 2000. Average
tariff revenues declined approximately $0.05 per barrel, which reduced gross
margin by $0.8 million. Additionally, revenues for the 1999 period included
tank storage fees of $0.6 million.
General and administrative expenses decreased $0.7 million between the 2000
and 1999 six month periods. This decline is attributable to decreases in the
following areas: $0.2 million in salary and benefits, $0.1 million in
restricted unit expense and $0.1 million each in professional services and
travel and entertainment. Additionally, the 1999 six month period included
costs related to the Year 2000 remediation totaling $0.2 million.
Depreciation and amortization was flat between the two six month periods.
The Partnership had no material property acquisitions or dispositions that would
create a material fluctuation in depreciation.
In the 2000 six month period, the Partnership incurred net interest expense
of $0.6 million. In the 1999 period, the Partnership incurred net interest
expense of $0.4 million. The increase in interest cost in 2000 was due to the
combination of higher market interest rates and higher interest rates under the
BNP Paribas Working Capital Facility than under the prior facility.
Additionally, average daily outstanding debt during the 2000 period was $2.6
million greater.
Three Months Ended June 30, 2000 Compared with Three Months Ended
June 30, 1999
Gross margin from gathering and marketing activities was $3.3 million for
the three months ended June 30, 2000, as compared to $3.9 million for the three
months ended June 30, 1999. The decrease of $0.6 million represents the net
effect of several factors.
Wellhead, bulk and exchange purchase volumes for the three months ended
June 30, 2000, increased 32 percent from the same period in 1999. This rise
resulted in a $1.3 million increase in gathering and marketing gross margins.
The gain was partially offset by a 9 percent decline in the average difference
between the price of crude oil at the point of purchase and the price of crude
oil at the point of sale, which reduced gross margin by $0.5 million. Also
contributing to the decline in gross margin were a $0.8 million unrealized loss
on written option contracts (see Note 3 to the financial statements), a $0.3
million increase in the cost of credit and a $0.2 million increase in field
operating costs. The $0.3 million increase in credit costs is a function of the
increase in purchase volumes and a 65 percent increase in the absolute price
level of crude oil. The increase in field operating costs was primarily from
increases in payroll and benefits costs and fuel costs.
Pipeline gross margin was $1.8 million for the three months ended June 30,
2000, as compared to $2.4 million for the three months ended June 30, 1999. The
$0.6 million decrease in gross margin can be primarily attributed to a $0.03 per
barrel decline in average tariff revenues, which reduced gross margin by $0.3
million, and a 4 percent decline in throughput, which resulted in a $0.2 million
decline in gross margin. Additionally, pipeline operating costs increased $0.1
million.
General and administrative expenses declined $0.3 million in the three
months ended June 30, 2000 as compared to the same period in 1999. The primary
factors in this decline were a decrease in salaries and benefits, restricted
unit expense and Year 2000 remediation costs of $0.1 million each.
Interest costs were slightly higher in the 2000 quarter due primarily to
higher interest rates.
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Hedging Activities
Genesis routinely utilizes forward contracts, swaps, options and futures
contracts in an effort to minimize the impact of market fluctuations on
inventories and contractual commitments. Gains and losses on forward contracts,
swaps and future contracts used to hedge future contract purchases of unpriced
crude oil, where firm commitments to sell are required prior to establishment of
the purchase price, are deferred until the margin from the hedged item is
recognized. The Partnership recognized net losses of $1.5 million and $1.2
million for the six months and three months ended June 30, 2000, respectively,
and net gains of $2.0 million and $0.9 million for the six and three months
ended June 30, 1999, respectively, related to its hedging activity.
Liquidity and Capital Resources
Cash Flows
Cash flows provided by operating activities were $2.3 million for the six
months ended June 30, 2000. In the 1999 six-month period, cash flows utilized
in operating activities were $5.2 million. The change between the two periods
results primarily from an increase in inventories in the 1999 period and
variations in the timing of payment of crude purchase obligations.
For the six months ended June 30, 2000 and 1999, cash flows utilized in
investing activities were $0.3 million. In 2000, the Partnership expended $0.4
million for property and equipment additions related primarily to pipeline
operations. In 1999, the Partnership added $1.3 million of assets, primarily
for pipeline operations, and received proceeds of $1.0 million from the sale of
surplus tractors and trailers.
Cash flows used in financing activities by the Partnership during the first
six months of 2000 totaled $2.9 million. Distributions paid to the common
unitholders and the general partner totaled $8.8 million. The Partnership
borrowed $1.1 million under its Working Capital Facility and received $4.8
million from the issuance of APIs to Salomon. In the 1999 period, cash flows
used in financing activities totaled $0.1 million. The Partnership obtained
funds by borrowing $8.7 million. Distributions to the common unitholders and
the general partner totaled $8.8 million.
Working Capital and Credit Resources
As discussed in Note 5 of the Notes to Condensed Consolidated Financial
Statements, the Partnership has a Guaranty Facility with Salomon through
December 31, 2000, and a Credit Agreement with BNP Paribas for working capital
purposes that extends through November 30, 2000. Both of these agreements may
be extended under certain conditions as discussed below under "Proposed
Restructuring". If the General Partner is removed without its consent,
Salomon's credit support obligations will terminate. In addition, Salomon's
obligations under the Master Credit Support Agreement may be transferred or
terminated early subject to certain conditions.
At June 30, 2000, the Partnership's consolidated balance sheet reflected a
working capital deficit of $18.7 million. This working capital deficit combined
with the short-term nature of both the Guaranty Facility with Salomon and the
Credit Agreement with BNP Paribas could have a negative impact on the
Partnership. Some counterparties use the balance sheet and the nature of
available credit support as a basis for determining credit support demanded from
the Partnership as a condition of doing business. Increased demands for credit
support beyond the maximum credit limitations may adversely affect the
Partnership's ability to maintain or increase the level of its purchasing and
marketing activities or otherwise adversely affect the Partnership's
profitability and Available Cash.
Management of the Partnership intends to replace the Guaranty Facility and
Credit Agreement with a working capital letter of credit facility with one or
more third party lenders prior to November 2000. The General Partner expects
that the annual cost of a replacement facility would increase by approximately
$3.3 million.
Increased credit needs and higher credit costs could adversely affect the
Partnership's ability to maintain or increase the level of its purchasing and
marketing activities. Profitability and Available Cash for distributions could
be adversely impacted as well.
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The Partnership will pay a distribution of $0.50 per Unit for the three
months ended June 30, 2000, on August 14, 2000 to the General Partner and all
Common Unitholders of record as of the close of business on July 31, 2000. The
subordinated OLP Unitholders will not receive a distribution for that period.
This distribution will be paid utilizing approximately $1.8 million of cash
available from the Partnership and $2.6 million of cash provided by Salomon,
pursuant to Salomon's distribution support obligation.
Under the Distribution Support Agreement, Salomon has committed, subject to
certain limitations, to provide cash distribution support, with respect to
quarters ending on or before December 31, 2001, in an amount up to an aggregate
of $17.6 million in exchange for APIs. Salomon's obligation to purchase APIs
will end no later than December 31, 2001, or when the distribution support has
been fully utilized, whichever comes first. . After the distribution in August
2000, $11.3 million of distribution support has been utilized and $6.3 million
remains available through December 31, 2001, or until such amount is fully
utilized, whichever comes first. The Distribution Support Agreement will be
terminated if the proposed restructuring discussed below is approved by a
majority of the Partnership's unitholders.
Proposed Restructuring
On May 10, 2000, the Partnership announced that based on the recommendation
of the Special Committee appointed by the General Partner, the General Partner
and the Board of Directors of the General Partner of the Partnership unanimously
approved a financial restructuring of the Partnership. The proposal for a
financial restructuring of the Partnership is subject to approval by holders of
a majority of the Partnership's outstanding public common units. Assuming
unitholder approval, the proposed restructuring is expected to be effective
beginning with distributions for the third quarter of 2000. Under the terms of
the restructuring, the partnership agreement of GCOLP will be amended to:
- eliminate without the payment of any consideration all of the
outstanding subordinated limited partner units in our operating partnership;
- terminate the subordination period and, as a result, eliminate the
requirement that the common limited partnership units accrue arrearages;
- eliminate without the payment of any consideration all of the
outstanding additional limited partner interests, or APIs, issued to Salomon
in exchange for its distribution support and, as a result, eliminate our
obligation to redeem the APIs issued to Salomon in exchange for its
distribution support;
- reduce the quarterly distribution from the current $0.50 per unit to a
targeted $0.20 per unit; and
- reduce the respective thresholds that must be achieved before the
general partner is entitled to incentive distributions from the current
threshold levels of $0.55, $0.635 and $0.825 to the new threshold levels of
$0.25, $0.28 and $0.33 per unit.
If the proposal is approved:
- Salomon will contribute to the operating partnership the unused
distribution support expected to be $6.3 million. After payment of
transaction costs associated with the restructuring estimated at $1.3
million, we will then declare a special distribution in the aggregate amount
of $5.0 million or $0.58 per unit.
- Salomon will extend the expiration date of its credit support obligation
to the partnership from December 31, 2000 to December 31, 2001 on the current
terms and conditions.
In connection with the proposal for restructuring, the Partnership is
preparing a proxy statement to be mailed to all of the Partnership's public
unitholders that will contain a more detailed description of the proposal.
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Crude Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the
pipeline near Summerland, Mississippi and entered a creek nearby. Some of the
oil then flowed into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing maintenance and reduced clean-up
activity expected to continue for an undetermined period of time.
The estimated cost of the spill clean-up is expected to be $18 million.
This amount includes estimates for clean-up costs, ongoing maintenance and
settlement of potential liabilities to landowners in connection with the spill.
The incident was reported to insurers. At June 30, 2000, $15.4 million had been
paid to vendors and claimants for spill related costs, and $2.6 million was
included in accrued liabilities for estimated future expenditures. Current
assets included $3.3 million of expenditures submitted and approved by insurers
but not yet reimbursed, $1.1 million for expenditures not yet submitted to
insurers and $2.6 million for expenditures not yet incurred or billed to the
Partnership. At June 30, 2000, $11.0 million in reimbursements had been
received from insurers.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines or whether the governmental agencies
would prevail in imposing such fines.
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If Management of the Partnership determines that the costs of testing or
changes are too high, that segment of the system may not be restarted. If this
part of the Mississippi System is taken out of service, the net book value of
that portion of the pipeline would be written down to its net realizable value,
resulting in a non-cash write-off of approximately $6.0 million. Tariff
revenues for this segment of the system in the year 1999 were $0.6 million.
Crude Oil Contamination
In February and March 2000, the Partnership purchased crude oil from a
third party that was subsequently determined to contain organic chlorides.
These barrels were delivered into the Partnership's Texas pipeline system and
potentially contaminated 24,000 barrels of oil held in storage and 44,000
barrels of oil in the pipeline. The north end of the Texas pipeline system has
been temporarily shut down but is expected to be operational by the end of the
third quarter of 2000. As of June 30, 2000, the estimated volume of crude that
was potentially contaminated had been reduced to 21,000 barrels.
The Partnership has accrued costs associated with transportation, testing
and consulting in the amount of $188,000, of which $32,000 has been paid at June
30, 2000. The potentially contaminated barrels are reflected in inventory at
their cost of approximately $0.6 million.
The Partnership has recorded a receivable for $188,000 to reflect the
expected recovery of the accrued costs from the third party. The third party
has provided the Partnership with evidence that it has sufficient resources to
cover the total expected damages incurred by the Partnership. Management of the
Partnership believes that it will recover any damages incurred from the third
party.
Current Business Conditions
Changes in the price of crude oil impact gathering and marketing and
pipeline gross margins to the extent that oil producers adjust production
levels. Short-term and long-term price trends impact the amount of cash flow
that producers have available to maintain existing production and to invest in
new reserves, which in turn impacts the amount of crude oil that is available to
be gathered and marketed by the Partnership and its competitors.
185
Although crude oil prices have increased from $12 per barrel in January
1999 to nearly $32 per barrel in June 2000, U.S. onshore crude oil production
volumes have not improved. Further, producers appear to be responding
cautiously to the oil price increase and are focusing more on drilling for
natural gas.
This change is clearly demonstrated by the Baker Hughes North American
Rotary Rig Count for 1997 to 2000.
Baker Hughes North American Rotary Rig Count
Average Number of Rigs Drilling For Crude Oil
Year Oil Gas Price per bbl*
---- --- --- -------------
1997 376 566 $20.60
1998 264 560 $14.40
1999 128 496 $19.25
2000 177 630 $28.80
* Annual average price for 1997 through 1999 and six month average for
2000 for West Texas Intermediate at Cushing, Oklahoma
Based on the limited improvement in the number of rigs drilling for oil,
management of the General Partner believes that oil production in its primary
areas of operation is likely to continue to decrease. Although there has been
some increase since January 1999 in the number of drilling and workover rigs
being utilized in the Partnership's primary areas of operation, management of
the General Partner believes that this activity is more likely to have the
effect of reducing the rate of decline rather than meaningfully increasing
wellhead volumes in its operating areas in 2000.
The Partnership's improved volumes in the first half of 2000 compared to
the same period of 1999 were primarily due to obtaining existing production by
paying higher prices for the production than the previous purchaser. Increased
volumes obtained through competition based on price for existing production
generally result in incrementally lower margins per barrel.
As crude oil prices rise, the Partnership's utilization of, and cost of
credit under, the Guaranty Facility increases with respect to the same volume of
business. The General Partner has taken steps to reduce or restrict the
Partnership's gathering and marketing activities due to the $300 million limit
of the Guaranty Facility.
Additionally, as prices rise, the Partnership may have to increase the
amount of its Credit Agreement in order to have funds available to meet margin
calls on the NYMEX and to fund inventory purchases. No assurances can be made
that the Partnership would be able to increase the size of its Credit Agreement
or that changes to the terms of such increased Credit Agreement would not have a
material impact on the results of operations or cash flows of the Partnership.
Forward Looking Statements
The statements in this Report on Form 10-Q that are not historical
information are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Partnership believes that its expectations regarding future
events are based on reasonable assumptions, it can give no assurance that its
goals will be achieved or that its expectations regarding future developments
will prove to be correct. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include,
but are not limited to, changes in regulations, the Partnership's success in
obtaining additional lease barrels, changes in crude oil production volumes
(both world-wide as well as in areas in which the Partnership has operations),
developments relating to possible acquisitions or business combination
opportunities, volatility of crude oil prices and grade differentials, the
success of the Partnership's risk management activities, credit requirements by
counterparties of the Partnership, the Partnership's ability to replace its
credit support from Salomon with a bank facility and to replace the working
capital facility from Paribas with another facility, any requirements for
testing or changes to the Mississippi System as a result of the oil spill that
occurred there in December 1999 and conditions of the capital markets and equity
markets during
186
the periods covered by the forward looking statements. All subsequent
written or oral forward looking statements attributable to the Partnership or
persons acting on behalf of the Partnership are expressly qualified in their
entirety by the foregoing cautionary statements.
Price Risk Management and Financial Instruments
The Partnership's primary price risk relates to the effect of crude oil price
fluctuations on its inventories and the fluctuations each month in grade and
location differentials and their effects on future contractual commitments. The
Partnership utilizes New York Mercantile Exchange ("NYMEX") commodity based
futures contracts, forward contracts, swap agreements and option contracts to
hedge its exposure to these market price fluctuations. Management believes the
hedging program has been effective in minimizing overall price risk. At June
30, 2000, the Partnership used futures and forward contracts in its hedging
program with the latest contract being settled in July 2002. Information about
these contracts is contained in the table set forth below.
Sell (Short) Buy (Long)
Contracts Contracts
-------- --------
Crude Oil Inventory:
Volume (1,000 bbls) 7
Carrying value (in thousands) $ 107
Fair value (in thousands) $ 107
Commodity Futures Contracts
Contract volumes (1,000 bbls) 12,724 14,267
Weighted average price per bbl $ 29.11 $ 28.43
Contract value (in thousands) $370,366 $405,565
Fair value (in thousands) $400,760 $445,068
Commodity Forward Contracts:
Contract volumes (1,000 bbls) 6,869 4,895
Weighted average price per bbl $ 30.57 $ 30.59
Contract value (in thousands) $209,991 $149,758
Fair value (in thousands) $221,653 $158,541
Commodity Option Contracts:
Contract volumes (1,000 bbls) 11,430
Weighted average strike price per bbl $ 2.49
Contract value (in thousands) $ 3,278
Fair value (in thousands) $ 3,906
The table above presents notional amounts in barrels, the weighted average
contract price, total contract amount in U.S. dollars and total fair value
amount in U.S. dollars. Fair values were determined by using the notional
amount in barrels multiplied by the June 30, 2000 closing prices of the
applicable NYMEX futures contract adjusted for location and grade differentials,
as necessary.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I. Item 1. Note 8 to the Condensed Consolidated Financial
Statements entitled "Contingencies", which is incorporated herein by reference.
187
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 10 Credit Agreement dated as of June 6, 2000
by and between Genesis Crude Oil, L.P. and BNP Paribas
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K was filed on May 12, 2000, announcing the
proposed restructuring of the Partnership.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESIS ENERGY, L.P.
(A Delaware Limited Partnership)
By: GENESIS ENERGY, L.L.C., as
General Partner
Date: August 11, 2000 By: /s/ Ross A. Benavides
----------------------------
Ross A. Benavides
Chief Financial Officer
188
ANNEX E
GENESIS ENERGY, L.P. ANNUAL REPORT
ON FORM 10-K/A FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999
[FILED SUPPLEMENTALLY]
189
GENESIS ENERGY, L.P.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GENESIS
ENERGY L.L.C., THE GENERAL PARTNER OF THE PARTNERSHIP.
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Genesis Energy, L.P., to be held at 10:00 a.m. local time, on
December 7, 2000 at our offices at 500 Dallas, Suite 2500, Houston, TX 77002,
(b) acknowledges receipt of the proxy statement of the general partner in
connection therewith, dated October , 2000, (c) appoints Mark J. Gorman and
Ross A. Benavides, or either of them, each with full power to appoint his
substitute, as proxies of the undersigned, and (d) authorizes the proxies to
represent and vote, as designated on the reverse side hereof, all the common
units of the partnership which the undersigned would be entitled to vote if
personally present at the special meeting, or any adjournment thereof.
The undersigned hereby revokes any proxy to vote common units held by the
undersigned previously given to the extent such proxy permits the holder thereof
to vote on the matter covered by this proxy.
THE UNDERSIGNED ACKNOWLEDGES THAT THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED UNITHOLDER AND THAT, IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL.
This proxy may be revoked at any time prior to the voting of this proxy by
the execution and submission of a revised proxy or by voting in person at the
meeting.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING
POSTPAID ENVELOPE.
(Continued and to be signed on the reverse side.)
SEE REVERSE SIDE
190
The board of directors of the general partner recommends a vote "FOR" the
proposal that, if approved will:
o reduce the minimum quarterly distribution on the common units
from the current $0.50 per unit to $0.20 per unit;
o reduce correspondingly the respective per unit dollar thresholds
that must be achieved before the general partner is entitled to
incentive compensation payments from the current threshold levels
of $0.55, $0.635, and $0.825 per unit to the new threshold levels
of $0.25, $0.28, and $0.33 per unit;
o eliminate for no consideration all outstanding subordinated
limited partnership units and, as a result, terminate the
subordination period and eliminate the requirement that the
common units accrue arrearages for any future shortfalls in
quarterly distributions below the minimum quarterly distribution;
and
o eliminate for no consideration all outstanding additional
partnership interests.
A more detailed description of the proposal is contained in this
proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated:
-------------------------------------
Signature(s) of Unitholder(s)
(Executors, administrators, guardians, trustees, attorneys, and
officers signing for corporations or other organizations should
give full title. If a partnership or jointly owned, each owner
should sign.)
If you need assistance in voting your shares, please call
D.F. King & Co., Inc. toll free, at (800) 431-9643, or, outside
the United States, collect at [TELEPHONE NUMBER].
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