sv1za
As filed with the Securities and Exchange Commission on
November 18, 2005
Registration No. 333-128378
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DCP MIDSTREAM PARTNERS, LP
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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4922 |
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03-0567133 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
370 17th Street, Suite 2775
Denver, Colorado 80202
(303) 633-2900
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants Principal Executive Offices)
Michael J. Bradley
President and Chief Executive Officer
370 17th Street, Suite 2775
Denver, Colorado 80202
(303) 633-2900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
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Thomas P. Mason
Douglas E. McWilliams
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2300
Houston, Texas 77002
(713) 758-2222 |
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Joshua Davidson
Christopher J. Arntzen
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.
o
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information
in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not
permitted.
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Subject to Completion, dated
November 18, 2005
PROSPECTUS
9,000,000 Common Units
Representing Limited Partner Interests
DCP Midstream Partners, LP is a limited partnership recently
formed by Duke Energy Field Services, LLC. This is the initial
public offering of our common units. We expect the initial
public offering price to be between $19.00 and $21.00 per unit.
The common units have been approved for listing on the New York
Stock Exchange under the symbol DPM.
Investing in our common units involves risks. Please read
Risk Factors beginning on page 18.
These risks include the following:
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We may not have sufficient cash from operations following the
establishment of cash reserves and payment of fees and expenses,
including cost reimbursements to our general partner, to enable
us to make cash distributions to holders of our common units and
subordinated units at the initial distribution rate under our
cash distribution policy. |
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Because of the natural decline in production from existing
wells, our success depends on our ability to obtain new sources
of supplies of natural gas and natural gas liquids, which are
dependent on certain factors beyond our control. Any decrease in
supplies of natural gas or natural gas liquids could adversely
affect our business and operating results. |
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The cash flow from our Natural Gas Services segment is affected
by natural gas, natural gas liquid and condensate prices, and
decreases in these prices could adversely affect our ability to
make distributions to holders of our common units and
subordinated units. |
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We depend on certain natural gas producer customers for a
significant portion of our supply of natural gas and natural gas
liquids. The loss of any of these customers could result in a
decline in our volumes, revenues and cash available for
distribution. |
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Duke Energy Field Services, LLC controls our general partner,
which has sole responsibility for conducting our business and
managing our operations. Duke Energy Field Services, LLC has
conflicts of interest, which may permit it to favor its own
interests to your detriment. |
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Cost reimbursements due to our general partner and its
affiliates for services provided, which will be determined by
our general partner, will be substantial and will reduce our
cash available for distribution to you. |
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Holders of our common units have limited voting rights and are
not entitled to elect our general partner or its directors. |
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Even if holders of our common units are dissatisfied, they
cannot initially remove our general partner without its consent. |
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Control of our general partner may be transferred to a third
party without unitholder consent. |
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You will experience immediate and substantial dilution of $14.32
in tangible net book value per common unit. |
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You may be required to pay taxes on income from us even if you
do not receive any cash distributions from us. |
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Per Common Unit |
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Total |
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Initial public offering price
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$ |
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$ |
Underwriting discount (1)
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$ |
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$ |
Proceeds to DCP Midstream Partners, LP (before expenses)
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$ |
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(1) |
Excludes structuring fee of
$ payable
to Lehman Brothers Inc. and Citigroup Global Markets Inc. |
We have granted the underwriters a 30-day option to purchase up
to an additional 1,350,000 common units from us on the same
terms and conditions as set forth above if the underwriters sell
more than 9,000,000 common units in this offering.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
Lehman Brothers, on behalf of the underwriters, expects to
deliver the common units on or
about ,
2005.
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Lehman Brothers |
Citigroup |
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UBS Investment Bank |
Wachovia Securities |
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A.G. Edwards |
KeyBanc Capital Markets |
,
2005
TABLE OF CONTENTS
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iii
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus.
Our business, financial condition, results of operations and
prospects may have changed since that date.
Until ,
2005 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common units, whether or not
participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
iv
SUMMARY
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary may not contain all of the information
that you should consider before investing in the common units.
You should read the entire prospectus carefully, including the
historical and pro forma financial statements and the notes to
those financial statements. The information presented in this
prospectus assumes (1) an initial public offering price of
$20.00 per common unit and (2) that the
underwriters option to purchase additional units is not
exercised. You should read Risk Factors beginning on
page 18 for more information about important risks that you
should consider carefully before buying our common units. We
include a glossary of some of the terms used in this prospectus
as Appendix B.
DCP Midstream Partners, LP
Overview
We are a Delaware limited partnership recently formed by Duke
Energy Field Services, LLC to own, operate, acquire and develop
a diversified portfolio of complementary midstream energy
assets. We are currently engaged in the business of gathering,
compressing, treating, processing, transporting and selling
natural gas and the business of transporting and selling natural
gas liquids. Supported by our relationship with Duke Energy
Field Services, LLC and its parents, Duke Energy Corporation and
ConocoPhillips, we intend to acquire and construct additional
assets and we have a management team dedicated to executing our
growth strategy.
Our operations are organized into two business segments, Natural
Gas Services and NGL Logistics.
Our Natural Gas Services segment is comprised of our North
Louisiana system, which is an approximately 1,430-mile
integrated pipeline system located in northern Louisiana and
southern Arkansas that gathers, compresses, treats, processes,
transports and sells natural gas received from approximately
1,100 receipt points, each of which represents production from
one or more wells in the adjacent area, and that sells natural
gas liquids. This system consists of the following:
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the Minden processing plant and gathering system, which includes
a cryogenic natural gas processing plant supplied by
approximately 700 miles of natural gas gathering pipelines,
connected to approximately 460 receipt points, with throughput
capacity of approximately 115 MMcf/d; |
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the Ada processing plant and gathering system, which includes a
refrigeration natural gas processing plant supplied by
approximately 130 miles of natural gas gathering pipelines,
connected to approximately 210 receipt points, with throughput
capacity of approximately 80 MMcf/d; and |
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the PanEnergy Louisiana Intrastate pipeline system, an
approximately 600-mile intrastate natural gas gathering and
transportation pipeline with throughput capacity of
approximately 250 MMcf/d and connections to the Minden and
Ada processing plants and approximately 450 other receipt
points. This pipeline system delivers natural gas to multiple
interstate and intrastate pipelines, as well as directly to
industrial and utility end-use markets. |
Our NGL Logistics segment consists of the following:
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our Seabreeze pipeline, an approximately 68-mile intrastate
natural gas liquid pipeline in Texas with throughput capacity of
33 MBbls/d; and |
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our 45% interest in the Black Lake Pipe Line Company, the owner
of an approximately 317-mile interstate natural gas liquid
pipeline in Louisiana and Texas with throughput capacity of
40 MBbls/d. |
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For the year ended December 31, 2004 and the nine months
ended September 30, 2005, we generated net income of
approximately $20.4 million and $18.4 million,
respectively, and net cash provided by operating activities of
$25.6 million and $7.7 million, respectively. Our net
income for the year ended December 31, 2004 included a
non-cash impairment charge of $4.4 million.
1
Business Strategies
Our primary business objective is to increase our cash
distribution per unit over time. We intend to accomplish this
objective by executing the following business strategies:
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Optimize: maximize the profitability of existing assets |
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We intend to optimize the profitability of our existing assets
by adding new volumes of natural gas and natural gas liquids and
undertaking additional initiatives to enhance asset utilization
and to improve operating efficiencies. |
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Our natural gas assets and natural gas liquid pipelines have
excess capacity, which allows us to increase our throughput
volumes at minimal incremental cost. |
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Build: capitalize on organic expansion opportunities |
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We continually evaluate economically attractive organic
expansion opportunities in new or existing areas of operation
that will allow us to leverage our existing market position,
increase the profitability of our existing assets through
improved utilization and efficiency, and leverage our core
competitiveness in the midstream energy industry. |
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Acquire: pursue strategic and accretive acquisitions |
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We plan to pursue strategic and accretive acquisition
opportunities within the midstream energy industry, both in new
and existing lines of business and geographic areas of operation. |
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We intend to pursue acquisition opportunities both independently
and jointly with Duke Energy Field Services, LLC and its
parents, Duke Energy Corporation and ConocoPhillips, and we may
also acquire assets directly from them, which will provide us
with a broader array of growth opportunities than those
available to many of our competitors. |
Competitive Strengths
We believe that we are well positioned to execute our primary
business objective and business strategies successfully because
of the following competitive strengths:
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our ability to grow through acquisitions and to access other
business opportunities is significantly enhanced by our
affiliation with Duke Energy Field Services, LLC, which is one
of the largest gatherers of natural gas (based on wellhead
volume), the largest producer of natural gas liquids and one of
the largest marketers of natural gas liquids in North America,
and its parents, Duke Energy Corporation and ConocoPhillips; |
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our assets have strong market positions and are strategically
located in areas of high demand for our services; |
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our operations consist of a favorable mix of fee-based and
margin-based services, which together with our hedging
activities, generate relatively stable cash flows; |
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our ability to provide an integrated package of services to
natural gas producers, including natural gas gathering,
compression, treating, processing, transportation and sales,
provides us with an advantage in competing for new supplies of
natural gas because we can provide substantially all of the
services producers, marketers and others require to move natural
gas and natural gas liquids from wellhead to market on a
cost-effective basis; |
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the senior management team and board of directors of our general
partner will include some of the most senior officers of Duke
Energy Field Services, LLC who, through its previous ownership
of the general partner of TEPPCO Partners, L.P. from March 2000
until February 2005, have substantial experience in operating
and growing a master limited partnership engaged in the
midstream energy industry. During this period, TEPPCO Partners,
L.P. diversified into gas gathering and natural gas liquid
pipelines and significantly increased its scope of operations
and internal growth prospects; |
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our relationship with Duke Energy Field Services, LLC and its
parents will provide us with a wide breadth of operational,
commercial, technical, risk management and other expertise
across a wide range of businesses and geographies; and |
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Duke Energy Field Services, LLC and its parents, Duke Energy
Corporation and Conoco Phillips, have strong relationships
throughout the energy industry, including with major producers
of natural gas and natural gas liquids in the United States, and
have established a positive reputation in the energy business
which we believe will assist us in our primary business
objective. |
Summary of Risk Factors
An investment in our common units involves risks associated with
our business, regulatory and legal matters, our limited
partnership structure and the tax characteristics of our common
units. The following list of risk factors is not exhaustive.
Please read carefully these and other risks described under
Risk Factors beginning on page 18.
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Risks Related to Our Business |
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We may not have sufficient cash from operations following the
establishment of cash reserves and payment of fees and expenses,
including cost reimbursements to our general partner, to enable
us to make cash distributions to holders of our common units and
subordinated units at the initial distribution rate under our
cash distribution policy. |
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The amount of cash we have available for distribution to holders
of our common units and subordinated units depends primarily on
our cash flow and not solely on profitability. |
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The assumptions underlying the forecast of cash available for
distribution we include in Our Cash Distribution Policy
and Restrictions on Distributions are inherently uncertain
and are subject to significant business, economic, financial,
regulatory and competitive risks and uncertainties that could
cause actual results to differ materially from those forecasted. |
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Because of the natural decline in production from existing
wells, our success depends on our ability to obtain new sources
of supplies of natural gas and natural gas liquids, which are
dependent on certain factors beyond our control. Any decrease in
supplies of natural gas or natural gas liquids could adversely
affect our business and operating results. |
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The cash flow from our Natural Gas Services segment is affected
by natural gas, natural gas liquid and condensate prices, and
decreases in these prices could adversely affect our ability to
make distributions to holders of our common units and
subordinated units. |
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Our hedging activities may have a material adverse effect on our
earnings, profitability, cash flows and financial condition. |
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We typically do not obtain independent evaluations of natural
gas reserves dedicated to our gathering and pipeline systems;
therefore, volumes of natural gas on our systems in the future
could be less than we anticipate. |
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We depend on certain natural gas producer customers for a
significant portion of our supply of natural gas and natural gas
liquids. The loss of any of these customers could result in a
decline in our volumes, revenues and cash available for
distribution. |
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We may not successfully balance our purchases and sales of
natural gas, which would increase our exposure to commodity
price risks. |
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If third-party pipelines and other facilities interconnected to
our natural gas and natural gas liquid pipelines and facilities
become unavailable to transport or produce natural gas and
natural gas liquids, our revenues and cash available for
distribution could be adversely affected. |
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Risks Inherent in an Investment in Us |
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Duke Energy Field Services, LLC controls our general partner,
which has sole responsibility for conducting our business and
managing our operations. Duke Energy Field Services, LLC has
conflicts of interest, which may permit it to favor its own
interests to your detriment. |
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Duke Energy Field Services, LLC and its affiliates are not
limited in their ability to compete with us, which could cause
conflicts of interest and limit our ability to acquire
additional assets or businesses |
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which in turn could adversely affect our results of operations
and cash available for distribution to our unitholders. |
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Cost reimbursements due to our general partner and its
affiliates for services provided, which will be determined by
our general partner, will be substantial and will reduce our
cash available for distribution to you. |
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Our partnership agreement limits our general partners
fiduciary duties to holders of our common units and subordinated
units. |
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Our partnership agreement restricts the remedies available to
holders of our common units and subordinated units for actions
taken by our general partner that might otherwise constitute
breaches of fiduciary duty. |
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Our general partner may elect to cause us to issue Class B
units to it in connection with a resetting of the target
distribution levels related to our general partners
incentive distribution rights without the approval of the
conflicts committee of our general partner or holders of our
common units and subordinated units. This may result in lower
distributions to holders of our common units in certain
situations. |
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Holders of our common units have limited voting rights and are
not entitled to elect our general partner or its directors. |
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Even if holders of our common units are dissatisfied, they
cannot initially remove our general partner without its consent. |
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Control of our general partner may be transferred to a third
party without unitholder consent. |
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You will experience immediate and substantial dilution of
$14.32 in tangible net book value per common unit. |
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We may issue additional units without your approval, which would
dilute your existing ownership interests. |
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Tax Risks to Common Unitholders |
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Our tax treatment depends on our status as a partnership for
federal income tax purposes, as well as our not being subject to
entity-level taxation by individual states. If the Internal
Revenue Service treats us as a corporation or we become subject
to entity-level taxation for state tax purposes, it would
substantially reduce the amount of cash available for
distribution to our unitholders. |
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An Internal Revenue Service contest of the federal income tax
positions we take may adversely affect the market for our common
units, and the cost of any Internal Revenue Service contest will
reduce our cash available for distribution to our unitholders. |
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You may be required to pay taxes on income from us even if you
do not receive any cash distributions from us. |
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Tax gain or loss on disposition of common units could be more or
less than expected. |
4
Formation Transactions and Partnership Structure
General
At the closing of this offering the following transactions will
occur:
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Duke Energy Field Services, LLC or its subsidiaries will
contribute certain of their assets to us or our subsidiaries; |
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we will issue to Duke Energy Field Services, LLC or its
subsidiaries 1,357,143 common units and 7,142,857 subordinated
units, representing a 47.6% limited partner interest in us; |
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we will issue to DCP Midstream GP, LP, a subsidiary of Duke
Energy Field Services, LLC, a 2% general partner interest in us
and all of our incentive distribution rights, which will entitle
our general partner to increasing percentages of the cash we
distribute in excess of $0.4025 per unit per quarter; |
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we expect to enter into up to a $400 million credit
facility consisting of up to a $175 million term loan
facility and up to a $250 million revolving credit facility
for working capital and other general partnership purposes,
including acquisitions, and at the closing of the offering we
expect to borrow $61 million under the term loan facility
and $110 million under the revolving credit facility; |
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we will enter into an omnibus agreement with Duke Energy Field
Services, LLC and our general partner which will address, among
other things: |
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our reimbursement of expenses to Duke Energy Field Services, LLC
for the payment of certain operating expenses and for providing
various general and administrative services; and |
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Duke Energy Field Services, LLCs and our mutual
indemnification of one another for certain environmental and
other liabilities; |
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we expect to enter into a natural gas liquids transportation
agreement with Duke Energy Field Services, LLC for natural gas
liquids transported on our Seabreeze pipeline; and |
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we will issue 9,000,000 common units to the public in this
offering, representing a 50.4% limited partner interest in us,
and will use the proceeds as described in Use of
Proceeds. |
DCP Midstream GP, LP, our general partner, has sole
responsibility for conducting our business and for managing our
operations. Because our general partner is a limited
partnership, its general partner, DCP Midstream GP, LLC, will
conduct our business and operations, and the board of directors
and officers of DCP Midstream GP, LLC will make decisions on our
behalf. Duke Energy Field Services, LLC will elect all ten
members to the board of directors of DCP Midstream GP, LLC, with
four directors meeting the independence standards established by
the New York Stock Exchange. For more information about these
individuals, please read Management Directors
and Executive Officers beginning on page 119.
As is common with publicly traded limited partnerships and in
order to maximize operational flexibility, we will conduct our
operations through subsidiaries. We will have one direct
subsidiary initially, DCP Midstream Operating, LP, a limited
partnership that will conduct business through itself and its
subsidiaries.
The diagram on the following page depicts our organization and
ownership after giving effect to the offering and the related
formation transactions.
5
Organizational Structure After the Transactions
Ownership of DCP Midstream Partners,
LP(1)
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Public Common Units
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50.4% |
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Duke Energy Field Services, LLC and Subsidiaries Common and
Subordinated Units
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47.6% |
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General Partner Units
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2.0% |
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Total
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100.0% |
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(1) |
Assuming no exercise of the underwriters option to
purchase additional common units. |
6
Principal Executive Offices and Internet Address
Our principal executive offices are located at 370
17th Street, Suite 2775, Denver, Colorado 80202 and
our telephone number is (303) 633-2900. Our website is
located at www.dcppartners.com. We expect to make our periodic
reports and other information filed with or furnished to the
Securities and Exchange Commission, which we refer to as the
SEC, available, free of charge, through our website, as soon as
reasonably practicable after those reports and other information
are electronically filed with or furnished to the SEC.
Information on our website or any other website is not
incorporated by reference into this prospectus and does not
constitute a part of this prospectus.
Summary of Conflicts of Interest and Fiduciary Duties
General. DCP Midstream GP, LP, our general partner, has a
legal duty to manage us in a manner beneficial to holders of our
common units and subordinated units. This legal duty originates
in statutes and judicial decisions and is commonly referred to
as a fiduciary duty. However, because our general
partner is owned by Duke Energy Field Services, LLC, the
officers and directors of our general partner also have
fiduciary duties to manage our general partner in a manner
beneficial to Duke Energy Field Services, LLC. As a result of
this relationship, conflicts of interest may arise in the future
between us and holders of our common units and subordinated
units, on the one hand, and our general partner and its
affiliates on the other hand. For example, our general partner
will be entitled to make determinations that affect our ability
to make cash distributions, including determinations related to:
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the manner in which our business is operated; |
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the level of our borrowings and the amount; |
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the amount, nature and timing of our capital expenditures; |
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asset purchases and sales and other acquisitions and
dispositions; and |
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the amount of cash reserves necessary or appropriate to satisfy
general, administrative and other expenses and debt service
requirements, and otherwise provide for the proper conduct of
our business. |
These determinations will have an effect on the amount of cash
distributions we make to the holders of common units which in
turn has an effect on whether our general partner receives
incentive cash distributions as discussed below.
Partnership Agreement Modifications to Fiduciary Duties.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner to holders of our common
units and subordinated units. Our partnership agreement also
restricts the remedies available to holders of our common units
and subordinated units for actions that might otherwise
constitute a breach of our general partners fiduciary
duties owed to holders of our common units and subordinated
units. Our partnership agreement also provides that Duke Energy
Field Services, LLC, Duke Energy Corporation, ConocoPhillips or
their affiliates are not restricted from competing with us. By
purchasing a common unit, the purchaser agrees to be bound by
the terms of our partnership agreement and, pursuant to the
terms of our partnership agreement, each holder of common units
consents to various actions contemplated in the partnership
agreement and conflicts of interest that might otherwise be
considered a breach of fiduciary or other duties under
applicable state law.
For a more detailed description of the conflicts of interest and
fiduciary duties of our general partner, please read
Conflicts of Interest and Fiduciary Duties beginning
on page 130.
Our General Partners Rights to Receive Incentive
Distributions
Incentive Distributions. In addition to its 2% general
partner interest, our general partner holds the incentive
distribution rights, which are non-voting limited partner
interests that represent the right to receive an increasing
percentage of quarterly distributions of available cash as
higher target distribution levels of cash
7
have been distributed to the unitholders. The following table
shows how our available cash from operating surplus is allocated
among our unitholders and the general partner as higher target
distribution levels are met:
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Marginal Percentage Interest | |
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in Distributions | |
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Total Quarterly |
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General Partner | |
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Distribution |
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Per Unit |
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General | |
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Incentive | |
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Partner | |
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Distribution | |
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Target Distribution Level |
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Unitholders | |
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Interest | |
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Rights | |
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Minimum Quarterly Distribution
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$0.35 |
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98 |
% |
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2 |
% |
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0 |
% |
First Target Distribution
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up to $0.4025 |
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98 |
% |
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2 |
% |
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0 |
% |
Second Target Distribution
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above $0.4025 up to $0.4375 |
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85 |
% |
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2 |
% |
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13 |
% |
Third Target Distribution
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above $0.4375 up to $0.525 |
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75 |
% |
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2 |
% |
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23 |
% |
Thereafter
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above $0.525 |
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50 |
% |
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2 |
% |
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48 |
% |
For a more detailed description of the incentive distribution
rights, please read Provisions of Our Partnership
Agreement Relating to Cash Distributions General
Partner Interest and Incentive Distribution Rights
beginning on page 60.
Our General Partners Right to Reset the Target
Distribution Levels. Our general partner has the right, at a
time when there are no subordinated units outstanding and it has
received incentive distributions at the highest level to which
it is entitled (48%) for each of the prior four consecutive
fiscal quarters, to reset the initial cash target distribution
levels at higher levels based on the distribution at the time of
the exercise of the reset election. Following a reset election
by our general partner, the minimum quarterly distribution
amount will be reset to an amount equal to the average cash
distribution amount per common unit for the two fiscal quarters
immediately preceding the reset election (such amount is
referred to as the reset minimum quarterly
distribution) and the target distribution levels will be
reset to correspondingly higher levels based on percentage
increases above the reset minimum quarterly distribution amount.
As a result, following a reset, we would distribute all of our
available cash from operating surplus for each quarter
thereafter as follows (assuming our general partner maintains
its 2% general partner interest):
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first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives an amount equal
to 115% of the reset minimum quarterly distribution for that
quarter; |
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second, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives an amount per
unit equal to 125% of the reset minimum quarterly distribution
for that quarter; |
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third, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives an amount per
unit equal to 150% of the reset minimum quarterly distribution
for that quarter; and |
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thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner. |
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In connection with resetting these target distribution levels,
our general partner will be entitled to receive a number of
Class B units. The Class B units will be entitled to
the same cash distributions per unit as our common units and
will be convertible into an equal number of common units. The
number of Class B units to be issued will be equal to that
number of common units whose aggregate quarterly cash
distributions equaled the average of the distributions to our
general partner on the incentive distribution rights in the
prior two quarters. For a more detailed description of our
general partners right to reset the target distribution
levels upon which the incentive distribution payments are based
and the concurrent right of our general partner to receive
Class B units in connection with this reset, please read
Provisions of Our Partnership Agreement Related to Cash
Distributions General Partners Rights to Reset
Target Distribution Levels beginning on page 61.
Effects of Resetting the Target Distribution Levels.
Following the reset of these target distribution levels, our
general partner would not be entitled to receive any incentive
distributions from us until these new higher target distribution
levels are achieved on all outstanding common units and the
newly-issued Class B units. We anticipate that our general
partner would exercise this reset right in order to facilitate
acquisitions or internal growth projects that would not be
sufficiently accretive to cash distributions per common unit
without
8
such conversion; however, it is possible that our general
partner could exercise this reset election at a time when it is
experiencing, or may be expected to experience, declines in the
cash distributions it receives related to its incentive
distribution rights. In this situation, our general partner may
desire to be issued Class B units, which are entitled to
receive cash distributions from us on the same priority as our
common units, rather than retain the right to receive incentive
distributions based on the initial target distribution levels.
The receipt of cash distributions on the same priority as our
common units may be more advantageous for our general partner as
compared with the right to receive incentive distribution
payments based on the initial target distribution levels that
may be less certain to be achieved in the then current business
environment. As a result of the issuance of Class B units
having the same priority with respect to cash distributions as
our common units, a reset election and concurrent issuance of
Class B units to our general partner may cause our common
unitholders to experience dilution in the amount of cash
distributions that they would have otherwise received had we not
issued new Class B units to our general partner.
Our general partner will have the right to reset the target
distribution levels and receive Class B units in connection
with this reset without the approval of the conflicts committee
of the board of directors of our general partner or our
unitholders.
For a more detailed discussion of the risks associated with our
general partners right to reset the incentive distribution
levels, please read Risk Factors Risks
Inherent in an Investment in Us Our general partner
may elect to cause us to issue Class B units to it in
connection with a resetting of the target distribution levels
related to our general partners incentive distribution
rights without the approval of the conflicts committee of our
general partner or holders of our common units and subordinated
units. This may result in lower distributions to holders of our
common units in certain situations on page 32.
9
The Offering
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Common units offered to the public |
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9,000,000 common units. |
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Common units subject to the underwriters option to
purchase additional common units |
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If the underwriters exercise their option to purchase additional
units in full, we will issue 1,350,000 additional common units
to the public and redeem 1,350,000 common units from a
subsidiary of Duke Energy Field Services, LLC, who may be deemed
to be a selling unitholder in this offering. Please read
Selling Unitholder on page 166. |
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Units outstanding after this offering |
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10,357,143 common units and 7,142,857 subordinated units,
representing 58.0% and 40.0%, respectively, limited partner
interests in us. |
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Use of proceeds |
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We intend to use the estimated net proceeds of approximately
$168.3 million from this offering, after deducting
underwriting discounts and a structuring fee but before paying
offering expenses to: |
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purchase $61.0 million of United States
Treasury and other qualifying securities, which will be assigned
as collateral to secure the term loan portion of our credit
facility; |
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pay approximately $4.7 million of expenses
associated with the offering and related formation transactions; |
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use approximately $53.9 million to fund
payables; |
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distribute approximately $8.0 million in cash
to affiliates of Duke Energy Field Services as reimbursement for
capital expenditures incurred by affiliates of Duke Energy Field
Services related to the assets to be contributed to us upon the
closing of this offering; and |
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use the remaining amount of approximately
$40.7 million to fund future capital expenditures
(including potential acquisitions), working capital and other
general partnership purposes. |
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We also anticipate that we will borrow approximately
$110.0 million under our revolving credit facility and
approximately $61.0 million under our term loan facility
upon the closing of this offering, and we will distribute the
aggregate amount of the proceeds of such borrowings to
affiliates of Duke Energy Field Services. |
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If the underwriters option to purchase additional common
units is exercised, we will (1) use the net proceeds to
purchase an equivalent amount of United States Treasury and
other qualifying securities, which will be assigned as
collateral to secure the additional term loan borrowings
described below and (2) borrow an additional amount under
the term loan portion of our credit facility equal to the net
proceeds to be received from the exercise of the
underwriters option. The proceeds of the additional term
loan borrowings will be used to redeem from a subsidiary of Duke
Energy Field Services, LLC a number of common units equal to the
number of common units issued upon exercise of the
underwriters option, at a price per common unit equal to
the |
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proceeds per common unit before expenses but after underwriting
discounts and a structuring fee. |
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Cash distributions |
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Our general partner will adopt a cash distribution policy that
will require us to pay cash distributions at an initial
distribution rate of $0.35 per common unit per quarter
($1.40 per common unit on an annualized basis) through
December 31, 2006 to the extent we have sufficient cash
from operations after establishment of cash reserves and payment
of fees and expenses, including payments to our general partner
and its affiliates. Our ability to pay cash distributions at
this initial distribution rate is subject to various
restrictions and other factors described in more detail under
the caption Our Cash Distribution Policy and Restrictions
on Distributions beginning on page 43. |
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Our partnership agreement requires us to distribute all of our
cash on hand at the end of each quarter, less reserves
established by our general partner. We refer to this cash as
available cash, and we define its meaning in our
partnership agreement and in the glossary of terms attached as
Appendix B. Our partnership agreement also requires that we
distribute all of our available cash from operating surplus each
quarter in the following manner: |
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first, 98% to the holders of common units and 2% to
our general partner, until each common unit has received a
minimum quarterly distribution of $0.35 plus any arrearages from
prior quarters; |
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second, 98% to the holders of subordinated units and
2% to our general partner, until each subordinated unit has
received a minimum quarterly distribution of $0.35; and |
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third, 98% to all unitholders, pro rata, and 2% to
our general partner, until each unit has received a distribution
of $0.4025. |
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If cash distributions to our unitholders exceed $0.4025 per
common unit in any quarter, our general partner will receive, in
addition to distributions on its 2% general partner interest,
increasing percentages, up to 48%, of the cash we distribute in
excess of that amount. We refer to these distributions as
incentive distributions. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions beginning on page 57. |
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The amount of pro forma available cash generated during the year
ended December 31, 2004 and the twelve months ended
September 30, 2005 would have been sufficient to allow us
to pay the full minimum quarterly distribution on all of our
common units and 92.2% and 89.2%, respectively, of the minimum
quarterly distribution on our subordinated units during those
periods. Please read Our Cash Distribution Policy and
Restrictions on Distributions beginning on page 43. |
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We believe that, based on the Statement of Forecasted Results of
Operations and Cash Flows for the Twelve Months Ending
December 31, 2006 included under the caption Our Cash
Distribution Policy and Restrictions on Distributions
beginning |
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on page 43, we will have sufficient cash available for
distribution to make cash distributions for the four quarters
ending December 31, 2006 at the initial distribution rate
of $0.35 per common unit per quarter ($1.40 per common
unit on an annualized basis) on all common units and
subordinated units. |
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Subordinated units |
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A subsidiary of Duke Energy Field Services, LLC will initially
own all of our subordinated units. The principal difference
between our common units and subordinated units is that in any
quarter during the subordination period, holders of the
subordinated units are entitled to receive the minimum quarterly
distribution of $0.35 per unit only after the common units
have received the minimum quarterly distribution plus any
arrearages in the payment of the minimum quarterly distribution
from prior quarters. Subordinated units will not accrue
arrearages. The subordination period generally will end if we
have earned and paid at least $1.40 on each outstanding unit and
general partner unit for any three consecutive, non-overlapping
four-quarter periods ending on or after December 31, 2010.
The subordination period may also end on or after
December 31, 2008, if certain financial tests are met as
described below but the subordination period will not end prior
to December 31, 2008 under any circumstances other than
upon the removal of our general partner other than for cause and
the units held by our general partner and its affiliates are not
voted in favor of such removal. |
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When the subordination period ends, all remaining subordinated
units will convert into common units on a one-for-one basis, and
the common units will no longer be entitled to arrearages. |
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Early conversion of subordinated units |
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If we have earned and paid at least $1.40 on each outstanding
unit and general partner unit for any two consecutive,
non-overlapping four-quarter periods ending on or after
December 31, 2007, 50% of the subordinated units will
convert into common units at the end of such period. In
addition, if we have earned and paid at least $1.75 (125% of the
annualized minimum quarterly distribution) on each outstanding
unit and general partner unit for any two consecutive,
non-overlapping four-quarter periods ending on or after
December 31, 2008, an additional 50% of the subordinated
units will convert into common units at the end of such period.
The early conversion of the second 50% of the subordinated units
may not occur until at least one year after the early conversion
of the first 50% of the subordinated units. |
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Issuance of additional units |
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We can issue an unlimited number of units without the consent of
our unitholders. Please read Units Eligible for Future
Sale beginning on page 152 and The Partnership
Agreement Issuance of Additional Securities
beginning on page 142. |
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Limited voting rights |
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Our general partner will manage and operate us. Unlike the
holders of common stock in a corporation, you will have only
limited voting rights on matters affecting our business. You
will have no right to elect our general partner or its directors
on an annual or other continuing basis. Our general partner may
not be |
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removed except by a vote of the holders of at least
662/3%
of the outstanding units, including any units owned by our
general partner and its affiliates, voting together as a single
class. Upon consummation of this offering, our general partner
and its affiliates will own an aggregate of 48.6% of our common
and subordinated units. This will give our general partner the
ability to prevent its involuntary removal. Please read
The Partnership Agreement Voting Rights
beginning on page 140. |
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Limited call right |
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If at any time our general partner and its affiliates own more
than 80% of the outstanding common units, our general partner
has the right, but not the obligation, to purchase all of the
remaining common units at a price not less than the then-current
market price of the common units. |
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Estimated ratio of taxable income to distributions |
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We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ending December 31, 2008, you will be allocated, on
a cumulative basis, an amount of federal taxable income for that
period that will be 30% or less of the cash distributed to you
with respect to that period. For example, if you receive an
annual distribution of $1.40 per unit, we estimate that
your average allocable federal taxable income per year will be
no more than $0.42 per unit. Please read Material Tax
Consequences Tax Consequences of Unit
Ownership Ratio of Taxable Income to
Distributions beginning on page 155. |
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Material tax consequences |
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For a discussion of other material federal income tax
consequences that may be relevant to prospective unitholders who
are individual citizens or residents of the United States,
please read Material Tax Consequences beginning on
page 153. |
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Exchange listing |
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The common units have been approved for listing on the New York
Stock Exchange under the symbol DPM. |
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13
Summary Historical and Pro Forma Financial and Operating
Data
The following table shows summary historical financial and
operating data of DCP Midstream Partners Predecessor and
pro forma financial data of DCP Midstream Partners, LP
for the periods and as of the dates indicated. The historical
financial statements included in this prospectus beginning on
page F-9 reflect the assets, liabilities and operations to be
contributed to us by Duke Energy Field Services, LLC and its
wholly-owned subsidiaries upon the closing of this offering. We
refer to these assets, liabilities and operations as
DCP Midstream Partners Predecessor. The summary historical
financial data as of December 31, 2003 and 2004 and as of
September 30, 2005, as well as the summary historical
financial data for the years ended December 31, 2002, 2003
and 2004 and for the nine months ended September 30, 2005,
are derived from the audited financial statements of
DCP Midstream Partners Predecessor. The summary historical
financial data as of December 31, 2002 and for the nine
months ended September 30, 2004 are derived from the
unaudited financial statements of DCP Midstream Partners
Predecessor. The summary pro forma financial data for the nine
months ended September 30, 2005 and for the year ended
December 31, 2004 are derived from the unaudited pro forma
financial statements of DCP Midstream Partners, LP
included in this prospectus beginning on page F-2. The pro
forma adjustments have been prepared as if certain transactions
to be effected at the closing of this offering had taken place
on September 30, 2005, in the case of the pro forma balance
sheet, or as of January 1, 2004, in the case of the pro
forma statement of operations for the nine months ended
September 30, 2005 and for the year ended December 31,
2004. These transactions include:
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the issuance by us of common units to the public; |
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the payment of estimated underwriting commissions and other
expenses; |
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the proceeds received from borrowings under our new credit
facility; |
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the distribution to Duke Energy Field Services, LLC of a portion
of the net proceeds from this offering and from borrowings under
our new credit facility; |
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the purchase of United States Treasury and other qualifying
securities; |
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the retention by Duke Energy Field Services, LLC of DCP
Midstream Partners Predecessors accounts receivable and a
5% interest in the Black Lake Pipe Line Company; and |
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the execution of a transportation agreement related to the
Seabreeze pipeline between us and Duke Energy Field Services,
LLC. |
The following table includes the non-GAAP financial measures of
(1) EBITDA, (2) gross margin and (3) segment
gross margin. For a definition of the measures and a
reconciliation to their most directly comparable financial
measures calculated and presented in accordance with generally
accepted accounting principles, which we refer to as GAAP,
please read Non-GAAP Financial Measures
beginning on page 16.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP Midstream Partners Predecessor | |
|
|
|
|
| |
|
DCP Midstream Partners, LP | |
|
|
|
|
|
|
Pro Forma | |
|
|
|
|
Nine | |
|
| |
|
|
|
|
Months | |
|
|
|
Nine | |
|
|
Year Ended | |
|
Ended | |
|
|
|
Months | |
|
|
December 31, | |
|
September 30, | |
|
Year Ended | |
|
Ended | |
|
|
| |
|
| |
|
December 31, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions except per unit and operating data) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
283.2 |
|
|
$ |
454.0 |
|
|
$ |
489.7 |
|
|
$ |
354.4 |
|
|
$ |
494.2 |
|
|
$ |
333.5 |
|
|
$ |
351.0 |
|
|
Transportation and processing
|
|
|
14.3 |
|
|
|
18.6 |
|
|
|
19.9 |
|
|
|
15.0 |
|
|
|
16.7 |
|
|
|
23.4 |
|
|
|
19.4 |
|
|
Gains and (losses) from non-trading derivative activity
|
|
|
(0.3 |
) |
|
|
2.5 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
297.2 |
|
|
|
475.1 |
|
|
|
509.5 |
|
|
|
369.3 |
|
|
|
510.9 |
|
|
|
356.8 |
|
|
|
370.4 |
|
|
Purchases of natural gas and NGLs
|
|
|
256.8 |
|
|
|
430.6 |
|
|
|
452.6 |
|
|
|
327.5 |
|
|
|
464.4 |
|
|
|
299.7 |
|
|
|
323.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
40.4 |
|
|
|
44.5 |
|
|
|
56.9 |
|
|
|
41.8 |
|
|
|
46.5 |
|
|
|
57.1 |
|
|
|
46.5 |
|
|
Operating and maintenance expense
|
|
|
14.0 |
|
|
|
15.0 |
|
|
|
13.6 |
|
|
|
9.7 |
|
|
|
11.5 |
|
|
|
13.6 |
|
|
|
11.5 |
|
|
General and administrative expense
|
|
|
6.1 |
|
|
|
7.1 |
|
|
|
6.5 |
|
|
|
4.8 |
|
|
|
8.2 |
|
|
|
6.5 |
|
|
|
8.2 |
|
|
Earnings from equity method investment
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
Impairment of equity method investment
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
20.8 |
|
|
|
22.8 |
|
|
|
33.0 |
|
|
|
23.3 |
|
|
|
27.2 |
|
|
|
33.5 |
|
|
|
27.2 |
|
|
Depreciation and amortization expense
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
12.6 |
|
|
|
8.8 |
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
|
$ |
17.8 |
|
|
$ |
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.99 |
|
|
$ |
0.83 |
|
Segment Financial and Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Services Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$ |
39.1 |
|
|
$ |
42.2 |
|
|
$ |
53.6 |
|
|
$ |
39.3 |
|
|
$ |
43.8 |
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas throughput (MMcf/d)
|
|
|
363 |
|
|
|
348 |
|
|
|
328 |
|
|
|
332 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
NGL gross production (Bbls/d)
|
|
|
4,186 |
|
|
|
4,381 |
|
|
|
4,690 |
|
|
|
4,652 |
|
|
|
4,795 |
|
|
|
|
|
|
|
|
|
|
NGL Logistics Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$ |
1.3 |
|
|
$ |
2.3 |
|
|
$ |
3.3 |
|
|
$ |
2.5 |
|
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seabreeze throughput (Bbls/d)
|
|
|
7,206 |
|
|
|
14,685 |
|
|
|
14,966 |
|
|
|
14,903 |
|
|
|
15,334 |
|
|
|
|
|
|
|
|
|
|
|
|
Black Lake throughput - 50% interest (Bbls/d) (a)
|
|
|
5,099 |
|
|
|
5,547 |
|
|
|
5,256 |
|
|
|
5,237 |
|
|
|
4,972 |
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
193.5 |
|
|
$ |
181.9 |
|
|
$ |
172.0 |
|
|
|
|
|
|
$ |
168.8 |
|
|
|
|
|
|
$ |
168.8 |
|
Total assets
|
|
$ |
249.3 |
|
|
$ |
239.5 |
|
|
$ |
241.1 |
|
|
|
|
|
|
$ |
278.4 |
|
|
|
|
|
|
$ |
339.2 |
|
Accounts payable
|
|
$ |
26.0 |
|
|
$ |
35.5 |
|
|
$ |
39.8 |
|
|
|
|
|
|
$ |
53.9 |
|
|
|
|
|
|
$ |
53.9 |
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
171.0 |
|
Partners capital/Net parent equity
|
|
$ |
220.7 |
|
|
$ |
201.1 |
|
|
$ |
198.4 |
|
|
|
|
|
|
$ |
214.2 |
|
|
|
|
|
|
$ |
104.0 |
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$ |
21.3 |
|
|
$ |
30.8 |
|
|
$ |
25.6 |
|
|
$ |
26.3 |
|
|
$ |
7.7 |
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
$ |
(22.4 |
) |
|
$ |
(1.2 |
) |
|
$ |
(2.5 |
) |
|
$ |
(0.3 |
) |
|
$ |
(4.7 |
) |
|
|
|
|
|
|
|
|
|
Financing activities
|
|
$ |
1.1 |
|
|
$ |
(29.6 |
) |
|
$ |
(23.1 |
) |
|
$ |
(26.0 |
) |
|
$ |
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents 50% of the throughput volumes of the Black Lake
pipeline. Following this offering, we will own a 45% interest in
the Black Lake Pipe Line Company. |
|
15
Non-GAAP Financial Measures
We include in this prospectus the non-GAAP financial measures
(1) EBITDA, (2) gross margin and (3) segment
gross margin. We provide reconciliations of these non-GAAP
financial measures to their most directly comparable financial
measures as calculated and presented in accordance with GAAP.
We define EBITDA as net income plus net interest expense and
depreciation and amortization expense. EBITDA is used as a
supplemental liquidity measure by our management and by external
users of our financial statements such as investors, commercial
banks, research analysts and others, to assess the ability of
our assets to generate cash sufficient to pay interest costs,
support our indebtedness, make cash distributions to our
unitholders and general partner and finance maintenance capital
expenditures. EBITDA is also a financial measurement that we
expect will be reported to our lenders and used as a gauge for
compliance with some of our anticipated financial covenants
under our credit facility. Our EBITDA may not be comparable to a
similarly titled measure of another company because other
entities may not calculate EBITDA in the same manner.
EBITDA is also used as a supplemental performance measure by our
management and by external users of our financial statements,
such as investors, commercial banks, research analysts and
others, to assess:
|
|
|
|
|
financial performance of our assets without regard to financing
methods, capital structure or historical cost basis; |
|
|
|
our operating performance and return on capital as compared to
those of other companies in the midstream energy industry,
without regard to financing methods or capital structure; and |
|
|
|
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities. |
EBITDA should not be considered an alternative to, or more
meaningful than, net income, operating income, cash flows from
operating activities or any other measure of financial
performance presented in accordance with GAAP as measures of
operating performance, liquidity or ability to service debt
obligations.
We define gross margin as total operating revenues less
purchases of natural gas and natural gas liquids, and we define
segment gross margin for each segment as total operating
revenues for that segment less purchases of natural gas and
natural gas liquids for that segment. Our gross margin equals
the sum of our segment gross margins.
Gross margin is included as a supplemental disclosure because it
is a primary performance measure used by management as it
represents the results of product sales and purchases, a key
component of our operations. As an indicator of our operating
performance, gross margin should not be considered an
alternative to, or more meaningful than, net income or cash flow
as determined in accordance with GAAP. Our gross margin may not
be comparable to a similarly titled measure of another company
because other entities may not calculate gross margin in the
same manner.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma | |
|
|
|
|
|
|
|
|
Nine Months | |
|
| |
|
|
|
|
Ended | |
|
|
|
Nine Months | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
Year Ended | |
|
Ended | |
|
|
| |
|
| |
|
December 31, | |
|
September 30, | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions) | |
Reconciliation of EBITDA to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$ |
21.3 |
|
|
$ |
30.8 |
|
|
$ |
25.6 |
|
|
$ |
26.3 |
|
|
$ |
7.7 |
|
|
|
|
|
|
|
|
|
|
Changes in operating working capital which (provided) used cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
10.9 |
|
|
|
2.1 |
|
|
|
15.7 |
|
|
|
(2.6 |
) |
|
|
33.7 |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(10.8 |
) |
|
|
(9.2 |
) |
|
|
(3.8 |
) |
|
|
4.8 |
|
|
|
(14.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on non-trading derivative and
hedging transactions
|
|
|
|
|
|
|
0.5 |
|
|
|
(0.6 |
) |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
Other, including changes in noncurrent assets and liabilities
|
|
|
(0.6 |
) |
|
|
(1.4 |
) |
|
|
(3.9 |
) |
|
|
(4.9 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
20.8 |
|
|
$ |
22.8 |
|
|
$ |
33.0 |
|
|
$ |
23.3 |
|
|
$ |
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
|
$ |
17.8 |
|
|
$ |
14.9 |
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
3.5 |
|
|
|
Depreciation and amortization expense
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
12.6 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
20.8 |
|
|
$ |
22.8 |
|
|
$ |
33.0 |
|
|
$ |
23.3 |
|
|
$ |
27.2 |
|
|
$ |
33.5 |
|
|
$ |
27.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of gross margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
8.0 |
|
|
$ |
9.6 |
|
|
$ |
24.2 |
|
|
$ |
17.9 |
|
|
$ |
18.0 |
|
|
$ |
24.4 |
|
|
$ |
18.0 |
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance expense
|
|
|
14.0 |
|
|
|
15.0 |
|
|
|
13.6 |
|
|
|
9.7 |
|
|
|
11.5 |
|
|
|
13.6 |
|
|
|
11.5 |
|
|
|
Depreciation and amortization expense
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
12.6 |
|
|
|
8.8 |
|
|
|
General and administrative expense
|
|
|
6.1 |
|
|
|
7.1 |
|
|
|
6.5 |
|
|
|
4.8 |
|
|
|
8.2 |
|
|
|
6.5 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$ |
40.4 |
|
|
$ |
44.5 |
|
|
$ |
56.9 |
|
|
$ |
41.8 |
|
|
$ |
46.5 |
|
|
$ |
57.1 |
|
|
$ |
46.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment gross margin to
segment net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Services segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13.6 |
|
|
$ |
15.6 |
|
|
$ |
28.5 |
|
|
$ |
21.1 |
|
|
$ |
24.2 |
|
|
|
|
|
|
|
|
|
|
Add: Depreciation and amortization expense
|
|
|
11.8 |
|
|
|
11.9 |
|
|
|
11.7 |
|
|
|
8.7 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
Operating and maintenance expense
|
|
|
13.7 |
|
|
|
14.7 |
|
|
|
13.4 |
|
|
|
9.5 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$ |
39.1 |
|
|
$ |
42.2 |
|
|
$ |
53.6 |
|
|
$ |
39.3 |
|
|
$ |
43.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Logistics segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1.0 |
|
|
$ |
1.5 |
|
|
$ |
(1.6 |
) |
|
$ |
(2.4 |
) |
|
$ |
2.4 |
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance expense
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
Impairment of equity method investment
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Earnings from equity method investment
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$ |
1.3 |
|
|
$ |
2.3 |
|
|
$ |
3.3 |
|
|
$ |
2.5 |
|
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
RISK FACTORS
Limited partner interests are inherently different from
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in similar businesses. You should
consider carefully the following risk factors together with all
of the other information included in this prospectus in
evaluating an investment in our common units.
If any of the following risks were actually to occur, our
business, financial condition or results of operations could be
materially adversely affected. In that case, we might not be
able to pay the minimum quarterly distribution on our common
units, the trading price of our common units could decline and
you could lose all or part of your investment.
Risks Related to Our Business
We may not have sufficient cash from operations following
the establishment of cash reserves and payment of fees and
expenses, including cost reimbursements to our general partner,
to enable us to make cash distributions to holders of our common
units and subordinated units at the initial distribution rate
under our cash distribution policy.
In order to make our cash distributions at our initial
distribution rate of $0.35 per common unit per complete
quarter, or $1.40 per unit per year, we will require
available cash of approximately $6.25 million per quarter,
or $25.0 million per year, based on the common units and
subordinated units outstanding immediately after completion of
this offering, whether or not the underwriters exercise their
option to purchase additional common units. We may not have
sufficient available cash from operating surplus each quarter to
enable us to make cash distributions at the initial distribution
rate under our cash distribution policy. The amount of cash we
can distribute on our units principally depends upon the amount
of cash we generate from our operations, which will fluctuate
from quarter to quarter based on, among other things:
|
|
|
|
|
the fees we charge and the margins we realize for our services; |
|
|
|
the prices of, level of production of, and demand for, natural
gas, natural gas liquids, or NGLs, and condensate; |
|
|
|
the volume of natural gas we gather, treat, compress, process,
transport and sell, and the volume of NGLs we transport and sell; |
|
|
|
the relationship between natural gas and NGL prices; |
|
|
|
the level of competition from other midstream energy companies; |
|
|
|
the level of our operating and maintenance and general and
administrative costs; and |
|
|
|
prevailing economic conditions. |
In addition, the actual amount of cash we will have available
for distribution will depend on other factors, some of which are
beyond our control, including:
|
|
|
|
|
the level of capital expenditures we make; |
|
|
|
the cost of acquisitions; |
|
|
|
our debt service requirements and other liabilities; |
|
|
|
fluctuations in our working capital needs; |
|
|
|
our ability to borrow funds and access capital markets; |
|
|
|
restrictions contained in our debt agreements; and |
|
|
|
the amount of cash reserves established by our general partner. |
18
For a description of additional restrictions and factors that
may affect our ability to make cash distributions, please read
Our Cash Distribution Policy and Restrictions on
Distributions beginning on page 43.
The amount of cash we have available for distribution to
holders of our common units and subordinated units depends
primarily on our cash flow and not solely on
profitability.
You should be aware that the amount of cash we have available
for distribution depends primarily upon our cash flow and not
solely on profitability, which will be affected by non-cash
items. As a result, we may make cash distributions during
periods when we record losses for financial accounting purposes
and may not make cash distributions during periods when we
record net earnings for financial accounting purposes.
The amount of available cash we need to pay the minimum
quarterly distribution for four quarters on all of our units to
be outstanding immediately after this offering is approximately
$25.0 million. The amount of our pro forma available cash
generated during the year ended December 31, 2004 and the
twelve months ended September 30, 2005 would have been
sufficient to allow us to pay the full minimum quarterly
distribution on our common units but only 92.2% and 89.2%,
respectively, of the minimum quarterly distribution on our
subordinated units during such periods. For a calculation of our
ability to make distributions to unitholders based on our pro
forma results for 2004, please read Our Cash Distribution
Policy and Restrictions on Distributions beginning on
page 43.
The assumptions underlying the forecast of cash available
for distribution we include in Our Cash Distribution
Policy and Restrictions on Distributions are inherently
uncertain and are subject to significant business, economic,
financial, regulatory and competitive risks and uncertainties
that could cause actual results to differ materially from those
forecasted.
The forecast of cash available for distribution set forth in
Our Cash Distribution Policy and Restrictions on
Distributions beginning on page 43 includes our
forecasted results of operations, EBITDA and cash available for
distribution for the twelve months ending December 31,
2006. The financial forecast has been prepared by management and
we have not received an opinion or report on it from our or any
other independent auditor. The assumptions underlying the
forecast are inherently uncertain and are subject to significant
business, economic, financial, regulatory and competitive risks
and uncertainties that could cause actual results to differ
materially from those forecasted. If we do not achieve the
forecasted results, we may not be able to pay the full minimum
quarterly distribution or any amount on our common units or
subordinated units, in which event the market price of our
common units may decline materially.
Because of the natural decline in production from
existing wells, our success depends on our ability to obtain new
sources of supplies of natural gas and NGLs, which are dependent
on certain factors beyond our control. Any decrease in supplies
of natural gas or NGLs could adversely affect our business and
operating results.
Our gathering and transportation pipeline systems are connected
to or dependent on the level of production from natural gas
wells, from which production will naturally decline over time.
As a result, our cash flows associated with these wells will
also decline over time. In order to maintain or increase
throughput levels on our gathering and transportation pipeline
systems and NGL pipelines and the asset utilization rates at our
natural gas processing plants, we must continually obtain new
supplies. The primary factors affecting our ability to obtain
new supplies of natural gas and NGLs and attract new customers
to our assets include: (1) the level of successful drilling
activity near these systems and (2) our ability to compete
for volumes from successful new wells.
The level of drilling activity is dependent on economic and
business factors beyond our control. The primary factor that
impacts drilling decisions is natural gas prices. Currently,
natural gas prices are high in relation to historical prices.
For example, the rolling twelve-month average NYMEX daily
settlement price of natural gas has increased from $4.10 per
MMBtu as of June 30, 2000 to $12.20 per MMBtu as of
September 30, 2005. If the high price for natural gas were
to decline, the level of drilling activity could
19
decrease. A sustained decline in natural gas prices could result
in a decrease in exploration and development activities in the
fields served by our gathering and pipeline transportation
systems and our natural gas treating and processing plants,
which would lead to reduced utilization of these assets. Other
factors that impact production decisions include producers
capital budgets, the ability of producers to obtain necessary
drilling and other governmental permits, and regulatory changes.
Because of these factors, even if new natural gas reserves are
discovered in areas served by our assets, producers may choose
not to develop those reserves. If we are not able to obtain new
supplies of natural gas to replace the natural decline in
volumes from existing wells due to reductions in drilling
activity or competition, throughput on our pipelines and the
utilization rates of our treating and processing facilities
would decline, which could have a material adverse effect on our
business, results of operations, financial condition and ability
to make cash distributions to you.
The cash flow from our Natural Gas Services segment is
affected by natural gas, NGL and condensate prices, and
decreases in these prices could adversely affect our ability to
make distributions to holders of our common units and
subordinated units.
Our Natural Gas Services segment is affected by the level of
natural gas, NGL and condensate prices. NGL and condensate
prices generally fluctuate on a basis that correlates to
fluctuations in crude oil prices. In the past, the prices of
natural gas and crude oil have been extremely volatile, and we
expect this volatility to continue. The NYMEX daily settlement
price for natural gas for the forward month contract in 2004
ranged from a high of $8.14 per MMBtu to a low of $4.40 per
MMBtu. In the first nine months of 2005, the same index ranged
from a high of $14.50 per MMBtu to a low of $5.50 per
MMBtu. The NYMEX daily settlement price for crude oil for the
forward month contract in 2004 ranged from a high of $56.17 per
barrel to a low of $32.48 per barrel. In the first nine months
of 2005, the same index ranged from a high of $69.81 per
barrel to a low of $42.12 per barrel. The markets and prices for
natural gas, NGLs, condensate and crude oil depend upon factors
beyond our control. These factors include demand for these
commodities, which fluctuate with changes in market and economic
conditions and other factors, including:
|
|
|
|
|
the impact of weather; |
|
|
|
the level of domestic and offshore production; |
|
|
|
the availability of imported natural gas, NGLs and crude oil; |
|
|
|
actions taken by foreign oil and gas producing nations; |
|
|
|
the availability of local, intrastate and interstate
transportation systems; |
|
|
|
the availability and marketing of competitive fuels; |
|
|
|
the impact of energy conservation efforts; and |
|
|
|
the extent of governmental regulation and taxation. |
Our primary natural gas gathering and processing arrangements
that expose us to commodity price risk are our
percentage-of-proceeds arrangements. For the nine months ended
September 30, 2005, our percentage-of-proceeds arrangements
accounted for approximately 48% of our gross margin and 20% of
our natural gas volume for our Natural Gas Services segment.
Under percentage-of-proceeds arrangements, we generally purchase
natural gas from producers for an agreed percentage of the
proceeds from the sale of residue gas and NGLs resulting from
our processing activities, and then sell the resulting residue
gas and NGLs at market prices. Under these types of
arrangements, our revenues and our cash flows increase or
decrease, whichever is applicable, as the price of natural gas
and NGLs fluctuate. We have hedged approximately 80% of our
anticipated natural gas and NGL commodity price risk associated
with these arrangements through 2010. Additionally, as part of
our gathering operations, we recover and sell condensate. The
margins we earn from condensate sales are directly correlated
with crude oil prices. We have hedged approximately 80% of our
anticipated condensate commodity price risk through 2010. For
additional information regarding our hedging activities, please
read Managements Discussion and Analysis of
Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures about Market
Risk Commodity Price Risk Hedging
Strategies.
20
Our hedging activities may have a material adverse effect
on our earnings, profitability, cash flows and financial
condition.
We have hedged approximately 80% of our expected natural gas and
NGL commodity price risk relating to our percentage of proceeds
gathering and processing contracts through 2010 by entering into
derivative financial instruments relating to the future price of
natural gas and crude oil. In addition, we have hedged
approximately 80% of our expected condensate commodity price
risk relating to condensate recovered from our gathering
operations through 2010 by entering into derivative financial
instruments relating to the future price of crude oil. The
intent of these arrangements is to reduce the volatility in our
cash flows resulting from fluctuations in commodity prices.
For periods after 2010, our management will evaluate whether to
enter into any new hedging arrangements, but there can be no
assurance that we will enter into any new hedging arrangement or
that our future hedging arrangements will be on terms similar to
our existing hedging arrangements. Also, we may seek in the
future to further limit our exposure to changes in natural gas,
NGL and condensate commodity prices and we may seek to limit our
exposure to changes in interest rates by using financial
derivative instruments and other hedging mechanisms from time to
time. To the extent we hedge our commodity price and interest
rate risk, we will forego the benefits we would otherwise
experience if commodity prices or interest rates were to change
in our favor.
Despite our hedging program, we remain exposed to risks
associated with fluctuations in commodity prices. The extent of
our commodity price risk is related largely to the effectiveness
and scope of our hedging activities. For example, the derivative
instruments we utilize are based on posted market prices, which
may differ significantly from the actual natural gas, NGL and
condensate prices that we realize in our operations.
Furthermore, we have entered into derivative transactions
related to only a portion of the volume of our expected natural
gas supply and production of NGLs and condensate from our
processing plants; as a result, we will continue to have direct
commodity price risk to the unhedged portion. Our actual future
production may be significantly higher or lower than we estimate
at the time we entered into the derivative transactions for that
period. If the actual amount is higher than we estimate, we will
have greater commodity price risk than we intended. If the
actual amount is lower than the amount that is subject to our
derivative financial instruments, we might be forced to satisfy
all or a portion of our derivative transactions without the
benefit of the cash flow from our sale of the underlying
physical commodity, resulting in a reduction of our liquidity.
As a result of these factors, our hedging activities may not be
as effective as we intend in reducing the volatility of our cash
flows, and in certain circumstances may actually increase the
volatility of our cash flows. In addition, even though our
management monitors our hedging activities, these activities can
result in substantial losses. Such losses could occur under
various circumstances, including if a counterparty does not
perform its obligations under the applicable hedging
arrangement, the hedging arrangement is imperfect or
ineffective, or our hedging policies and procedures are not
properly followed or do not work as planned. We cannot assure
you that the steps we take to monitor our hedging activities
will detect and prevent violations of our risk management
policies and procedures, particularly if deception or other
intentional misconduct is involved. For additional information
regarding our hedging activities, please read
Managements Discussion and Analysis of Financial
Condition and Results of Operation Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk Hedging Strategies.
We typically do not obtain independent evaluations of
natural gas reserves dedicated to our gathering and pipeline
systems; therefore, volumes of natural gas on our systems in the
future could be less than we anticipate.
We typically do not obtain independent evaluations of natural
gas reserves connected to our systems due to the unwillingness
of producers to provide reserve information as well as the cost
of such evaluations. Accordingly, we do not have independent
estimates of total reserves dedicated to our systems or the
anticipated life of such reserves. If the total reserves or
estimated life of the reserves connected to our gathering
systems is less than we anticipate and we are unable to secure
additional sources of natural gas, then the volumes of natural
gas on our systems in the future could be less than we
anticipate. A decline in
21
the volumes of natural gas on our systems could have a material
adverse effect on our business, results of operations, financial
condition and our ability to make cash distributions to you.
We depend on certain natural gas producer customers for a
significant portion of our supply of natural gas and NGLs. The
loss of any of these customers could result in a decline in our
volumes, revenues and cash available for distribution.
We rely on certain natural gas producer customers for a
significant portion of our natural gas and NGL supply. Our two
largest suppliers for the year ended December 31, 2004,
Anadarko Petroleum Corporation and ConocoPhillips, accounted for
approximately 26% and 22%, respectively, of our 2004 natural gas
supply and approximately 30% and 21%, respectively, of our
natural gas supply for the nine months ended September 30,
2005 in our Natural Gas segment. Our largest NGL supplier, an
affiliate of The Williams Companies, Inc., accounted for
approximately 64% and 59% of our NGL supply for the year ended
December 31, 2004 and for the nine months ended
September 30, 2005, respectively, in our NGL Logistics
segment. While some of these customers are subject to long-term
contracts, we may be unable to negotiate extensions or
replacements of these contracts, on favorable terms, if at all.
The loss of all or even a portion of the natural gas volumes
supplied by these customers, as a result of competition or
otherwise, could have a material adverse effect on our business,
results of operations and financial condition, unless we were
able to acquire comparable volumes from other sources.
We may not be able to grow or effectively manage our
growth.
A principal focus of our strategy is to continue to grow the per
unit distribution on our units by expanding our business. Our
future growth will depend upon a number of factors, some of
which we can control and some of which we cannot. These factors
include our ability to:
|
|
|
|
|
identify businesses engaged in managing, operating or owning
pipelines, processing and storage assets or other midstream
assets for acquisitions, joint ventures and construction
projects; |
|
|
|
consummate accretive acquisitions or joint ventures and complete
construction projects; |
|
|
|
appropriately identify any liabilities associated with any
acquired businesses or assets; |
|
|
|
integrate any acquired or constructed businesses or assets
successfully with our existing operations and into our operating
and financial systems and controls; |
|
|
|
hire, train and retain qualified personnel to manage and operate
our growing business; and |
|
|
|
obtain required financing for our existing and new operations. |
A deficiency in any of these factors could adversely affect our
ability to achieve growth in the level of our cash flows or
realize benefits from acquisitions, joint ventures or
construction projects. In addition, competition from other
buyers could reduce our acquisition opportunities or cause us to
pay a higher price than we might otherwise pay. In addition,
Duke Energy Field Services, LLC, which we refer to as Duke
Energy Field Services, and its affiliates are not restricted
from competing with us. Duke Energy Field Services and its
affiliates may acquire, construct or dispose of midstream or
other assets in the future without any obligation to offer us
the opportunity to purchase or construct those assets.
We may not successfully balance our purchases and sales
of natural gas, which would increase our exposure to commodity
price risks.
We purchase from producers and other customers a substantial
amount of the natural gas that flows through our natural gas
gathering, processing and transportation systems for resale to
third parties, including natural gas marketers and end-users. We
may not be successful in balancing our purchases and sales. A
producer or supplier could fail to deliver contracted volumes or
deliver in excess of contracted volumes, or a purchaser could
purchase less than contracted volumes. Any of these actions
could cause our purchases and sales to be unbalanced. While we
attempt to balance our purchases and sales, if our purchases and
sales are
22
unbalanced, we will face increased exposure to commodity price
risks and could have increased volatility in our operating
income and cash flows.
Our NGL pipelines could be adversely affected by any
decrease in NGL prices relative to the price of natural
gas.
The profitability of our NGL pipelines is dependent on the level
of production of NGLs from processing plants connected to our
NGL pipelines. When natural gas prices are high relative to NGL
prices, it is less profitable to process natural gas because of
the higher value of natural gas compared to the value of NGLs
and because of the increased cost (principally that of natural
gas as a feedstock and fuel) of separating the mixed NGLs from
the natural gas. As a result, we may experience periods in which
higher natural gas prices reduce the volume of natural gas
processed at plants connected to our NGL pipelines, which would
reduce the volumes and gross margins attributable to our NGL
pipelines.
If third-party pipelines and other facilities
interconnected to our natural gas and NGL pipelines and
facilities become unavailable to transport or produce natural
gas and NGLs, our revenues and cash available for distribution
could be adversely affected.
We depend upon third party pipelines and other facilities that
provide delivery options to and from our pipelines and
facilities for the benefit of our customers. For example, the
volumes of NGLs that are transported on our Seabreeze pipeline
and the Black Lake pipeline are dependent upon a number of
processing plants and NGL pipelines owned and operated by Duke
Energy Field Services and other third parties, including
Williams Markham Gas Plant, Enterprise Products
Matagorda Plant, TEPPCO Partners, L.P.s South Dean NGL
pipeline, Regency Intrastate Gas, LLCs Dubach processing
plant and Chesapeake Energy Corporations Black Lake
processing plant. In addition, our PanEnergy Louisiana
Intrastate pipeline system, which we refer to as the PELICO
pipeline system, is interconnected to several third-party
intrastate and interstate pipelines, including pipelines owned
by Southern Natural Gas Company, Texas Gas Transmission LLC,
CenterPoint Energy Mississippi River Transmission Corporation,
Texas Eastern Transmission LP, CenterPoint Energy Gas
Transmission Company, Crosstex LIG, LLC Gulf South Pipeline
Company, Tennessee Natural Gas Company and Regency Intrastate
Gas, LLC. Since we do not own or operate any of these pipelines
or other facilities, their continuing operation is not within
our control. If any of these third-party pipelines and other
facilities become unavailable to transport or produce natural
gas and NGLs, our revenues and cash available for distribution
could be adversely affected. For example, throughput for our
Seabreeze pipeline was negatively impacted by a shut down of the
South Dean NGL pipeline from March 2004 until June 2005 due to
pipeline integrity repairs, which have now been completed.
Our industry is highly competitive, and increased
competitive pressure could adversely affect our business and
operating results.
We compete with similar enterprises in our respective areas of
operation. Some of our competitors are large oil, natural gas
and petrochemical companies that have greater financial
resources and access to supplies of natural gas and NGLs than we
do. Some of these competitors may expand or construct gathering,
processing and transportation systems that would create
additional competition for the services we provide to our
customers. In addition, our customers who are significant
producers of natural gas may develop their own gathering,
processing and transportation systems in lieu of using ours.
Likewise, our customers who produce NGLs may develop their own
systems to transport NGLs in lieu of using ours. Our ability to
renew or replace existing contracts with our customers at rates
sufficient to maintain current revenues and cash flows could be
adversely affected by the activities of our competitors and our
customers. All of these competitive pressures could have a
material adverse effect on our business, results of operations,
financial condition and ability to make cash distributions to
you.
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A change in the jurisdictional characterization of some
of our assets by federal, state or local regulatory agencies or
a change in policy by those agencies may result in increased
regulation of our assets, which may cause our revenues to
decline and operating expenses to increase.
Our natural gas gathering and intrastate transportation
operations are generally exempt from Federal Energy Regulatory
Commission, or FERC, regulation under the Natural Gas Act of
1938, or NGA, except for Section 311 as discussed below,
but FERC regulation still affects these businesses and the
markets for products derived from these businesses. FERCs
policies and practices across the range of its oil and natural
gas regulatory activities, including, for example, its policies
on open access transportation, ratemaking, capacity release and
market center promotion, indirectly affect intrastate markets.
In recent years, FERC has pursued pro-competitive policies in
its regulation of interstate oil and natural gas pipelines.
However, we cannot assure you that FERC will continue this
approach as it considers matters such as pipeline rates and
rules and policies that may affect rights of access to oil and
natural gas transportation capacity. In addition, the
distinction between FERC-regulated transmission services and
federally unregulated gathering services has been the subject of
regular litigation, so, in such a circumstance, the
classification and regulation of some of our gathering
facilities and intrastate transportation pipelines may be
subject to change based on future determinations by FERC and the
courts.
In addition, the rates, terms and conditions of some of the
transportation services we provide on our PELICO pipeline system
is subject to FERC regulation under Section 311 of the
Natural Gas Policy Act, or NGPA. Under Section 311, rates
charged for transportation must be fair and equitable, and
amounts collected in excess of fair and equitable rates are
subject to refund with interest. The PELICO system is currently
charging rates for its Section 311 transportation services
that were deemed fair and equitable under a rate settlement with
FERC. The PELICO system is obligated to make a new rate filing
in 2006, at which time the rates, terms and conditions of the
PELICO systems Section 311 transportation services
may be subject to change. The Black Lake pipeline system is an
interstate transporter of NGLs and is subject to FERC
jurisdiction under the Interstate Commerce Act and the Elkins
Act. For more information regarding regulation of our
operations, please read
Business Regulation of Operations
beginning on page 112.
Other state and local regulations also affect our business. Our
non-proprietary gathering lines are subject to ratable take and
common purchaser statutes in Louisiana. Ratable take statutes
generally require gatherers to take, without undue
discrimination, oil or natural gas production that may be
tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase
without undue discrimination as to source of supply or producer.
These statutes restrict our right as an owner of gathering
facilities to decide with whom we contract to purchase or
transport oil or natural gas. Federal law leaves any economic
regulation of natural gas gathering to the states. The states in
which we operate have adopted complaint-based regulation of oil
and natural gas gathering activities, which allows oil and
natural gas producers and shippers to file complaints with state
regulators in an effort to resolve grievances relating to oil
and natural gas gathering access and rate discrimination. Other
state regulations may not directly regulate our business, but
may nonetheless affect the availability of natural gas for
purchase, processing and sale, including state regulation of
production rates and maximum daily production allowable from gas
wells. While our proprietary gathering lines currently are
subject to limited state regulation, there is a risk that state
laws will be changed, which may give producers a stronger basis
to challenge proprietary status of a line, or the rates, terms
and conditions of a gathering line providing transportation
service. Please read Business Regulation of
Operations beginning on page 112.
We may incur significant costs and liabilities in the
future resulting from a failure to comply with new or existing
environmental regulations or an accidental release of hazardous
substances or hydrocarbons into the environment.
Our operations are subject to stringent and complex federal,
state and local environmental laws and regulations. These
include, for example, (1) the federal Clean Air Act and
comparable state laws and regulations that impose obligations
related to air emissions, (2) the federal Resource
Conservation and Recovery Act, or RCRA, and comparable state
laws that impose requirements for the discharge of waste from
our facilities and (3) the Comprehensive Environmental
Response Compensation and Liability Act of 1980, or
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CERCLA, also known as Superfund, and comparable
state laws that regulate the cleanup of hazardous substances
that may have been released at properties currently or
previously owned or operated by us or locations to which we have
sent waste for disposal. Failure to comply with these laws and
regulations or newly adopted laws or regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of remedial requirements, and the issuance of orders
enjoining future operations. Certain environmental regulations,
including CERCLA and analogous state laws and regulations,
impose strict, joint and several liability for costs required to
clean up and restore sites where hazardous substances or
hydrocarbons have been disposed or otherwise released. Moreover,
it is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage
allegedly caused by the release of hazardous substances,
hydrocarbons or other waste products into the environment.
There is inherent risk of the incurrence of environmental costs
and liabilities in our business due to our handling of natural
gas and other petroleum products, air emissions related to our
operations, and historical industry operations and waste
disposal practices. For example, an accidental release from one
of our facilities could subject us to substantial liabilities
arising from environmental cleanup and restoration costs, claims
made by neighboring landowners and other third parties for
personal injury and property damage and fines or penalties for
related violations of environmental laws or regulations.
Moreover, the possibility exists that stricter laws, regulations
or enforcement policies could significantly increase our
compliance costs and the cost of any remediation that may become
necessary. We may not be able to recover these costs from
insurance or from indemnification from Duke Energy Field
Services. Please read Business Environmental
Matters beginning on page 114.
We may incur significant costs and liabilities resulting
from pipeline integrity programs and related repairs.
Pursuant to the Pipeline Safety Improvement Act of 2002, the
United States Department of Transportation (DOT) has
adopted regulations requiring pipeline operators to develop
integrity management programs for transportation pipelines
located where a leak or rupture could do the most harm in
high consequence areas. The regulations require
operators to:
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perform ongoing assessments of pipeline integrity; |
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identify and characterize applicable threats to pipeline
segments that could impact a high consequence area; |
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improve data collection, integration and analysis; |
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repair and remediate the pipeline as necessary; and |
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implement preventive and mitigating actions. |
We currently estimate that we will incur costs of approximately
$6.1 million between 2006 and 2010 to implement pipeline
integrity management program testing along certain segments of
our natural gas and NGL pipelines. This does not include the
costs, if any, of any repair, remediation, preventative or
mitigating actions that may be determined to be necessary as a
result of the testing program, which costs could be substantial.
While Duke Energy Field Services has agreed to indemnify us for
certain repair costs relating to the Black Lake pipeline and our
Seabreeze pipelines resulting from such testing program, the
actual costs of making such repairs, including any lost cash
flows resulting from shutting down our pipelines during the
pendency of such repairs, could substantially exceed the amount
of such indemnity. Please read Certain Relationships and
Related Party Transactions Omnibus
Agreement Indemnification.
We currently transport all of the NGLs produced at our Minden
plant on the Black Lake pipeline. According, in the event that
the Black Lake pipeline becomes inoperable due to any necessary
repairs resulting from our integrity testing program or for any
other reason for any significant period of time, we would need
transport NGLs by other means. The Minden plant has an existing
alternate pipeline connection that would permit the
transportation of NGLs to a local fractionator for processing
and distribution with sufficient pipeline takeaway and
fractionation capacity to handle all of the Minden plans
NGL production.
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We do not, however, currently have commercial arrangements in
place with the alternative pipeline. While we believe we could
establish alternate transportation arrangements on competitive
terms, there can be no assurance that we will in fact be able to
enter into such arrangements on favorable terms in the future.
Our construction of new assets may not result in revenue
increases and is subject to regulatory, environmental,
political, legal and economic risks, which could adversely
affect our results of operations and financial condition.
One of the ways we intend to grow our business is through the
construction of new midstream assets. The construction of
additions or modifications to our existing systems, and the
construction of new midstream assets involves numerous
regulatory, environmental, political and legal uncertainties
beyond our control and may require the expenditure of
significant amounts of capital. If we undertake these projects,
they may not be completed on schedule or at the budgeted cost,
or at all. Moreover, our revenues may not increase immediately
upon the expenditure of funds on a particular project. For
instance, if we expand a new pipeline, the construction may
occur over an extended period of time, and we will not receive
any material increases in revenues until the project is
completed. Moreover, we may construct facilities to capture
anticipated future growth in production in a region in which
such growth does not materialize. Since we are not engaged in
the exploration for and development of natural gas and oil
reserves, we often do not have access to third-party estimates
of potential reserves in an area prior to constructing
facilities in such area. To the extent we rely on estimates of
future production in our decision to construct additions to our
systems, such estimates may prove to be inaccurate because there
are numerous uncertainties inherent in estimating quantities of
future production. As a result, new facilities may not be able
to attract enough throughput to achieve our expected investment
return, which could adversely affect our results of operations
and financial condition. In addition, the construction of
additions to our existing gathering and transportation assets
may require us to obtain new rights-of-way prior to constructing
new pipelines. We may be unable to obtain such rights-of-way to
connect new natural gas supplies to our existing gathering lines
or capitalize on other attractive expansion opportunities.
Additionally, it may become more expensive for us to obtain new
rights-of-way or to renew existing rights-of-way. If the cost of
renewing or obtaining new rights-of-way increases, our cash
flows could be adversely affected.
If we do not make acquisitions on economically acceptable
terms, our future growth will be limited.
Our ability to grow depends, in part, on our ability to make
acquisitions that result in an increase in the cash generated
from operations per unit. If we are unable to make these
accretive acquisitions either because we are: (1) unable to
identify attractive acquisition candidates or negotiate
acceptable purchase contracts with them, (2) unable to
obtain financing for these acquisitions on economically
acceptable terms, or (3) outbid by competitors, then our
future growth and ability to increase distributions will be
limited. Furthermore, even if we do make acquisitions that we
believe will be accretive, these acquisitions may nevertheless
result in a decrease in the cash generated from operations per
unit.
Any acquisition involves potential risks, including, among other
things:
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mistaken assumptions about volumes, revenues and costs,
including synergies; |
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an inability to integrate successfully the businesses we acquire; |
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the assumption of unknown liabilities; |
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limitations on rights to indemnity from the seller; |
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mistaken assumptions about the overall costs of equity or debt; |
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the diversion of managements and employees attention
from other business concerns; |
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unforeseen difficulties operating in new product areas or new
geographic areas; and |
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customer or key employee losses at the acquired businesses. |
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If we consummate any future acquisitions, our capitalization and
results of operations may change significantly, and you will not
have the opportunity to evaluate the economic, financial and
other relevant information that we will consider in determining
the application of these funds and other resources.
Our acquisition strategy is based, in part, on our expectation
of ongoing divestitures of energy assets by industry
participants. A material decrease in such divestitures would
limit our opportunities for future acquisitions and could
adversely affect our operations and cash flows available for
distribution to our unitholders.
We do not own all of the land on which our pipelines and
facilities are located, which could disrupt our
operations.
We do not own all of the land on which our pipelines and
facilities have been constructed, and we are therefore subject
to the possibility of more onerous terms and/or increased costs
to retain necessary land use if we do not have valid rights of
way or if such rights of way lapse or terminate. We obtain the
rights to construct and operate our pipelines on land owned by
third parties and governmental agencies for a specific period of
time. Our loss of these rights, through our inability to renew
right-of-way contracts or otherwise, could have a material
adverse effect on our business, results of operations and
financial condition and our ability to make cash distributions
to you.
Our business involves many hazards and operational risks,
some of which may not be fully covered by insurance. If a
significant accident or event occurs that is not fully insured,
our operations and financial results could be adversely
affected.
Our operations are subject to many hazards inherent in the
gathering, compressing, treating, processing and transporting of
natural gas and NGLs, including:
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damage to pipelines and plants, related equipment and
surrounding properties caused by hurricanes, tornadoes, floods,
fires and other natural disasters and acts of terrorism; |
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inadvertent damage from construction, farm and utility equipment; |
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leaks of natural gas, NGLs and other hydrocarbons or losses of
natural gas or NGLs as a result of the malfunction of equipment
or facilities; |
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fires and explosions; and |
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other hazards that could also result in personal injury and loss
of life, pollution and suspension of operations. |
These risks could result in substantial losses due to personal
injury and/or loss of life, severe damage to and destruction of
property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our
related operations. A natural disaster or other hazard affecting
the areas in which we operate could have a material adverse
effect on our operations. We are not fully insured against all
risks inherent to our business. In accordance with typical
industry practice, we do not have any property insurance on any
of our underground pipeline systems that would cover damage to
the pipelines. We are not insured against all environmental
accidents that might occur which may include toxic tort claims,
other than those considered to be sudden and accidental. If a
significant accident or event occurs that is not fully insured,
it could adversely affect our operations and financial
condition. In addition, we may not be able to maintain or obtain
insurance of the type and amount we desire at reasonable rates.
As a result of market conditions, premiums and deductibles for
certain of our insurance policies have increased substantially,
and could escalate further. In some instances, certain insurance
could become unavailable or available only for reduced amounts
of coverage.
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Our costs may increase in the event that our credit
obligations under hedging and other contractual arrangements are
not guaranteed by Duke Energy Field Services.
Duke Energy Field Services has provided a guaranty to the third
party counterparties for the financial hedging arrangements that
we have entered into for the purpose of hedging our exposure to
fluctuations in commodity prices through late 2010. Duke Energy
Field Services is only required to maintain its credit support
for our obligations related to derivative financial instruments,
such as commodity price hedging contracts, that are in effect as
of the closing of this offering until the earlier to occur of
the fifth anniversary of the closing of this offering or such
time as we obtain an investment grade credit rating from either
Moodys Investor Services, Inc. or Standard &
Poors Ratings Group. As a result, we anticipate that Duke
Energy Field Services will not provide a guaranty of any
replacement hedging arrangements after the termination of the
hedging arrangements that we have contracted to be in place
through late 2010. In such event, we would expect that it could
be more costly for us to manage our commodity price risk through
certain types of financial hedging arrangements unless we are
able to achieve creditworthiness at that time similar to the
current creditworthiness of Duke Energy Field Services. Duke
Energy Field Services also provides credit support under some of
our commercial arrangements with third parties. Duke Energy
Field Services is only required to maintain its credit support
for our obligations related to commercial contracts with respect
to our business or operations that are in effect at the closing
of this offering until the expiration of such contracts. As a
result, we anticipate that as these commercial arrangements
expire or are renewed or replaced by new commercial
arrangements, Duke Energy Field Services would not continue to
provide credit support. In such event, we may need to provide
our own credit support arrangements, which may increase our
costs. Duke Energy Field Services is under no obligation to
provide any new or additional credit support to us.
Our debt levels may limit our flexibility in obtaining
additional financing and in pursuing other business
opportunities.
At the closing of this offering, we expect to enter into up to a
$400 million credit facility, consisting of up to a
$175 million term loan facility and up to a
$250 million revolving credit facility for working capital
and other general partnership purposes, and to borrow
$61 million under the term loan facility and
$110 million under the revolving credit facility. Following
this offering, we will continue to have the ability to incur
additional debt, subject to limitations in our credit facility.
Our level of debt could have important consequences to us,
including the following:
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our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms; |
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we will need a portion of our cash flow to make interest
payments on our debt, reducing the funds that would otherwise be
available for operations, future business opportunities and
distributions to unitholders; |
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our debt level will make us more vulnerable to competitive
pressures or a downturn in our business or the economy
generally; and |
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our debt level may limit our flexibility in responding to
changing business and economic conditions. |
Our ability to service our debt will depend upon, among other
things, our future financial and operating performance, which
will be affected by prevailing economic conditions and
financial, business, regulatory and other factors, some of which
are beyond our control. In addition, our ability to service debt
under our revolving credit facility will depend on market
interest rates, since we anticipate that the interest rates
applicable to our borrowings will fluctuate with movements in
interest rate markets. If our operating results are not
sufficient to service our current or future indebtedness, we
will be forced to take actions such as reducing distributions,
reducing or delaying our business activities, acquisitions,
investments or capital expenditures, selling assets,
restructuring or refinancing our debt, or seeking additional
equity capital. We may not be able to effect any of these
actions on satisfactory terms, or at all.
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Restrictions in our credit facility will limit our ability
to make distributions to you and may limit our ability to
capitalize on acquisitions and other business
opportunities.
Our new credit facility will contain covenants limiting our
ability to make distributions, incur indebtedness, grant liens,
make acquisitions, investments or dispositions and engage in
transactions with affiliates. Furthermore, our credit facility
will contain covenants requiring us to maintain certain
financial ratios and tests. Any subsequent replacement of our
credit facility or any new indebtedness could have similar or
greater restrictions. Please read Managements
Discussion and Analysis of Financial Condition and Results of
Operations Capital Requirements beginning on
page 89.
Increases in interest rates, which have recently
experienced record lows, could adversely impact our unit price
and our ability to issue additional equity to make acquisitions,
incur debt or for other purposes.
The credit markets recently have experienced 50-year record lows
in interest rates. As the overall economy strengthens, it is
likely that monetary policy will continue to tighten further,
resulting in higher interest rates to counter possible
inflation. Interest rates on future credit facilities and debt
offerings could be higher than current levels, causing our
financing costs to increase accordingly. As with other
yield-oriented securities, our unit price is impacted by the
level of our cash distributions and implied distribution yield.
The distribution yield is often used by investors to compare and
rank related yield-oriented securities for investment
decision-making purposes. Therefore, changes in interest rates,
either positive or negative, may affect the yield requirements
of investors who invest in our units, and a rising interest rate
environment could have an adverse impact on our unit price and
our ability to issue additional equity to make acquisitions,
incur debt or for other purposes.
Due to our lack of industry and geographic
diversification, adverse developments in our midstream
operations or operating areas would reduce our ability to make
distributions to our unitholders.
We rely on the revenues generated from our midstream energy
businesses, and as a result, our financial condition depends
upon prices of, and continued demand for, natural gas, NGLs and
condensate. Furthermore, all of our assets are located in
northern Louisiana, southern Arkansas and eastern Texas. Due to
our lack of diversification in industry type and location, an
adverse development in one of these businesses or operating
areas would have a significantly greater impact on our financial
condition and results of operations than if we maintained more
diverse assets and operating areas.
We are exposed to the credit risks of our key producer
customers, and any material nonpayment or nonperformance by our
key producer customers could reduce our ability to make
distributions to our unitholders.
We are subject to risks of loss resulting from nonpayment or
nonperformance by our producer customers. Any material
nonpayment or nonperformance by our key producer customers could
reduce our ability to make distributions to our unitholders.
Furthermore, some of our producer customers may be highly
leveraged and subject to their own operating and regulatory
risks, which could increase the risk that they may default on
their obligations to us.
Terrorist attacks, and the threat of terrorist attacks,
have resulted in increased costs to our business. Continued
hostilities in the Middle East or other sustained military
campaigns may adversely impact our results of operations.
The long-term impact of terrorist attacks, such as the attacks
that occurred on September 11, 2001 or the recent attacks
in London, and the threat of future terrorist attacks on our
industry in general, and on us in particular, is not known at
this time. Increased security measures taken by us as a
precaution against possible terrorist attacks have resulted in
increased costs to our business. Uncertainty surrounding
continued hostilities in the Middle East or other sustained
military campaigns may affect our operations in unpredictable
ways, including disruptions of crude oil supplies and markets
for refined products, and the possibility that infrastructure
facilities could be direct targets of, or indirect casualties
of, an act of terror.
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Changes in the insurance markets attributable to terrorist
attacks may make certain types of insurance more difficult for
us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing
insurance coverage. Instability in the financial markets as a
result of terrorism or war could also affect our ability to
raise capital.
Risks Inherent in an Investment in Us
Duke Energy Field Services controls our general partner,
which has sole responsibility for conducting our business and
managing our operations. Duke Energy Field Services has
conflicts of interest, which may permit it to favor its own
interests to your detriment.
Following the offering, Duke Energy Field Services will own and
control our general partner. Some of our general partners
directors, and some of its executive officers, are directors or
officers of Duke Energy Field Services or its parents.
Therefore, conflicts of interest may arise between Duke Energy
Field Services and its affiliates, including our general
partner, on the one hand, and us and our unitholders, on the
other hand. In resolving these conflicts of interest, our
general partner may favor its own interests and the interests of
its affiliates over the interests of our unitholders. These
conflicts include, among others, the following situations:
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neither our partnership agreement nor any other agreement
requires Duke Energy Field Services to pursue a business
strategy that favors us. Duke Energy Field Services
directors and officers have a fiduciary duty to make these
decisions in the best interests of the owners of Duke Energy
Field Services, which may be contrary to our interests; |
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our general partner is allowed to take into account the
interests of parties other than us, such as Duke Energy Field
Services and its affiliates, in resolving conflicts of interest; |
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Duke Energy Field Services and its affiliates, including Duke
Energy Corporation, which we refer to as Duke Energy, and
ConocoPhillips, are not limited in their ability to compete with
us. Please read Duke Energy Field Services and its
affiliates are not limited in their ability to compete with
us beginning on page 31; |
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Our general partner may make a determination to receive a
quantity of our Class B units in exchange for resetting the
target distribution levels related to its incentive distribution
rights without the approval of the conflicts committee of our
general partner or our unitholders. Please read Provisions
of Our Partnership Agreement Relating to Cash
Distributions beginning on page 57. |
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some officers of Duke Energy Field Services who provide services
to us also will devote significant time to the business of Duke
Energy Field Services, and will be compensated by Duke Energy
Field Services for the services rendered to it; |
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our general partner has limited its liability and reduced its
fiduciary duties, and has also restricted the remedies available
to our unitholders for actions that, without the limitations,
might constitute breaches of fiduciary duty; |
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our general partner determines the amount and timing of asset
purchases and sales, borrowings, issuance of additional
partnership securities and reserves, each of which can affect
the amount of cash that is distributed to unitholders; |
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our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is a
maintenance capital expenditure, which reduces operating
surplus, or an expansion capital expenditure, which does not
reduce operating surplus. This determination can affect the
amount of cash that is distributed to our unitholders and the
ability of the subordinated units to convert to common units; |
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our general partner determines which costs incurred by it and
its affiliates are reimbursable by us; |
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our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf; |
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our general partner intends to limit its liability regarding our
contractual and other obligations and, in some circumstances, is
entitled to be indemnified by us; |
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our general partner may exercise its limited right to call and
purchase common units if it and its affiliates own more than 80%
of the common units; |
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our general partner controls the enforcement of obligations owed
to us by our general partner and its affiliates; and |
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our general partner decides whether to retain separate counsel,
accountants or others to perform services for us. |
Please read Conflicts of Interest and Fiduciary
Duties beginning on page 130.
Duke Energy Field Services and its affiliates are not
limited in their ability to compete with us, which could cause
conflicts of interest and limit our ability to acquire
additional assets or businesses which in turn could adversely
affect our results of operations and cash available for
distribution to our unitholders.
Neither our partnership agreement nor the omnibus agreement
between us, Duke Energy Field Services and others will prohibit
Duke Energy Field Services and its affiliates, including Duke
Energy and ConocoPhillips, from owning assets or engaging in
businesses that compete directly or indirectly with us. In
addition, Duke Energy Field Services and its affiliates,
including Duke Energy and ConocoPhillips, may acquire, construct
or dispose of additional midstream or other assets in the
future, without any obligation to offer us the opportunity to
purchase or construct any of those assets. Each of these
entities is a large, established participant in the midstream
energy business, and each has significantly greater resources
and experience than we have, which factors may make it more
difficult for us to compete with these entities with respect to
commercial activities as well as for acquisition candidates. As
a result, competition from these entities could adversely impact
our results of operations and cash available for distribution.
Please read Conflicts of Interest and Fiduciary
Duties beginning on page 130.
Cost reimbursements due to our general partner and its
affiliates for services provided, which will be determined by
our general partner, will be substantial and will reduce our
cash available for distribution to you.
Pursuant to an omnibus agreement we will enter into with Duke
Energy Field Services, our general partner and others upon the
closing of this offering, Duke Energy Field Services will
receive reimbursement for the payment of operating expenses
related to our operations and for the provision of various
general and administrative services for our benefit. Payments
for these services will be substantial and will reduce the
amount of cash available for distribution to unitholders. Please
read Certain Relationships and Related Party
Transactions Omnibus Agreement. In addition,
under Delaware partnership law, our general partner has
unlimited liability for our obligations, such as our debts and
environmental liabilities, except for our contractual
obligations that are expressly made without recourse to our
general partner. To the extent our general partner incurs
obligations on our behalf, we are obligated to reimburse or
indemnify it. If we are unable or unwilling to reimburse or
indemnify our general partner, our general partner may take
actions to cause us to make payments of these obligations and
liabilities. Any such payments could reduce the amount of cash
otherwise available for distribution to our unitholders.
Our partnership agreement limits our general
partners fiduciary duties to holders of our common units
and subordinated units.
Although our general partner has a fiduciary duty to manage us
in a manner beneficial to us and our unitholders, the directors
and officers of our general partner have a fiduciary duty to
manage our general partner in a manner beneficial to its owner,
Duke Energy Field Services. Our partnership agreement contains
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provisions that reduce the standards to which our general
partner would otherwise be held by state fiduciary duty laws.
For example, our partnership agreement permits our general
partner to make a number of decisions either in its individual
capacity, as opposed to in its capacity as our general partner
or otherwise free of fiduciary duties to us and our unitholders.
This entitles our general partner to consider only the interests
and factors that it desires, and it has no duty or obligation to
give any consideration to any interest of, or factors affecting,
us, our affiliates or any limited partner. Examples include:
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the exercise of its right to reset the target distribution
levels of its incentive distribution rights at higher levels and
receive, in connection with this reset, a number of Class B
units that are convertible at any time following the first
anniversary of the issuance of these Class B units into
common units; |
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its limited call right; |
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its voting rights with respect to the units it owns; |
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its registration rights; and |
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and its determination whether or not to consent to any merger or
consolidation of the partnership or amendment to the partnership
agreement. |
By purchasing a common unit, a common unitholder will agree to
become bound by the provisions in the partnership agreement,
including the provisions discussed above. Please read
Conflicts of Interest and Fiduciary Duties
Fiduciary Duties beginning on page 135.
Our partnership agreement restricts the remedies available
to holders of our common units and subordinated units for
actions taken by our general partner that might otherwise
constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the
remedies available to unitholders for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty. For example, our partnership agreement:
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed the decision was in the best interests of our
partnership; |
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner and not
involving a vote of unitholders must be on terms no less
favorable to us than those generally being provided to or
available from unrelated third parties or must be fair and
reasonable to us, as determined by our general partner in
good faith and that, in determining whether a transaction or
resolution is fair and reasonable, our general
partner may consider the totality of the relationships between
the parties involved, including other transactions that may be
particularly advantageous or beneficial to us; and |
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that the general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the conduct was criminal. |
Our general partner may elect to cause us to issue
Class B units to it in connection with a resetting of the
target distribution levels related to our general partners
incentive distribution rights without the approval of the
conflicts committee of our general partner or holders of our
common units and subordinated units. This may result in lower
distributions to holders of our common units in certain
situations.
Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the
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distribution at the time of the exercise of the reset election.
Following a reset election by our general partner, the minimum
quarterly distribution amount will be reset to an amount equal
to the average cash distribution amount per common unit for the
two fiscal quarters immediately preceding the reset election
(such amount is referred to as the reset minimum quarterly
distribution) and the target distribution levels will be
reset to correspondingly higher levels based on percentage
increases above the reset minimum quarterly distribution amount.
In connection with resetting these target distribution levels,
our general partner will be entitled to receive a number of
Class B units. The Class B units will be entitled to
the same cash distributions per unit as our common units and
will be convertible into an equal number of common units. The
number of Class B units to be issued will be equal to that
number of common units whose aggregate quarterly cash
distributions equaled the average of the distributions to our
general partner on the incentive distribution rights in the
prior two quarters. We anticipate that our general partner would
exercise this reset right in order to facilitate acquisitions or
internal growth projects that would not be sufficiently
accretive to cash distributions per common unit without such
conversion; however, it is possible that our general partner
could exercise this reset election at a time when it is
experiencing, or may be expected to experience, declines in the
cash distributions it receives related to its incentive
distribution rights and may therefore desire to be issued our
Class B units, which are entitled to receive cash
distributions from us on the same priority as our common units,
rather than retain the right to receive incentive distributions
based on the initial target distribution levels. As a result, a
reset election may cause our common unitholders to experience
dilution in the amount of cash distributions that they would
have otherwise received had we not issued new Class B units
to our general partner in connection with resetting the target
distribution levels related to our general partner incentive
distribution rights. Please read Provisions of Our
Partnership Agreement Related to Cash Distributions
General Partner Interest and Incentive Distribution Rights
beginning on page 60.
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Holders of our common units have limited voting rights and
are not entitled to elect our general partner or its
directors. |
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
will not elect our general partner or its board of directors,
and will have no right to elect our general partner or its board
of directors on an annual or other continuing basis. The board
of directors of DCP Midstream GP, LLC will be chosen by the
members of DCP Midstream GP, LLC. Furthermore, if the
unitholders were dissatisfied with the performance of our
general partner, they will have little ability to remove our
general partner. As a result of these limitations, the price at
which the common units will trade could be diminished because of
the absence or reduction of a takeover premium in the trading
price.
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Even if holders of our common units are dissatisfied, they
cannot initially remove our general partner without its
consent. |
The unitholders will be unable initially to remove our general
partner without its consent because our general partner and its
affiliates will own sufficient units upon completion of this
offering to be able to prevent its removal. The vote of the
holders of at least
662/3%
of all outstanding units voting together as a single class is
required to remove the general partner. Following the closing of
this offering, our general partner and its affiliates will own
48.6% of our aggregate outstanding common and subordinated
units. Also, if our general partner is removed without cause
during the subordination period and units held by our general
partner and its affiliates are not voted in favor of that
removal, all remaining subordinated units will automatically
convert into common units and any existing arrearages on our
common units will be extinguished. A removal of our general
partner under these circumstances would adversely affect our
common units by prematurely eliminating their distribution and
liquidation preference over our subordinated units, which would
otherwise have continued until we had met certain distribution
and performance tests. Cause is narrowly defined to mean that a
court of competent jurisdiction has entered a final,
non-appealable judgment finding the general partner liable for
actual fraud or willful or wanton misconduct in its capacity as
our
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general partner. Cause does not include most cases of charges of
poor management of the business, so the removal of the general
partner because of the unitholders dissatisfaction with
our general partners performance in managing our
partnership will most likely result in the termination of the
subordination period and conversion of all subordinated units to
common units.
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Our partnership agreement restricts the voting rights of
unitholders owning 20% or more of our common units. |
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20% or more of any class of units then
outstanding, other than our general partner, its affiliates,
their transferees and persons who acquired such units with the
prior approval of the board of directors of our general partner,
cannot vote on any matter. Our partnership agreement also
contains provisions limiting the ability of unitholders to call
meetings or to acquire information about our operations, as well
as other provisions limiting the unitholders ability to
influence the manner or direction of management.
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Control of our general partner may be transferred to a
third party without unitholder consent. |
Our general partner may transfer its general partner interest to
a third party in a merger or in a sale of all or substantially
all of its assets without the consent of the unitholders.
Furthermore, our partnership agreement does not restrict the
ability of the owners of our general partner or DCP Midstream
GP, LLC, from transferring all or a portion of their respective
ownership interest in our general partner or DCP Midstream GP,
LLC to a third party. The new owners of our general partner or
DCP Midstream GP, LLC would then be in a position to replace the
board of directors and officers of DCP Midstream GP, LLC with
its own choices and thereby influence the decisions taken by the
board of directors and officers.
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You will experience immediate and substantial dilution of
$14.32 in tangible net book value per common unit. |
The assumed initial public offering price of $20.00 per unit
exceeds our pro forma net tangible book value of $5.68 per
unit. Based on the assumed initial public offering price of
$20.00 per unit, you will incur immediate and substantial
dilution of $14.32 per common unit. This dilution results
primarily because the assets contributed by our general partner
and its affiliates are recorded in accordance with GAAP at their
historical cost, and not their fair value. Please read
Dilution beginning on page 41.
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We may issue additional units without your approval, which
would dilute your existing ownership interests. |
Our partnership agreement does not limit the number of
additional limited partner interests that we may issue at any
time without the approval of our unitholders. The issuance by us
of additional common units or other equity securities of equal
or senior rank will have the following effects:
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our unitholders proportionate ownership interest in us
will decrease; |
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the amount of cash available for distribution on each unit may
decrease; |
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase; |
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the ratio of taxable income to distributions may increase; |
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the relative voting strength of each previously outstanding unit
may be diminished; and |
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the market price of the common units may decline. |
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Affiliates of our general partner may sell common units in
the public markets, which sales could have an adverse impact on
the trading price of the common units.
After the sale of the common units offered hereby, management of
our general partner and Duke Energy Field Services and its
affiliates will hold an aggregate of 1,357,143 common units
and 7,142,857 subordinated units. All of the subordinated
units will convert into common units at the end of the
subordination period and some may convert earlier. The sale of
these units in the public markets could have an adverse impact
on the price of the common units or on any trading market that
may develop.
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Our general partner has a limited call right that may
require you to sell your units at an undesirable time or
price. |
If at any time our general partner and its affiliates own more
than 80% of the common units, our general partner will have the
right, but not the obligation, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not
less than their then-current market price. As a result, you may
be required to sell your common units at an undesirable time or
price and may not receive any return on your investment. You may
also incur a tax liability upon a sale of your units. At the
completion of this offering and assuming no exercise of the
underwriters option to purchase additional common units,
our general partner and its affiliates will own approximately
13.1% of our outstanding common units. At the end of the
subordination period, assuming no additional issuances of common
units, our general partner and its affiliates will own
approximately 48.6% of our aggregate outstanding common and
subordinated units. For additional information about this right,
please read The Partnership Agreement Limited
Call Right beginning on page 148.
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Your liability may not be limited if a court finds that
unitholder action constitutes control of our business. |
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.
You could be liable for any and all of our obligations as if you
were a general partner if:
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a court or government agency determined that we were conducting
business in a state but had not complied with that particular
states partnership statute; or |
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your right to act with other unitholders to remove or replace
the general partner, to approve some amendments to our
partnership agreement or to take other actions under our
partnership agreement constitute control of our
business. |
For a discussion of the implications of the limitations of
liability on a unitholder, please read The Partnership
Agreement Limited Liability beginning on page
141.
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Unitholders may have liability to repay distributions that
were wrongfully distributed to them. |
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act, we may not make a distribution to you if the
distribution would cause our liabilities to exceed the fair
value of our assets. Delaware law provides that for a period of
three years from the date of the impermissible distribution,
limited partners who received the distribution and who knew at
the time of the distribution that it violated Delaware law will
be liable to the limited partnership for the distribution
amount. Substituted limited partners are liable for the
obligations of the assignor to make contributions to the
partnership that are known to the substituted limited partner at
the time it became a limited partner and for unknown obligations
if the liabilities could be determined from the partnership
agreement. Liabilities to partners on account of their
partnership interest and liabilities that are non-recourse to
the partnership are not counted for purposes of determining
whether a distribution is permitted.
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We will incur increased costs as a result of being a
publicly-traded company. |
We have no history operating as a publicly-traded company. As a
publicly-traded company, we will incur significant legal,
accounting and other expenses that we did not incur as a private
company. In addition, the Sarbanes-Oxley Act of 2002, as well as
new rules subsequently implemented by the SEC and the New York
Stock Exchange, have required changes in corporate governance
practices of publicly-traded companies. We expect these new
rules and regulations to increase our legal and financial
compliance costs and to make activities more time-consuming and
costly. For example, as a result of becoming a publicly-traded
company, we are required to have at least three independent
directors, create additional board committees and adopt policies
regarding internal controls and disclosure controls and
procedures, including the preparation of reports on internal
controls over financial reporting. In addition, we will incur
additional costs associated with our publicly-traded company
reporting requirements. We also expect these new rules and
regulations to make it more difficult and more expensive for our
general partner to obtain director and officer liability
insurance and it may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, it may be more difficult
for our general partner to attract and retain qualified persons
to serve on its board of directors or as executive officers. We
have included $8.4 million of estimated incremental costs
per year, some of which will be allocated to us by Duke Energy
Field Services, associated with being a publicly-traded company
for purposes of our financial forecast included elsewhere in
this prospectus; however, it is possible that our actual
incremental costs of being a publicly-traded company will be
higher than we currently estimate.
Tax Risks to Common Unitholders
In addition to reading the following risk factors, you should
read Material Tax Consequences beginning on
page 153 for a more complete discussion of the expected
material federal income tax consequences of owning and disposing
of common units.
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Our tax treatment depends on our status as a partnership
for federal income tax purposes, as well as our not being
subject to entity-level taxation by individual states. If the
Internal Revenue Service treats us as a corporation or we become
subject to entity-level taxation for state tax purposes, it
would substantially reduce the amount of cash available for
distribution to our unitholders. |
The anticipated after-tax economic benefit of an investment in
the common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the
Internal Revenue Service, which we refer to as the IRS, on this
or any other tax matter affecting us.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our income at the
corporate tax rate, which is currently a maximum of 35% and
would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would
flow through to you. Because a tax would be imposed upon us as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, our treatment as a corporation
would result in a material reduction in the anticipated cash
flow and after-tax return to the unitholders, likely causing a
substantial reduction in the value of our common units.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to entity-level taxation. In addition, because of widespread
state budget deficits, several states are evaluating ways to
subject partnerships to entity-level taxation through the
imposition of state income, franchise and other forms of
taxation. If any of these states were to impose a tax on us, the
cash available for distribution to you would be reduced. The
partnership agreement provides that if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, the minimum quarterly distribution amount and the
target distribution levels will be adjusted to reflect the
impact of that law on us.
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An IRS contest of the federal income tax positions we take
may adversely affect the market for our common units, and the
cost of any IRS contest will reduce our cash available for
distribution to our unitholders. |
We have not requested a ruling from the IRS with respect to our
treatment as a partnership for federal income tax purposes or
any other matter affecting us. The IRS may adopt positions that
differ from the conclusions of our counsel expressed in this
prospectus or from the positions we take. It may be necessary to
resort to administrative or court proceedings to sustain some or
all of our counsels conclusions or the positions we take.
A court may not agree with all of our counsels conclusions
or positions we take. Any contest with the IRS may materially
and adversely impact the market for our common units and the
price at which they trade. In addition, our costs of any contest
with the IRS will be borne indirectly by our unitholders and our
general partner because the costs will reduce our cash available
for distribution.
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You may be required to pay taxes on income from us even if
you do not receive any cash distributions from us. |
Because our unitholders will be treated as partners to whom we
will allocate taxable income which could be different in amount
than the cash we distribute, you will be required to pay any
federal income taxes and, in some cases, state and local income
taxes on your share of our taxable income even if you receive no
cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income
or even equal to the tax liability that results from that income.
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Tax gain or loss on disposition of common units could be
more or less than expected. |
If you sell your common units, you will recognize a gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Prior distributions to you in
excess of the total net taxable income you were allocated for a
common unit, which decreased your tax basis in that common unit,
will, in effect, become taxable income to you if the common unit
is sold at a price greater than your tax basis in that common
unit, even if the price is less than your original cost. A
substantial portion of the amount realized, whether or not
representing gain, may be ordinary income. In addition, if you
sell your units, you may incur a tax liability in excess of the
amount of cash you receive from the sale.
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Tax-exempt entities and foreign persons face unique tax
issues from owning common units that may result in adverse tax
consequences to them. |
Investment in common units by tax-exempt entities, such as
individual retirement accounts (known as IRAs), other retirement
plans and non-U.S. persons raises issues unique to them.
For example, virtually all of our income allocated to
organizations that are exempt from federal income tax, including
IRAs and other retirement plans, will be unrelated business
taxable income and will be taxable to them. Distributions to
non-U.S. persons will be reduced by withholding taxes at the
highest applicable effective tax rate, and non-U.S. persons will
be required to file United States federal tax returns and pay
tax on their share of our taxable income. If you are a
tax-exempt entity or a foreign person, you should consult your
tax advisor before investing in our common units.
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We will treat each purchaser of our common units as having
the same tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could
adversely affect the value of the common units. |
Because we cannot match transferors and transferees of common
units and because of other reasons, we will take depreciation
and amortization positions that may not conform to all aspects
of existing Treasury regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of
these tax benefits or the amount of gain from the sale of common
units and could have a negative impact on the value of our
common units or result in audit adjustments to your tax returns.
For a further discussion of the effect of the depreciation and
amortization
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positions we will adopt, please read Material Tax
Consequences Tax Consequences of Unit
Ownership Section 754 Election beginning
on page 158.
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Unitholders may be subject to state and local taxes and
return filing requirements. |
In addition to federal income taxes, you will likely be subject
to other taxes, including foreign, state and local taxes,
unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions
in which we do business or own property, even if you do not live
in any of those jurisdictions. You will likely be required to
file foreign, state and local income tax returns and pay state
and local income taxes in some or all of these jurisdictions.
Further, you may be subject to penalties for failure to comply
with those requirements. We will initially own assets and do
business in the States of Louisiana, Texas and Arkansas. Each of
these states, other than Texas, currently imposes a personal
income tax as well as an income tax on corporations and other
entities. Texas imposes a franchise tax (which is based in part
on net income) on corporations and limited liability companies.
As we make acquisitions or expand our business, we may own
assets or do business in additional states that impose a
personal income tax. It is your responsibility to file all
United States federal, foreign, state and local tax returns. Our
counsel has not rendered an opinion on the foreign, state or
local tax consequences of an investment in the common units.
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The sale or exchange of 50% or more of our capital and
profits interests will result in the termination of our
partnership for federal income tax purposes. |
We will be considered to have terminated our partnership for
federal income tax purposes if there is a sale or exchange of
50% or more of the total interests in our capital and profits
within a 12-month period. Our termination would, among other
things, result in the closing of our taxable year for all
unitholders and could result in a deferral of depreciation
deductions allowable in computing our taxable income. Please
read Material Tax Consequences Disposition of
Common Units Constructive Termination for a
discussion of the consequences of our termination for federal
income tax purposes.
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USE OF PROCEEDS
We expect to receive net proceeds of approximately
$168.3 million from the sale of 9,000,000 common units
offered by this prospectus, after deducting underwriting
discounts and a structuring fee but before paying offering
expenses. Our estimates assume an initial public offering price
of $20.00 per common unit and no exercise of the
underwriters option to purchase additional common units.
We anticipate using the aggregate net proceeds of this offering
to:
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purchase $61.0 million of United States Treasury and other
qualifying securities, which will be assigned as collateral to
secure the term loan portion of our credit facility; |
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pay approximately $4.7 million of expenses associated with
the offering and related formation transactions; |
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use approximately $53.9 million to fund payables; |
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distribute approximately $8.0 million in cash to affiliates
of Duke Energy Field Services as reimbursement for capital
expenditures incurred by affiliates of Duke Energy Field
Services related to the assets to be contributed to us upon the
closing of this offering; and |
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use the remaining proceeds of approximately $40.7 million
to fund future capital expenditures (including potential
acquisitions), working capital and other general partnership
purposes. |
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We also anticipate that we borrow approximately
$110.0 million under our revolving credit facility and
approximately $61.0 million under our term loan facility
upon the closing of this offering, and we will distribute the
aggregate amount of the proceeds of such borrowings to
affiliates of Duke Energy Field Services.
The anticipated borrowing of approximately $61.0 million
under the term loan facility upon the closing of this offering
and the use of an equal amount of net proceeds of this offering
to purchase United States Treasury and other qualifying
securities will enable us to make a tax efficient distribution
to affiliates of Duke Energy Field Services. The United States
Treasury and other qualifying securities purchased will be
assigned as collateral to secure the term loan borrowings. The
interest we receive from our ownership of these United States
Treasury and other qualifying securities will partially offset
our cost of borrowings under the term loan facility. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Capital
Requirements Description of Credit Agreement
beginning on page 90.
If the underwriters option to purchase additional common
units is exercised, we will (1) use the net proceeds from
the sale of these additional units to purchase an equivalent
amount of United States Treasury and other qualifying securities
and (2) borrow an additional amount under the term loan
facility equal to the net proceeds to be received from the
exercise of the underwriters option. The United States
Treasury and other qualifying securities purchased will be
assigned as collateral to secure the term loan borrowings. The
proceeds of the additional term loan borrowings will be used to
redeem from a subsidiary of Duke Energy Field Services a number
of common units equal to the number of common units issued upon
exercise of the underwriters option, at a price per common
unit equal to the proceeds per common unit before expenses but
after underwriting discounts and a structuring fee.
If the underwriters option to purchase additional common
units is exercised in full, we would receive approximately
$25.2 million of net proceeds from the sale of these common
units (assuming an initial public offering price of $20.00) and,
accordingly, we would use this amount to purchase United States
Treasury and other qualifying securities, and we would borrow an
equal amount under our term loan facility, which borrowings
would be used to redeem common units as described above.
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CAPITALIZATION
The following table shows:
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the cash and long-term investments and the capitalization of DCP
Midstream Partners Predecessor as of September 30, 2005; and |
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our pro forma cash and long-term investments and capitalization
as of September 30, 2005, as adjusted to reflect this
offering, the other transactions described under
Summary Formation Transactions and Partnership
Structure General and the application of the
net proceeds from this offering as described under Use of
Proceeds. |
|
We derived this table from, and it should be read in conjunction
with and is qualified in its entirety by reference to, the
historical and pro forma financial statements and the
accompanying notes included elsewhere in this prospectus. You
should also read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations beginning on
page 70.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2005 | |
|
|
| |
|
|
Historical | |
|
Pro Forma | |
|
|
| |
|
| |
|
|
($ in millions) | |
Cash
|
|
$ |
|
|
|
$ |
94.6 |
|
Long-term investments
|
|
|
|
|
|
|
61.0 |
|
|
|
|
|
|
|
|
|
|
Total cash and long-term investments
|
|
$ |
|
|
|
$ |
155.6 |
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$ |
|
|
|
$ |
110.0 |
|
|
Term loan facility
|
|
|
|
|
|
|
61.0 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
|
|
|
$ |
171.0 |
|
|
|
|
|
|
|
|
|
Total partners capital/net parent equity:
|
|
|
|
|
|
|
|
|
|
Net parent equity
|
|
$ |
214.2 |
|
|
$ |
|
|
|
Common units public
|
|
|
|
|
|
|
164.0 |
|
|
Common units sponsor
|
|
|
|
|
|
|
(9.3 |
) |
|
Subordinated units sponsor
|
|
|
|
|
|
|
(48.7 |
) |
|
General partner interest
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
Total partners capital/net parent investment
|
|
|
214.2 |
|
|
|
103.6 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
214.2 |
|
|
$ |
274.6 |
|
|
|
|
|
|
|
|
40
DILUTION
Dilution is the amount by which the offering price paid by the
purchasers of common units sold in this offering will exceed the
pro forma net tangible book value per unit after the offering.
On a pro forma basis as of September 30, 2005, after giving
effect to the offering of common units and the application of
the related net proceeds, and assuming the underwriters
option to purchase additional common units is not exercised, our
net tangible book value was $101.4 million, or
$5.68 per common unit. Net tangible book value excludes
$2.6 million of net intangible assets. Purchasers of common
units in this offering will experience substantial and immediate
dilution in net tangible book value per common unit for
financial accounting purposes, as illustrated in the following
table:
|
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per common unit
|
|
|
|
|
|
$ |
20.00 |
|
|
Net tangible book value per common unit before the offering(a)
|
|
$ |
23.94 |
|
|
|
|
|
|
Decrease in net tangible book value per common unit attributable
to purchasers in the offering
|
|
|
(18.26 |
) |
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per common unit after
the offering(b)
|
|
|
|
|
|
|
5.68 |
|
|
|
|
|
|
|
|
Immediate dilution in tangible net book value per common unit to
new investors
|
|
|
|
|
|
$ |
14.32 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Determined by dividing the number of units and general partner
units (1,357,143 common units, 7,142,857 subordinated units and
357,143 general partner units) to be issued to a subsidiary
of Duke Energy Field Services for its contribution of assets and
liabilities to DCP Midstream Partners, LP into the net tangible
book value of the contributed assets and liabilities. |
|
|
|
|
(b) |
Determined by dividing the total number of units and general
partner units to be outstanding after the offering (10,357,143
common units, 7,142,857 subordinated units and
357,143 general partner units) and the application of the
related net proceeds into our pro forma net tangible book value,
after giving effect to the application of the expected net
proceeds of the offering. |
The following table sets forth the number of units that we will
issue and the total consideration contributed to us by
affiliates of our general partner, its affiliates and by the
purchasers of common units in this offering upon consummation of
the transactions contemplated by this prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Acquired | |
|
Total Consideration | |
|
|
| |
|
| |
|
|
Number | |
|
Percent | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions) | |
General partner and affiliates (a)(b)
|
|
|
8,857,143 |
|
|
|
49.6 |
% |
|
$ |
(60.4 |
) |
|
|
(50.50 |
)% |
New investors
|
|
|
9,000,000 |
|
|
|
50.4 |
% |
|
|
180.0 |
|
|
|
150.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,857,143 |
|
|
|
100.0 |
% |
|
$ |
119.6 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The common and subordinated units and general partner units
acquired by our general partner and its affiliates consist of
1,357,143 common units and 7,142,857 subordinated units and
357,143 general partner units. |
41
|
|
|
|
(b) |
The assets contributed by our general partner and its affiliates
were recorded at historical cost in accordance with GAAP. Book
value of the consideration provided by our general partner and
its affiliates, as of September 30, 2005, after giving
effect to the application of the net proceeds of this offering
and the retention of accounts receivable and a 5% interest in
the Black Lake Pipe Line Company by affiliates of our general
partner, is as follows: |
|
|
|
|
|
|
|
|
($ in millions) | |
|
|
| |
Net parent investment
|
|
$ |
213.8 |
|
Less: Payment to affiliates of our general partner from the net
proceeds of the offering and borrowings under the credit facility
|
|
|
(179.0 |
) |
Less: The retention by affiliates of our general partner of
accounts receivable and a 5% interest in the Black Lake Pipe
Line Company
|
|
|
(95.2 |
) |
|
|
|
|
|
Total consideration
|
|
$ |
(60.4 |
) |
|
|
|
|
42
OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON
DISTRIBUTIONS
You should read the following discussion of our cash
distribution policy in conjunction with specific assumptions
included in this section. For more detailed information
regarding the factors and assumptions upon which our cash
distribution policy is based, please read Assumptions and
Considerations below. In addition, you should read
Forward-Looking Statements and Risk
Factors for information regarding statements that do not
relate strictly to historical or current facts and certain risks
inherent in our business.
For additional information regarding our historical and pro
forma operating results, you should refer to our historical
financial statements for the years ended December 31, 2002,
2003 and 2004 and the nine months ended September 30, 2005,
our unaudited historical financial statements for the nine
months ended September 30, 2004, and our unaudited pro
forma condensed consolidated financial statements for the year
ended December 31, 2004 and nine months ended
September 30, 2005, included elsewhere in this
prospectus.
General
Rationale for Our Cash Distribution Policy. Our
cash distribution policy reflects a basic judgment that our
unitholders will be better served by our distributing our cash
available after expenses and reserves rather than retaining it.
Because we believe we will generally finance any capital
investments from external financing sources, we believe that our
investors are best served by our distributing all of our
available cash. Because we are not subject to an entity-level
federal income tax, we have more cash to distribute to you than
would be the case were we subject to tax. Our cash distribution
policy is consistent with the terms of our partnership
agreement, which requires that we distribute all of our
available cash quarterly.
Limitations on Cash Distributions and Our Ability to
Change Our Cash Distribution Policy. There is no
guarantee that unitholders will receive quarterly distributions
from us. Our distribution policy is subject to certain
restrictions and may be changed at any time, including:
|
|
|
|
|
Our distribution policy is subject to restrictions on
distributions under our new credit facility. Specifically, the
agreement related to our credit facility contains material
financial tests and covenants that we must satisfy. These
financial tests and covenants are described in this prospectus
under the caption Managements Discussion and
Analysis of Financial Condition and Results of
Operations Capital Requirements
Description of Credit Agreement. Should we be unable to
satisfy these restrictions under our credit facility or if we
are otherwise in default under our credit facility, we would be
prohibited from making cash distributions to you notwithstanding
our stated cash distribution policy. |
|
|
|
Our board of directors will have the authority to establish
reserves for the prudent conduct of our business and for future
cash distributions to our unitholders, and the establishment of
those reserves could result in a reduction in cash distributions
to you from levels we currently anticipate pursuant to our
stated distribution policy. |
|
|
|
|
While our partnership agreement requires us to distribute all of
our available cash, our partnership agreement, including
provisions requiring us to make cash distributions contained
therein, may be amended. Although during the subordination
period, with certain exceptions, our partnership agreement may
not be amended without the approval of the public common
unitholders, our partnership agreement can be amended with the
approval of a majority of the outstanding common units and any
Class B units issued upon the reset of incentive
distribution rights, if any, voting as a class (including common
units held by affiliates of Duke Energy Field Services) after
the subordination period has ended. At the closing of this
offering, a subsidiary of Duke Energy Field Services will own
our general partner and approximately 48.6% of our outstanding
common units and subordinated units. |
|
|
|
|
Even if our cash distribution policy is not modified or revoked,
the amount of distributions we pay under our cash distribution
policy and the decision to make any distribution is determined
by of our general partner, taking into consideration the terms
of our partnership agreement. |
43
|
|
|
|
|
Under Section 17-607 of the Delaware Revised Uniform
Limited Partnership Act, we may not make a distribution to you
if the distribution would cause our liabilities to exceed the
fair value of our assets. |
|
|
|
We may lack sufficient cash to pay distributions to our
unitholders due to increases in our general and administrative
expense, principal and interest payments on our outstanding
debt, tax expenses, working capital requirements and anticipated
cash needs. |
|
|
|
|
We own a 45% interest in the Black Lake Pipe Line Company, Duke
Energy Field Services owns a 5% interest and BP owns the other
50% interest. Black Lake Pipe Line Company is required by the
terms of its partnership agreement to make monthly cash
distributions equal to 100% of its available cash, which is
defined as receipts less disbursements plus any reduction in
cash reserves or minus any increase in cash reserves. BP, as the
operator of this company, makes all of these determinations. As
a result, we generally do not have any control over the amount
or timing of cash distributions made by Black Lake Pipe Line
Company. The partnership agreement of Black Lake Pipe Line
Company may not be amended without the approval of us and BP. In
anticipation of a pipeline integrity project, Black Lake Pipe
Line Company suspended making monthly cash distributions in
December 2004 in order to reserve cash to pay the expenses of
this project. We expect that this project will be completed in
2006 and the monthly cash distributions will resume following
the completion of this project. |
|
Our Ability to Grow is Dependent on Our Ability to Access
External Expansion Capital. We expect that we will
distribute all of our available cash to our unitholders. As a
result, we expect that we will rely primarily upon external
financing sources, including commercial bank borrowings and the
issuance of debt and equity securities, to fund our acquisitions
and expansion capital expenditures. As a result, to the extent
we are unable to finance growth externally, our cash
distribution policy will significantly impair our ability to
grow. In addition, because we distribute all of our available
cash, our growth may not be as fast as businesses that reinvest
their available cash to expand ongoing operations. To the extent
we issue additional units in connection with any acquisitions or
expansion capital expenditures, the payment of distributions on
those additional units may increase the risk that we will be
unable to maintain or increase our per unit distribution level,
which in turn may impact the available cash that we have to
distribute on each unit. There are no limitations in our
partnership agreement or our credit facility on our ability to
issue additional units, including units ranking senior to the
common units. The incurrence of additional commercial borrowings
or other debt to finance our growth strategy would result in
increased interest expense, which in turn may impact the
available cash that we have to distribute to our unitholders.
Our Initial Distribution Rate
Upon completion of this offering, the board of directors of our
general partner will adopt a policy pursuant to which we will
declare an initial quarterly distribution of $0.35 per unit per
complete quarter, or $1.40 per unit per year, to be paid no
later than 45 days after the end of each fiscal quarter
through the quarter ending December 31, 2006. This equates
to an aggregate cash distribution of $6.25 million per
quarter or $25.0 million per year, in each case based on
the number of common units, subordinated units and general
partner units outstanding immediately after completion of this
offering. If the underwriters option to purchase
additional common units is exercised, an equivalent number of
common units will be redeemed. Accordingly, the exercise of the
underwriters option will not affect the total amount of
units outstanding or the amount of cash needed to pay the
initial distribution rate on all units. Our ability to make cash
distributions at the initial distribution rate pursuant to this
policy will be subject to the factors described above under the
caption Limitations on Cash Distributions and Our
Ability to Change Our Cash Distribution Policy.
44
The table below sets forth the assumed number of outstanding
common units, subordinated units and general partner units upon
the closing of this offering and the aggregate distribution
amounts payable on such units during the year following the
closing of this offering at our initial distribution rate of
$0.35 per common unit per quarter ($1.40 per common unit on an
annualized basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions | |
|
|
Number of | |
|
| |
|
|
Units | |
|
One Quarter | |
|
Four Quarters | |
|
|
| |
|
| |
|
| |
Publicly held common units
|
|
|
9,000,000 |
|
|
$ |
3,150,000 |
|
|
$ |
12,600,000 |
|
Common units held by Duke Energy Field Services
|
|
|
1,357,143 |
|
|
|
475,000 |
|
|
|
1,900,000 |
|
Subordinated units held by Duke Energy Field Services
|
|
|
7,142,857 |
|
|
|
2,500,000 |
|
|
|
10,000,000 |
|
General partner units held by Duke Energy Field Services
|
|
|
357,143 |
|
|
|
125,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,857,143 |
|
|
$ |
6,250,000 |
|
|
$ |
25,000,000 |
|
|
|
|
|
|
|
|
|
|
|
The subordination period generally will end if we have earned
and paid at least $1.40 on each outstanding unit and general
partner unit for any three consecutive, non-overlapping
four-quarter periods ending on or after December 31, 2010.
The subordination period may also end on or after
December 31, 2008, if certain financial tests are met but
the subordination period will not end prior to December 31,
2008 under any circumstances except if our general partner is
removed without cause and the units held by our general partner
and its affiliates are not voted in favor of such removal.
Please read the Provisions of Our Partnership Agreement
Relating to Cash Distributions Subordination
Period.
We do not have a legal obligation to pay distributions at our
initial distribution rate or at any other rate except as
provided in our partnership agreement. Our partnership agreement
requires that we distribute all of our available cash quarterly.
Under our partnership agreement, available cash is defined to
generally mean, for each fiscal quarter, cash generated from our
business in excess of expenses and the amount of reserves our
general partner determines is necessary or appropriate to
provide for the conduct of our business, comply with applicable
law, any of our debt instruments or other agreements or provide
for future distributions to our unitholders for any one or more
of the upcoming four quarters. Please read Provisions of
Our Partnership Agreement Relating to Cash Distributions
beginning on page 57.
If distributions on our common units are not paid with respect
to any fiscal quarter at the initial distribution rate, our
unitholders will not be entitled to receive such payments in the
future except that, to the extent we have available cash in any
future quarter during the subordination period in excess of the
amount necessary to make cash distributions to holders of our
common units at the initial distribution rate, we will use this
excess available cash to pay these deficiencies related to prior
quarters before any cash distribution is made to holders of
subordinated units. Please read Provisions of Our
Partnership Agreement Relating to Cash Distributions
Subordination Period.
Our distribution policy is consistent with the terms of our
partnership agreement, which requires that we distribute all of
our available cash quarterly. Under our partnership agreement,
available cash is defined to generally mean, for each fiscal
quarter, cash generated from our business in excess of the
amount of reserves our general partner determines is necessary
or appropriate to provide for the conduct of our business, to
comply with applicable law, any of our debt instruments or other
agreements or to provide for future distributions to our
unitholders for any one or more of the upcoming four quarters.
Our partnership agreement provides that any determination made
by our general partner in its capacity as our general partner
must be made in good faith and that any such determination will
not be subject to any other standard imposed by our partnership
agreement, the Delaware limited partnership statute or any other
law, rule or regulation or at equity. Holders of our common
units may pursue judicial action to enforce provisions of our
partnership agreement, including these related to requirements
to make cash distributions as described above; however, our
partnership agreement provides that our general partner is
entitled to make the determinations described above without
regard to any standard other than the requirements to act in
good faith. Our
45
partnership agreement provides that, in order for a
determination by our general partner to be made in good
faith, our general partner must believe that the
determination is in our best interests.
Our cash distribution policy, as expressed in our partnership
agreement, may not be modified or repealed without amending our
partnership agreement; however, the actual amount of our cash
distributions for any quarter is subject to fluctuations based
on the amount of cash we generate from our business and the
amount of reserves our general partner establishes in accordance
with our partnership agreement as described above. Our
partnership agreement may be amended with the approval of our
general partner and holders of a majority of our outstanding
common units and any Class B units issued upon the reset of
the incentive distribution rights, voting together as a class.
As of the date of this offering, our general partner will be
entitled to 2% of all distributions that we make prior to our
liquidation. The general partners initial 2% interest in
these distributions may be reduced if we issue additional units
in the future and our general partner does not elect to
contribute a proportionate amount of capital to us to maintain
its initial 2% general partner interest.
We will pay our distributions on or about the 15th of each of
February, May, August and November to holders of record on or
about the 1st of each such month. If the distribution date does
not fall on a business day, we will make the distribution on the
business day immediately preceding the indicated distribution
date. We will adjust the quarterly distribution for the period
from the closing of this offering through December 31, 2005
based on the actual length of the period.
In the sections that follow, we present in detail the basis for
our belief that we will be able to fully fund our initial
distribution rate of $0.35 per unit each quarter through
the quarter ending December 31, 2006. In those sections, we
present three tables, consisting of:
|
|
|
|
|
Unaudited Pro Forma Available Cash, in which we
present the amount of cash we would have had available for
distribution for our fiscal year ended December 31, 2004
and the twelve months ended September 30, 2005, derived
from our unaudited pro forma financial statements that are
included in this prospectus beginning on page F-2, which
unaudited pro forma financial statements are based on the
audited historical financial statements of DCP Midstream
Partners Predecessor for the year ended December 31, 2004
and for the nine months ended September 30, 2005, as
adjusted to give pro forma effect to: |
|
|
|
|
|
- |
the transactions to be completed as of the closing of this
offering, including the incurrences of approximately
$171.0 million of indebtedness under our new credit
facility; and |
|
|
|
- |
this offering and the application of the net proceeds as
described under Use of Proceeds. |
|
|
|
|
|
Statement of Forecasted Results of Operations for the
Twelve Months Ending December 31, 2006, in which we
present our financial forecast of our results of operations and
the minimum estimated EBITDA necessary for us to pay
distributions at the initial distribution rate on all units for
the twelve months ending December 31, 2006, and the
significant assumptions upon which the forecast is based; and |
|
|
|
Estimated Cash Available for Distribution for the Twelve
Months Ending December 31, 2006, in which we present
our estimate of the minimum amount of EBITDA necessary for us to
pay distributions at the initial distribution rate on all units
for the twelve months ending December 31, 2006. |
Unaudited Pro Forma Available Cash for Year Ended
December 31, 2004 and Twelve Months Ended
September 30, 2005
If we had completed the transactions contemplated in this
prospectus on January 1, 2004, pro forma available cash
generated during the year ended December 31, 2004 would
have been approximately $24.2 million. This amount would
have been sufficient to make a cash distribution for 2004 at the
initial rate of $0.35 per unit per quarter (or
$1.40 per unit on an annualized basis) on all of the common
units and a
46
cash distribution of $0.3226 per unit per quarter (or $1.29
on an annualized basis) on all of the subordinated units.
If we had completed the transactions contemplated in this
prospectus on October 1, 2004, our pro forma available cash
for the twelve months ended September 30, 2005 would have
been approximately $23.9 million. This amount would have
been sufficient to make a cash distribution for the twelve
months ended September 30, 2005 at the initial distribution
rate of $0.35 per unit per quarter (or $1.40 per unit on an
annualized basis) on all of the common units and a cash
distribution of $0.3123 per unit per quarter (or $1.25 on an
annualized basis) on all of the subordinated units. Pro forma
available cash for the two historical periods described above
does not include the benefit of our commodity price hedges, as
described in more detail in Assumptions and
Considerations.
Unaudited pro forma available cash from operating surplus
includes an incremental general and administrative expense we
will incur as a result of being a publicly traded limited
partnership, including compensation and benefit expenses of our
executive management personnel, costs associated with annual and
quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, independent
auditor fees, investor relations activities, registrar and
transfer agent fees, incremental director and officer liability
insurance costs and director compensation. We expect this
incremental general and administrative expense initially to
total approximately $8.4 million per year, some of which
will be allocated to us by Duke Energy Field Services.
Approximately $0.7 million of the $8.4 million in
incremental general and administrative expense is a non-cash
expense related to awards to be granted under our Long-Term
Incentive Plan.
The following table illustrates, on a pro forma basis, for the
year ended December 31, 2004 and for the twelve months
ended September 30, 2005, the amount of available cash that
would have been available for distributions to our unitholders,
assuming in each case that this offering had been consummated at
the beginning of such period. Each of the pro forma adjustments
presented below is explained in the footnotes to such
adjustments.
We based the pro forma adjustments upon currently available
information and specific estimates and assumptions. The pro
forma amounts below do not purport to present our results of
operations had the transactions contemplated in this prospectus
actually been completed as of the dates indicated. In addition,
cash available to pay distributions is primarily a cash
accounting concept, while our pro forma financial statements
have been prepared on an accrual basis. As a result, you should
view the amount of pro forma available cash only as a general
indication of the amount of cash available to pay distributions
that we might have generated had we been formed in earlier
periods.
DCP Midstream Partners, LP
Unaudited Pro Forma Available Cash
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Twelve Months | |
|
|
December 31, | |
|
Ended | |
|
|
2004 | |
|
September 30, 2005 | |
|
|
| |
|
| |
|
|
($ in millions, except per unit data) | |
Net Cash Provided by Operating Activities (a)
|
|
$ |
25.6 |
|
|
$ |
7.0 |
|
|
Net changes in working capital accounts, including net changes
in price risk management assets and liabilities (b)
|
|
|
11.2 |
|
|
|
29.5 |
|
|
Non-cash impairment of equity method investment (f)
|
|
|
(4.4 |
) |
|
|
|
|
|
Other, including changes in noncurrent assets and liabilities
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
EBITDA (c)
|
|
$ |
33.0 |
|
|
$ |
36.9 |
|
|
Incremental general and administrative expense of being a public
company (d)
|
|
|
(7.7 |
) |
|
|
(7.7 |
) |
|
Expenses incurred relating to the offering (e)
|
|
|
|
|
|
|
2.7 |
|
|
Non-cash impairment of equity method investment (f)
|
|
|
4.4 |
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended | |
|
Twelve Months | |
|
|
December 31, | |
|
Ended | |
|
|
2004 | |
|
September 30, 2005 | |
|
|
| |
|
| |
|
|
($ in millions, except per unit data) | |
|
Pro forma net cash interest expense (g)
|
|
|
(3.0 |
) |
|
|
(4.3 |
) |
|
Maintenance capital expenditures (h)
|
|
|
(1.9 |
) |
|
|
(3.1 |
) |
|
Earnings in excess of distributions received from equity
investments
|
|
|
(0.6 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
Pro Forma Available Cash
|
|
$ |
24.2 |
|
|
$ |
23.9 |
|
|
|
|
|
|
|
|
Pro Forma Cash Distributions:
|
|
|
|
|
|
|
|
|
|
Distributions per unit (i)
|
|
$ |
1.40 |
|
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
Distributions to public common unitholders (i)
|
|
$ |
12.6 |
|
|
$ |
12.6 |
|
|
Distributions to Duke Energy Field Services (i)
|
|
|
12.4 |
|
|
|
12.4 |
|
|
|
|
|
|
|
|
|
|
Total distributions (i)
|
|
$ |
25.0 |
|
|
$ |
25.0 |
|
|
|
|
|
|
|
|
Excess (shortfall) (j)
|
|
$ |
(0.8 |
) |
|
$ |
(1.1 |
) |
|
|
|
|
|
|
|
Interest coverage ratio (k)
|
|
|
11.0 |
x |
|
|
8.6 |
x |
Leverage ratio (k)
|
|
|
3.3 |
x |
|
|
3.0 |
x |
|
|
(a) |
Reflects net cash provided by operating activities of DCP
Midstream Partners Predecessor derived from its historical
combined financial statements for the periods indicated without
giving pro forma effect to the offering and the related
transactions. |
|
|
(b) |
At the closing of this offering, we will have a revolving credit
facility that provides for an aggregate of up to
$250 million in borrowing availability. As we will utilize
this facility to satisfy our working capital needs, thereby
allowing us to avoid using cash flow from operations to satisfy
our working capital needs, we do not reflect any pro forma
adjustments to cash available for distributions as a result of
these requirements. |
|
|
|
(c) |
EBITDA is defined as net income plus net interest expense and
depreciation and amortization expense. Net changes in working
capital accounts and other, including changes in noncurrent
assets and liabilities, are not included in EBITDA, and thus are
reconciling items in the reconciliation of Net Cash Provided by
Operating Activities and EBITDA. Please read
Summary Non-GAAP Financial Measures. |
|
|
|
(d) |
Reflects an adjustment to our EBITDA for an estimated
incremental cash expense associated with being a publicly traded
limited partnership, including compensation and benefit expenses
of our executive management personnel, costs associated with
annual and quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, independent auditor
fees, investor relations activities, registrar and transfer
agent fees, incremental director and officer liability insurance
costs and director compensation. |
|
|
|
(e) |
Represents an adjustment to our EBITDA for the portion of costs
associated with this offering, that were incurred during the
third quarter of 2005. |
|
|
|
(f) |
Represents an impairment to our equity method investment in
Black Lake Pipe Line Company. Our investment in the Black Lake
Pipe Line Company was analyzed during the third quarter of 2004
and determined to be impaired. As a result, this investment was
written down to fair value which was determined based on
managements best estimates of discounted future cash flows. |
|
|
(g) |
Reflects on a net basis the interest expense related to
borrowings under our credit facility made in connection with
this offering and the interest income related to the short-term
investments we intend to purchase with a portion of the proceeds
from this offering. |
|
|
(h) |
Includes actual maintenance capital expenditures of
$1.9 million and $3.1 million for the year ended
December 31, 2004 and the twelve months ended
September 30, 2005, respectively. Maintenance capital |
48
|
|
|
expenditures are capital expenditures made to replace partially
or fully depreciated assets, to maintain the existing operating
capacity of our assets and to extend their useful lives, or
other capital expenditures that are incurred in maintaining
existing system volumes and related cash flows. |
|
|
|
In addition, we made expansion capital expenditures of
$1.2 million and $4.5 million for the year ended
December 31, 2004 and the twelve months ended
September 30, 2005, respectively. Expansion capital
expenditures are made to acquire additional assets to grow our
business, to expand and upgrade our systems and facilities and
to construct or acquire similar systems or facilities. These
expenditures were funded by cash contributions from our parent,
Duke Energy Field Services, and are not included in our Pro
Forma Available Cash calculation. |
|
|
(i) |
The table below sets forth the assumed number of outstanding
common units, subordinated units and general partner units upon
the closing of this offering and the estimated per unit and
aggregate distribution amounts payable on our common units,
subordinated units and general partner units for four quarters
at our initial distribution rate of $0.35 per common unit per
quarter ($1.40 per common unit on an annualized basis). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions for | |
|
|
|
|
Four Quarters | |
|
|
Number of | |
|
| |
|
|
Units | |
|
Per Unit | |
|
Aggregate | |
|
|
| |
|
| |
|
| |
Pro forma distributions on publicly held common units
|
|
|
9,000,000 |
|
|
$ |
1.40 |
|
|
$ |
12,600,000 |
|
Pro forma distributions on common units held by Duke Energy
Field Services
|
|
|
1,357,143 |
|
|
$ |
1.40 |
|
|
|
1,900,000 |
|
Pro forma distribution on subordinated units held by Duke Energy
Field Services
|
|
|
7,142,857 |
|
|
$ |
1.40 |
|
|
|
10,000,000 |
|
Pro forma distribution on general partner units
|
|
|
357,143 |
|
|
$ |
1.40 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,857,143 |
|
|
|
|
|
|
$ |
25,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(j) |
Pro forma cash distributions are based on an assumed
distribution of $0.35 per common unit per quarter and, due to
our general partners right to receive incentive
distributions when distributions exceed $0.4025 per common unit,
not all cash available for distribution in excess of the $0.4025
per common unit per quarter would be distributed to holders of
common units and subordinated units. |
|
|
(k) |
In connection with the closing of this offering, our operating
partnership will enter into a credit agreement in an aggregate
principal amount of up to $400.0 million. There will be two
facilities under our credit agreement, including a term loan
facility of up to $175.0 million and a revolving credit
facility of up to $250.0 million. |
|
|
|
The credit agreement will contain financial covenants requiring
us to maintain: |
|
|
|
|
|
|
an interest coverage ratio (the ratio of our consolidated EBITDA
to our consolidated interest expense, in each case as defined in
the credit agreement) of not less than 3.0 to 1.0, determined as
of the last day of each quarter for the four-quarter period
ending on the date of determination; and |
|
|
|
|
|
a leverage ratio (the ratio of our consolidated indebtedness to
our consolidated EBITDA, in each case as defined in the credit
agreement) of not more than 4.75 to 1.0 (or, on a temporary
basis for not more than three consecutive quarters following the
consummation of certain acquisitions and/or qualified capital
expenditures, not more than 5.25 to 1.0). |
|
|
|
|
On a pro forma basis for the year ended December 31, 2004
and the twelve months ended September 30, 2005, we would
have been in compliance with these covenants. |
Financial Forecast for the Twelve Months Ending
December 31, 2006
Set forth below is a financial forecast of the expected results
of operations, EBITDA and cash available for distribution for
DCP Midstream Partners, LP for the twelve months ending
December 31, 2006. Our financial forecast presents, to the
best of our knowledge and belief, the expected results of
operations,
49
EBITDA and cash available for distribution for DCP Midstream
Partners, LP for the forecast period. EBITDA is defined as net
income, plus interest expense and depreciation and amortization
expense.
Our financial forecast reflects our judgment as of the date of
this prospectus of conditions we expect to exist and the course
of action we expect to take during the twelve months ending
December 31, 2006. The assumptions disclosed below under
Assumptions and Considerations are those that we
believe are significant to our financial forecast. We believe
our actual results of operations and cash flows will approximate
those reflected in our financial forecast; however, we can give
you no assurance that our forecast results will be achieved.
There will likely be differences between our forecast and the
actual results and those differences could be material. If the
forecast is not achieved, we may not be able to pay cash
distributions on our common units at the initial distribution
rate stated in our cash distribution policy. In order to fund
distributions to our unitholders at our initial rate of $1.40
per common unit for the twelve months ending December 31,
2006, our minimum estimated EBITDA for the twelve months ending
December 31, 2006 must be at least $32.6 million. As
set forth in the table below, we forecast that our EBITDA for
this period will be approximately $35.9 million.
We do not as a matter of course make public projections as to
future operations, earnings, or other results. However,
management has prepared the prospective financial information
set forth below to present the forecasted results of operations
and cash flow for the twelve months ending December 31,
2006 in order to forecast the amount of cash available for
distribution to our unitholders for that period. The
accompanying prospective financial information was not prepared
with a view toward complying with the guidelines established by
the American Institute of Certified Public Accountants with
respect to prospective financial information, but, in the view
of our management, was prepared on a reasonable basis, reflects
the best currently available estimates and judgments, and
presents, to the best of managements knowledge and belief,
the expected course of action and the expected future financial
performance. However, this information is not fact and should
not be relied upon as being necessarily indicative of future
results, and readers of this prospectus are cautioned not to
place undue reliance on the prospective financial information.
Neither our independent auditors, nor any other independent
accountants, have compiled, examined, or performed any
procedures with respect to the prospective financial information
contained herein, nor have they expressed any opinion or any
other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim
any association with, the prospective financial information.
When considering our financial forecast, you should keep in mind
the risk factors and other cautionary statements under
Risk Factors beginning on page 18. Any of the
risks discussed in this prospectus could cause our actual
results of operations to vary significantly from the financial
forecast.
We are providing the financial forecast to supplement our pro
forma and historical financial statements in support of our
belief that we will have sufficient available cash to allow us
to pay cash distributions on all of our outstanding common and
subordinated units for each quarter in the twelve month period
ending December 31, 2006 at our stated initial distribution
rate. Please read below under Assumptions and
Considerations for further information as to the
assumptions we have made for the financial forecast.
Actual payments of distributions on common units, subordinated
units and the general partner units are expected to be
$25.0 million for the twelve month period ending
December 31, 2006. This is the expected aggregate amount of
cash distributions of $6.25 million per quarter for the
period. Quarterly distributions will be paid within 45 days
after the close of each quarter.
We do not undertake any obligation to release publicly the
results of any future revisions we may make to the financial
forecast or to update this financial forecast to reflect events
or circumstances after the date of this prospectus. Therefore,
you are cautioned not to place undue reliance on this
information.
50
DCP Midstream Partners, LP
Statement of Forecasted Results of
Operations and Minimum Estimated EBITDA
|
|
|
|
|
|
|
|
|
Twelve Months | |
|
|
Ending | |
|
|
December 31, | |
|
|
2006 | |
|
|
| |
|
|
($ in millions) | |
Total operating revenues
|
|
$ |
468.9 |
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
Purchases of natural gas and NGLs
|
|
|
403.5 |
|
|
Operating and maintenance expense
|
|
|
15.5 |
|
|
Depreciation and amortization expense
|
|
|
12.2 |
|
|
General and administrative expense
|
|
|
14.0 |
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
445.2 |
|
|
|
|
|
Operating income
|
|
|
23.7 |
|
|
Loss from equity method investment
|
|
|
|
|
|
Cash interest expense, net
|
|
|
(6.4 |
) |
|
|
|
|
|
|
Net income
|
|
|
17.3 |
|
Adjustments to reconcile net income to cash available for
distributions:
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
12.2 |
|
|
Cash interest expense, net
|
|
|
6.4 |
|
|
|
|
|
|
|
Forecasted EBITDA
|
|
|
35.9 |
|
|
Cash interest expense, net
|
|
|
(6.4 |
) |
|
Maintenance capital expenditures
|
|
|
(2.2 |
) |
|
Expansion capital expenditures
|
|
|
(1.0 |
) |
|
Proceeds from liquidation of United States Treasury and other
qualified securities
|
|
|
1.0 |
|
|
Distributions received in excess of earnings from equity
investment
|
|
|
0.3 |
|
|
Non-cash general and administrative expense
|
|
|
0.7 |
|
|
|
|
|
|
|
Cash available for distribution
|
|
|
28.3 |
|
|
|
|
|
Total distributions to our unitholders and general partner at
the initial distribution rate
|
|
|
25.0 |
|
|
Excess of cash available for distributions over distributions at
the initial distribution rate
|
|
$ |
3.3 |
|
|
|
|
|
Calculation of minimum estimated EBITDA necessary to pay cash
distributions at the initial distribution rate:
|
|
|
|
|
|
Forecasted EBITDA
|
|
$ |
35.9 |
|
|
Excess of cash available for distributions over distributions at
the initial distribution rate
|
|
|
(3.3 |
) |
|
|
Minimum estimated EBITDA necessary to pay cash distributions
at the initial distribution rate
|
|
$ |
32.6 |
|
|
|
|
|
Interest coverage ratio (a)
|
|
|
5.6 |
x |
Leverage ratio (a)
|
|
|
3.1 |
x |
|
|
(a) |
In connection with the closing of this offering, our operating
partnership will enter into a credit agreement in an aggregate
principal amount of up to $400.0 million. There will be two
facilities under our credit agreement, including a term loan
facility of up to $175.0 million and a revolving credit
facility of up to $250.0 million. |
|
|
|
The credit agreement will contain financial covenants requiring
us to maintain: |
|
|
|
|
|
|
an interest coverage ratio (the ratio of our consolidated EBITDA
to our consolidated interest expense, in each case as defined in
the credit agreement) of not less than 3.0 to 1.0, determined as
of the last day of each quarter for the four quarter period
ending on the date of determination; and |
|
|
|
|
|
a leverage ratio (the ratio of our consolidated indebtedness to
our consolidated EBITDA, in each case as defined in the credit
agreement) of not more than 4.75 to 1.0 (or, on a temporary
basis for not more than three consecutive quarters following the
consummation of certain acquisitions, not more than 5.25 to 1.0). |
|
|
|
|
Based on our forecasted results of operations, we expect that we
will be in compliance with these covenants for the 2006 forecast
period. |
Please read accompanying summary of the forecast assumptions.
51
Assumptions and Considerations
General/Commodity Price and
Risk Considerations
|
|
|
|
|
Volumes, revenues and cost of sales are net of intercompany
transactions. |
|
|
|
Our forecast includes the effect of our commodity price hedging
program under which we have hedged approximately 80% of our
expected natural gas, NGL and condensate commodity price risk
related to our natural gas, NGL and condensate sales. |
|
|
|
|
Realized throughput volumes and commodity prices are the two
primary factors that will influence whether the amount of cash
available for distribution in 2006 is above or below our
forecast. For example, if all other assumptions are held
constant, a 6.0% decline in inlet volumes below forecasted
levels would result in a $3.3 million decline in cash
available for distribution. A decline in forecasted cash flows
greater than $3.3 million would result in our generating
less than the minimum cash available to pay distributions. For
2003 and 2004, a 5% decline in inlet volumes would have
resulted in a $2.3 million and $2.4 million,
respectively, decline in cash available for distribution. |
|
|
|
|
|
Similarly, a difference in realized versus forecasted commodity
prices would effect our cash flows. For 2006, approximately
$7.0 million of our forecasted gross margin is unhedged and
therefore has commodity price sensitivity. If all other
assumptions are held constant, a combined 45.0% decrease in
realized natural gas, crude oil and NGL prices versus our
forecasted prices for the unhedged portions of our forecasted
volumes of natural gas, condensate and NGLs would result in a
$3.3 million decline in cash available for distribution.
For 2006, our forecast market prices for the unhedged portions
of our forecasted volumes of natural gas, condensate and NGLs
are $7.51/MMBtu, $51.02/Bbl and $32.70/Bbl, respectively. These
forecast prices for the unhedged portions of our forecasted
volumes were based on 87% of the average price for natural gas,
crude oil and NGLs pursuant to futures contracts for product
delivery during a five-year period. For 2003 and 2004, a
5% decline in market prices for natural gas, crude oil and
NGLs would have resulted in a $1.3 million and
$1.8 million, respectively, decline in cash available for
distribution. The significant difference between historical and
forecasted price sensitivity is attributable to the hedge
transactions and their forecasted effectiveness. |
|
|
|
|
|
As described below, our 2006 average price forecast for each
commodity reflects the volume-weighted average of (i) our
five-year flat hedge price and (ii) five-year average
market futures prices, reduced by approximately 13% for
conservatism. |
|
Total Operating
Revenue
|
|
|
|
|
We will sell an average of 124 BBtu/d of residue gas for
the twelve months ending December 31, 2006 at an average
price of $8.03/MMBtu, as compared to 128 BBtu/d at an
average price of $5.90/MMBtu for the calendar year ended
December 31, 2004, and 139 BBtu/d at an average price
of $5.54/MMBtu for the calendar year ended December 31,
2003. These assumptions take into account the effect of our
natural gas hedge contract under which we have hedged
approximately 80% of our expected natural gas commodity price
exposure related to natural gas sales. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk Hedging Strategies for additional
detail related to the terms of this natural gas hedge contract. |
|
|
|
|
We will gather and/or transport an average of 242 BBtu/d of
natural gas for the twelve months ending December 31, 2006
under various tariff and fee arrangements at an average rate of
$0.31/MMBtu, as compared to 185 BBtu/d at an average rate
of $0.29/MMBtu for the calendar year ended December 31,
2004, and 214 Bbtu/d at an average rate of $0.24/MMBtu for
the calendar year ended December 31, 2003. |
|
|
|
|
We will sell an average of 684 Bbls/d of condensate for the
twelve months ending December 31, 2006 at an average price
of $52.95/Bbl, as compared to 656 Bbls/d at an average
price of $35.57/Bbl for the calendar year ended
December 31, 2004, and 689 Bbls/d at an average price
of $24.73/Bbl for the |
52
|
|
|
|
|
calendar year ended December 31, 2003. These assumptions
take into account the effect of crude oil hedge contract under
which we have hedged approximately 80% of our expected
condensate commodity price exposure related to condensate sales.
Please read Managements Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market
Risk Commodity Price Risk Hedging
Strategies for additional detail related to the terms of
this crude oil hedge contract. |
|
|
|
|
We will sell an average of 4,620 Bbls/d of NGLs for the twelve
months ending December 31, 2006 at an average price of
$35.71/Bbl, as compared to 19,717 Bbls/d at an average
price of $28.64/Bbl for the calendar year ended
December 31, 2004, and 18,817 Bbls/d at an average
price of $24.27/Bbl for the calendar year ended
December 31, 2003. These assumptions take into account the
effect of our crude oil hedge contract under which we have
hedged approximately 80% of our expected NGLs commodity price
exposure related to NGLs sales. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk Hedging Strategies for additional
detail related to the terms of this crude oil hedge contract.
Upon the closing of this offering, we will enter into a
contractual arrangement with Duke Energy Field Services that
will provide that Duke Energy Field Services will purchase the
NGLs that were historically purchased by us with respect to our
Seabreeze pipeline, and Duke Energy Field Services will pay us
to transport the NGLs on the Seabreeze pipeline pursuant to a
fee-based rate that will be applied to the volumes transported.
Because of this contractual change, the forecasted NGL volumes
sold are significantly different than the historical comparison. |
|
|
|
|
|
We will transport an average of 19,459 Bbls/d of NGLs for the
twelve months ending December 31, 2006 under fee contracts
at an average rate of $0.54/Bbl, as compared to 0 Bbls/d
for the calendar years ended December 31, 2004 and
December 31, 2003. Upon the closing of this offering, we
will enter into a contractual arrangement with Duke Energy Field
Services that will provide that Duke Energy Field Services will
purchase the NGLs that were historically purchased by us with
respect to our Seabreeze pipeline, and Duke Energy Field
Services will pay us to transport the NGLs on the Seabreeze
pipeline pursuant to a fee-based rate that will be applied to
the volumes transported. Because of this contractual change, the
forecasted NGL volumes transported are significantly different
than the historical comparison. |
|
Costs and Expenses
|
|
|
|
|
We will purchase an average of 124 BBtu/d of natural gas at an
average price of $7.88/MMBtu, as compared to 129 BBtu/d at an
average price of $5.69/MMBtu for the calendar year ended
December 31, 2004, and 139 BBtu/d at an average price of
$5.43/MMBtu for the calendar year ended December 31, 2003. |
|
|
|
|
We will purchase an average of 3,114 Bbls/d of NGLs at an
average price of $39.95/Bbl, as compared to 17,681 Bbls/d
at an average price of $28.48/Bbl for the calendar year ended
December 31, 2004, and 17,621 Bbls/d at an average
price of $24.11/Bbl for the calendar year ended
December 31, 2003. The projected reduction in volumes is
attributable to the contractual arrangement with Duke Energy
Field Services described above under Total
Operating Revenue. |
|
|
|
|
|
Operating and maintenance expense will not be more than
$15.5 million for the twelve months ending
December 31, 2006, and includes certain scheduled asset
integrity expenditures which do not occur annually, as compared
to $13.6 million for the calendar year ended
December 31, 2004, and $15.0 million for the calendar
year ended December 31, 2003. |
|
|
|
|
|
Our general and administrative expense will not be more than
$14.0 million, which will consist of $4.8 million of
fixed general and administrative expense, pursuant to the
omnibus agreement, and $9.2 million of additional general
and administrative expense, of which $8.4 million relates
to operating as a separate publicly held limited partnership.
Our general and administrative expense of $14.0 million
includes $0.7 million of non-cash expense related to awards
to be granted under our |
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53
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Long-Term Incentive Plan. General and administrative expense was
$6.5 million and $7.1 million for the calendar years
ended December 31, 2004 and 2003, respectively. Under the
terms of the omnibus agreement with Duke Energy Field Services,
our allocated general and administrative expense for 2006 will
be capped at $4.8 million. Please read Certain
Relationships and Related Party Transactions Omnibus
Agreement on page 126. |
Depreciation and Amortization Expense. Forecasted
depreciation and amortization expense for the twelve months
ending December 31, 2006 will be $12.2 million as
compared to $12.6 million and $12.8 million of
depreciation and amortization expense for the calendar years
ended December 31, 2004 and 2003, respectively. Forecasted
depreciation and amortization expense reflects managements
estimates, which are based on consistent average depreciable
asset lives and depreciation methodologies, taking into account
forecasted capital expenditures as described below:
Equity Method
Investment
Black Lake Pipe Line
Company
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Our forecast takes into account our 45% interest in the Black
Lake Pipe Line Company. |
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Black Lake pipeline will transport an average of
9,998 Bbls/d of NGLs at an average rate of $0.89/Bbl for
the twelve months ending December 31, 2006, as compared to
10,512 Bbls/d at an average rate of $0.81/Bbl for the
calendar year ended December 31, 2004, and
11,094 Bbls/d at an average price of $0.81/Bbl for the
calendar year ended December 31, 2003. |
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Operating and maintenance expense for Black Lake pipeline will
be no more than $2.5 million, as compared with
$1.7 million and $2.2 million for the calendar years
ended December 31, 2004 and 2003, respectively. |
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Depreciation and amortization expense for Black Lake pipeline
will be no more than $0.7 million. |
Capital Expenditures. Forecast capital
expenditures for the twelve months ending December 31, 2006
is based on the following assumptions:
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Our maintenance capital expenditures will not exceed
$2.2 million for the twelve months ending December 31,
2006 as compared to $1.9 million and $1.3 million for
the calendar years ended December 31, 2004 and 2003,
respectively. |
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Our expansion capital expenditures will be $1.0 million
during the period. |
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We will finance our $1.0 million in expansion capital
expenditures by selling $1.0 million in United States
Treasury and other qualified securities and subsequently will
reduce our borrowings under our secured term loan facility by
$1.0 million and increase our borrowing under our revolving
credit facility by $1.0 million. |
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Financing. Our forecast for the twelve months
ending December 31, 2006 is based on the following
significant financing assumptions:
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Our debt levels will not exceed $171.0 million. Of this
$171.0 million, $110.0 million will initially be drawn
under our revolving credit facility and $61.0 million will
initially be drawn under our secured term loan facility. |
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We will finance our $1.0 million in expansion capital
expenditures by selling $1.0 million in United States
Treasury and other qualified securities and subsequently will
reduce our borrowings under our secured term loan facility by
$1.0 million and increase our borrowing under our revolving
credit facility by $1.0 million. |
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The borrowings under our revolver will bear an average interest
rate of LIBOR + 0.75% through March 31, 2006. Subsequently,
borrowings under the revolver will bear interest based on a
leveraged based pricing grid. Borrowings under our term loan
facility will bear an average interest rate of |
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54
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approximately 0.20%, net of interest earned on the
$61.0 million United States Treasury and other qualifying
securities pledged to secure the term loan. |
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We will remain in compliance with the restrictive financial
covenants in our existing and future debt agreements. |
Regulatory, Industry and Economic Factors. Our
forecast for the twelve months ending December 31, 2006 is
based on the following significant assumptions related to
regulatory, industry and economic factors:
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There will not be any new federal, state or local regulation of
portions of the energy industry in which we operate, or an
interpretation of existing regulation, that will be materially
adverse to our business. |
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There will not be any major adverse change in the portions of
the energy industry or in general economic conditions. |
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Market, insurance and overall economic conditions will not
change substantially. |
Payments of Distributions on Common Units, Subordinated
Units and the General Partner Units. Distributions on
common units, subordinated units and general partner units for
the twelve months ending December 31, 2006 are forecasted
to be $25.0 million in the aggregate. Quarterly
distributions will be paid within 45 days after the close
of each quarter.
Estimated Cash Available for Distribution for the Twelve
Months Ending December 31, 2006
In order to fund distributions to our unitholders at our initial
distribution rate of $1.40 per common unit for the twelve months
ending December 31, 2006, our minimum estimated EBITDA for
the twelve months ending December 31, 2006 must be at least
$32.6 million. EBITDA is defined as net income, plus net
interest expense and depreciation and amortization expense.
EBITDA should not be considered an alternative to, or more
meaningful than, net income, cash flows from operating
activities, or any other measure of financial performance
presented in accordance with GAAP, as those items are used as
measures of operating performance, liquidity or ability to
service debt obligations.
The table below entitled Estimated Cash Available for
Distribution for the Twelve Months Ending December 31,
2006 sets forth our calculation of the minimum estimated
EBITDA necessary for us to generate $25.0 million of cash
available to pay distributions at the initial distribution rate
on all of our units. If we generate $25.0 million of cash
available for distribution for the twelve months ending
December 31, 2006, we will be able to fully fund
distributions to our unitholders and general partner at the
initial distribution rate of $0.35 per common unit per
quarter ($1.40 per common unit on an annualized basis).
You should read Assumptions and Considerations
included as part of the financial forecast in the table above
entitled Statement of Forecasted Results of Operations,
EBITDA and Cash Available for Distributions for a
discussion of the material assumptions underlying such financial
forecast. Our forecast is based on those material assumptions
and reflects our judgment of conditions we expect to exist and
the course of action we expect to take. The assumptions
disclosed in our financial forecast are those that we believe
are significant to our ability to generate the forecasted
EBITDA. If our estimate is not achieved and we do not generate
the minimum estimated EBITDA of $32.6 million, we may not
be able to pay distributions on the common units at the initial
distribution rate of $0.35 per common unit per quarter
($1.40 per common unit on an annualized basis). Our
financial forecast has been prepared by our management. Our
independent auditors have not examined, compiled or otherwise
applied procedures to our financial forecast and the forecast of
cash available for distribution set forth below and,
accordingly, do not express an opinion or any other form of
assurance on it.
55
The table below includes maintenance capital expenditures for
the twelve months ending December 31, 2006. Maintenance
capital expenditures are capital expenditures made to replace
partially or fully depreciated assets, to maintain the existing
operating capacity of our assets and to extend their useful
lives, or other capital expenditures that are incurred in
maintaining existing system volumes and related cash flows.
When considering the table below, you should keep in mind the
risk factors and other cautionary statements under the heading
Risk Factors beginning on page 18 and elsewhere
in this prospectus. Any of these factors or the other risks
discussed in this prospectus could cause our financial condition
and consolidated results of operations to vary significantly
from those set forth in the financial forecast above, which in
turn would affect our ability to generate the minimum estimated
EBITDA necessary for us to pay cash distributions at the initial
distribution rate on all of our units in the estimated amounts
reflected in the table below.
DCP Midstream Partners, LP
Estimated Cash Available for Distribution
for the Twelve Months Ending December 31, 2006
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Twelve Months | |
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Ending | |
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December 31, 2006 | |
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($ in | |
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millions, except | |
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per unit data) | |
Minimum estimated EBITDA necessary to pay cash
distributions (a)
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$ |
32.6 |
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Less:
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Cash interest expense, net
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6.4 |
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Maintenance capital expenditures
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2.2 |
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Expansion capital expenditures
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1.0 |
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Add:
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Non-cash general and administrative expense
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0.7 |
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Distributions in excess of earnings from equity method investment
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0.3 |
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Borrowings and equity issuances
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Proceeds from liquidation of United States Treasury and other
qualified securities
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1.0 |
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Minimum estimated cash available to pay distributions
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$ |
25.0 |
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Forecasted Cash Distributions (b):
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Forecasted distributions to our public common unitholders
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$ |
12.6 |
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Forecasted distributions to common units held by Duke Energy
Field Services
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1.9 |
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Forecasted distributions to subordinated units held by Duke
Energy Field Services
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10.0 |
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Forecasted distributions to general partner units held by Duke
Energy Field Services
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0.5 |
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Total forecasted distributions to our unitholders and general
partner
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$ |
25.0 |
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Forecasted distribution per unit
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$ |
1.40 |
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(a) |
This amount represents the minimum estimated amount of EBITDA
that we will need to generate for the twelve months ending
December 31, 2006 in order to pay cash distributions to our
unitholders and our general partner at our initial distribution
rate of $0.35 per unit per quarter. We expect that our EBITDA
for this period will exceed this amount as reflected in our
financial forecast found on page 49. |
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(b) |
Represents the amount required to fund distributions to our
unitholders and our general partner for four quarters based upon
our initial distribution rate of $0.35 per unit per
quarter. If cash distributions to our unitholders exceed
$0.4025 per common unit in any quarter, our general partner
will receive increasing percentages, up to 50%, of the cash we
distribute in excess of that amount. We refer to these
distributions as incentive distributions. Please
read Provisions of Our Partnership Agreement Relating to
Cash Distributions beginning on page 57. |
56
PROVISIONS OF OUR PARTNERSHIP
AGREEMENT RELATING TO CASH DISTRIBUTIONS
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
Distributions of Available Cash
General. Our partnership agreement requires that,
within 45 days after the end of each quarter, beginning
with the quarter ending December 31, 2005, we distribute
all of our available cash to unitholders of record on the
applicable record date.
Definition of Available Cash. Available cash, for
any quarter, consists of all cash on hand at the end of that
quarter:
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less the amount of cash reserves established by our general
partner to: |
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provide for the proper conduct of our business; |
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comply with applicable law, any of our debt instruments or other
agreements; or |
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provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters; |
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plus, if our general partner so determines, all or a portion of
cash on hand on the date of determination of available cash for
the quarter. |
Intent to Distribute the Minimum Quarterly
Distribution. We intend to distribute to the holders of
common units and subordinated units on a quarterly basis at
least the minimum quarterly distribution of $0.35 per unit,
or $1.40 per year, to the extent we have sufficient cash
from our operations after establishment of cash reserves and
payment of fees and expenses, including payments to our general
partner. However, there is no guarantee that we will pay the
minimum quarterly distribution on the units in any quarter. Even
if our cash distribution policy is not modified or revoked, the
amount of distributions paid under our policy and the decision
to make any distribution is determined by our general partner,
taking into consideration the terms of our partnership
agreement. We will be prohibited from making any distributions
to unitholders if it would cause an event of default, or an
event of default is existing, under our credit agreement. Please
read Managements Discussion and Analysis of
Financial Condition and Results of Operations
Capital Requirements Description of Credit
Agreement for a discussion of the restrictions to be
included in our credit agreement that may restrict our ability
to make distributions.
General Partner Interest and Incentive Distribution
Rights. Initially, our general partner will be entitled
to 2% of all quarterly distributions since inception that we
make prior to our liquidation. This general partner interest
will be represented by 357,143 general partner units. Our
general partner has the right, but not the obligation, to
contribute a proportionate amount of capital to us to maintain
its current general partner interest. The general partners
initial 2% interest in these distributions may be reduced if we
issue additional units in the future and our general partner
does not contribute a proportionate amount of capital to us to
maintain its 2% general partner interest.
Our general partner also currently holds incentive distribution
rights that entitle it to receive increasing percentages, up to
a maximum of 50%, of the cash we distribute from operating
surplus (as defined below) in excess of $0.4025 per unit
per quarter. The maximum distribution of 50% includes
distributions paid to our general partner on its 2% general
partner interest and assumes that our general partner maintains
its general partner interest at 2%. The maximum distribution of
50% does not include any distributions that our general partner
may receive on units that it owns. Please read
General Partner Interest and Incentive
Distribution Rights beginning on page 60 for
additional information.
57
Operating Surplus and Capital Surplus
General. All cash distributed to unitholders will
be characterized as either operating surplus or
capital surplus. Our partnership agreement requires
that we distribute available cash from operating surplus
differently than available cash from capital surplus.
Operating Surplus. Operating surplus consists of:
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an amount equal to four times the amount needed for any one
quarter for us to pay a distribution on all of our units
(including the general partner units) and the incentive
distribution rights at the same per-unit amount as was
distributed in the immediately preceding quarter; plus |
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all of our cash receipts after the closing of this offering,
excluding cash from borrowings, sales of equity and debt
securities, sales or other dispositions of assets outside the
ordinary course of business, the termination of interest rate
swap agreements, capital contributions or corporate
reorganizations or restructurings; less |
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all of our operating expenditures after the closing of this
offering, but excluding the repayment of borrowings, and
including maintenance capital expenditures; less |
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the amount of cash reserves established by our general partner
to provide funds for future operating expenditures. |
Maintenance capital expenditures represent capital expenditures
made to replace partially or fully depreciated assets, to
maintain the existing operating capacity of our assets and to
extend their useful lives, or other capital expenditures that
are incurred in maintaining existing system volumes and related
cash flows. Expansion capital expenditures represent capital
expenditures made to expand or to increase the efficiency of the
existing operating capacity of our assets or to expand the
operating capacity or revenues of existing or new assets,
whether through construction or acquisition. Costs for repairs
and minor renewals to maintain facilities in operating condition
and that do not extend the useful life of existing assets will
be treated as operations and maintenance expenses as we incur
them. Our partnership agreement provides that our general
partner determines how to allocate a capital expenditure for the
acquisition or expansion of our assets between maintenance
capital expenditures and expansion capital expenditures.
Capital Surplus. Capital surplus consists of:
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borrowings; |
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sales of our equity and debt securities; and |
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sales or other dispositions of assets for cash, other than
inventory, accounts receivable and other current assets sold in
the ordinary course of business or as part of normal retirement
or replacement of assets. |
Characterization of Cash Distributions. Our
partnership agreement requires that we treat all available cash
distributed as coming from operating surplus until the sum of
all available cash distributed since the closing of this
offering equals the operating surplus as of the most recent date
of determination of available cash. Our partnership agreement
requires that we treat any amount distributed in excess of
operating surplus, regardless of its source, as capital surplus.
As reflected above, operating surplus includes an amount equal
to four times the amount needed for any one quarter for us to
pay a distribution on all of our units (including the general
partner units) and the incentive distribution rights at the same
per-unit amount as was distributed in the immediately preceding
quarter. This amount, which initially equals $25.0 million,
does not reflect actual cash on hand that is available for
distribution to our unitholders. Rather, it is a provision that
will enable us, if we choose, to distribute as operating surplus
up to this amount of cash we receive in the future from
non-operating sources, such as asset sales, issuances of
securities, and borrowings, that would otherwise be distributed
as capital surplus. We do not anticipate that we will make any
distributions from capital surplus.
58
Subordination Period
General. Our partnership agreement provides that,
during the subordination period (which we define below and in
Appendix B), the common units will have the right to
receive distributions of available cash from operating surplus
each quarter in an amount equal to $0.35 per common unit,
which amount is defined in our partnership agreement as the
minimum quarterly distribution, plus any arrearages in the
payment of the minimum quarterly distribution on the common
units from prior quarters, before any distributions of available
cash from operating surplus may be made on the subordinated
units. These units are deemed subordinated because
for a period of time, referred to as the subordination period,
the subordinated units will not be entitled to receive any
distributions until the common units have received the minimum
quarterly distribution plus any arrearages from prior quarters.
Furthermore, no arrearages will be paid on the subordinated
units. The practical effect of the subordinated units is to
increase the likelihood that during the subordination period
there will be available cash to be distributed on the common
units.
Subordination Period. The subordination period
will extend until the first day of any quarter beginning after
December 31, 2010 that each of the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
distribution for each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date; |
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common and subordinated units and general
partner units during those periods on a fully diluted basis
during those periods; and |
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there are no arrearages in payment of the minimum quarterly
distribution on the common units. |
Expiration of the Subordination Period. When the
subordination period expires, each outstanding subordinated unit
will convert into one common unit and will then participate pro
rata with the other common units in distributions of available
cash. In addition, if the unitholders remove our general partner
other than for cause and units held by the general partner and
its affiliates are not voted in favor of such removal:
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the subordination period will end and each subordinated unit
will immediately convert into one common unit; |
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and |
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the general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests. |
Early Conversion of Subordinated Units. If the
tests for ending the subordination period are satisfied for any
two consecutive, non-overlapping four-quarter periods ending on
or after December 31, 2007, 50% of the subordinated units
will convert into an equal number of common units. In addition
to the early conversion of subordinated units described above,
50% of the subordinated units will convert into an equal number
of common units if the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded $1.75 (125% of the annualized
minimum quarterly distribution) for each of the two consecutive,
non-overlapping four-quarter periods ending on or after
December 31, 2008; and |
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the adjusted operating surplus generated during each of the two
consecutive, non-overlapping four-quarter periods immediately
preceding that date equaled or exceeded the sum of a
distribution of $1.75 per common unit (125% of the
annualized minimum quarterly distribution) on all of the |
59
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outstanding common and subordinated units and general partner
units during those periods on a fully diluted basis; and |
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there are no arrearages in payment of the minimum quarterly
distribution on the common units. |
The second early conversion of subordinated units may not occur,
however, until at least one year following the end of the period
for the first early conversion of subordinated units.
Adjusted Operating Surplus. Adjusted operating
surplus is intended to reflect the cash generated from
operations during a particular period and therefore excludes net
drawdowns of reserves of cash generated in prior periods.
Adjusted operating surplus consists of:
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operating surplus generated with respect to that period;
plus |
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any net decrease made in subsequent periods in cash reserves for
operating expenditures initially established with respect to
that period; less |
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any net decrease in cash reserves for operating expenditures
with respect to that period not relating to an operating
expenditure made with respect to that period; plus |
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any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium. |
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Distributions of Available Cash from Operating Surplus during
the Subordination Period
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter during the
subordination period in the following manner:
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first, 98% to the common unitholders, pro rata, and 2% to
the general partner, until we distribute for each outstanding
common unit an amount equal to the minimum quarterly
distribution for that quarter; |
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second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until we distribute for each outstanding
common unit an amount equal to any arrearages in payment of the
minimum quarterly distribution on the common units for any prior
quarters during the subordination period; |
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third, 98% to the subordinated unitholders, pro rata, and
2% to the general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and |
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thereafter, in the manner described in General
Partner Interest and Incentive Distribution Rights below. |
The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
Distributions of Available Cash from Operating Surplus after
the Subordination Period
Our partnership agreement requires that we make distributions of
available cash from operating surplus for any quarter after the
subordination period in the following manner:
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first, 98% to all unitholders, pro rata, and 2% to the
general partner, until we distribute for each outstanding unit
an amount equal to the minimum quarterly distribution for that
quarter; and |
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thereafter, in the manner described in General
Partner Interest and Incentive Distribution Rights below. |
The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
General Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner
initially will be entitled to 2% of all distributions that we
make prior to our liquidation. Our general partner has the
right, but not the obligation,
60
to contribute a proportionate amount of capital to us to
maintain its 2% general partner interest if we issue additional
units. Our general partners 2% interest, and the
percentage of our cash distributions to which it is entitled,
will be proportionately reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us in order to maintain its
2% general partner interest. Our general partner will be
entitled to make a capital contribution in order to maintain its
2% general partner interest in the form of the contribution to
us of common units based on the current market value of the
contributed common units.
Incentive distribution rights represent the right to receive an
increasing percentage (13%, 23% and 48%) of quarterly
distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution
levels have been achieved. Our general partner currently holds
the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to
restrictions in the partnership agreement.
The following discussion assumes that the general partner
maintains its 2% general partner interest and continues to own
the incentive distribution rights.
If for any quarter:
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we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and |
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we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution; |
then, our partnership agreement requires that we distribute any
additional available cash from operating surplus for that
quarter among the unitholders and the general partner in the
following manner:
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first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives a total of
$0.4025 per unit for that quarter (the first target
distribution); |
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second, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives a total of
$0.4375 per unit for that quarter (the second target
distribution); |
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third, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives a total of
$0.525 per unit for that quarter (the third target
distribution); and |
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thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner. |
General Partners Right to Reset Incentive Distribution
Levels
Our general partner, as the holder of our incentive distribution
rights, has the right under our partnership agreement to elect
to relinquish the right to receive incentive distribution
payments based on the initial cash target distribution levels
and to reset, at higher levels, the minimum quarterly
distribution amount and cash target distribution levels upon
which the incentive distribution payments to our general partner
would be set. Our general partners right to reset the
minimum quarterly distribution amount and the target
distribution levels upon which the incentive distributions
payable to our general partner are based may be exercised,
without approval of our unitholders or the conflicts committee
of our general partner, at any time when there are no
subordinated units outstanding and we have made cash
distributions to the holders of the incentive distribution
rights at the highest level of incentive distribution for each
of the prior four consecutive fiscal quarters. The reset minimum
quarterly distribution amount and target distribution levels
will be higher than the minimum quarterly distribution amount
and the target distribution levels prior to the reset such that
our general partner will not receive any incentive distributions
under the reset target distribution levels until cash
distributions per unit following this event increase as
described below. We anticipate that our general partner would
exercise this reset right in order to facilitate acquisitions or
internal growth projects that would otherwise not be
sufficiently accretive to cash distributions per common unit,
taking into account the existing levels of incentive
distribution payments being made to our general partner.
61
In connection with the resetting of the minimum quarterly
distribution amount and the target distribution levels and the
corresponding relinquishment by our general partner of incentive
distribution payments based on the target cash distributions
prior to the reset, our general partner will be entitled to
receive a number of newly issued Class B units based on a
predetermined formula described below that takes into account
the cash parity value of the average cash
distributions related to the incentive distribution rights
received by our general partner for the two quarters prior to
the reset event as compared to the average cash distributions
per common unit during this period.
The number of Class B units that our general partner would
be entitled to receive from us in connection with a resetting of
the minimum quarterly distribution amount and the target
distribution levels then in effect would be equal to
(x) the average amount of cash distributions received by
our general partner in respect of its incentive distribution
rights during the two consecutive fiscal quarters ended
immediately prior to the date of such reset election divided by
(y) the average of the amount of cash distributed per
common unit during each of these two quarters. Each Class B
unit will be convertible into one common unit at the election of
the holder of the Class B unit at any time following the
first anniversary of the issuance of these Class B units.
Following a reset election by our general partner, the minimum
quarterly distribution amount will be reset to an amount equal
to the average cash distribution amount per common unit for the
two fiscal quarters immediately preceding the reset election
(such amount is referred to as the reset minimum quarterly
distribution) and the target distribution levels will be
reset to be correspondingly higher such that we would distribute
all of our available cash from operating surplus for each
quarter thereafter as follows:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives an amount equal
to 115% of the reset minimum quarter distribution for that
quarter; |
|
|
|
second, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives an amount per
unit equal to 125% of the reset minimum quarterly distribution
for that quarter; |
|
|
|
third, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives an amount per
unit equal to 150% of the reset minimum quarterly distribution
for that quarter; and |
|
|
|
thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner. |
The following table illustrates the percentage allocation of
available cash from operating surplus between the unitholders
and our general partner at various levels of cash distribution
levels pursuant to the cash distribution provision of our
partnership agreement in effect at the closing of this offering
as well as following a hypothetical reset of the minimum
quarterly distribution and target distribution levels based on
the assumption that the average quarterly cash distribution
amount per common unit during the two fiscal quarters
immediately preceding the reset election was $0.60.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marginal Percentage | |
|
|
|
|
|
|
Interest in Distributions | |
|
|
|
|
|
|
| |
|
|
|
|
Quarterly Distribution per Unit |
|
|
|
General | |
|
Quarterly Distribution per Unit |
|
|
Prior to Reset |
|
Unitholders | |
|
Partner | |
|
following Hypothetical Reset |
|
|
|
|
| |
|
| |
|
|
Minimum Quarterly Distribution
|
|
$0.35 |
|
|
98 |
% |
|
|
2 |
% |
|
$0.60 |
First Target Distribution
|
|
up to $0.4025 |
|
|
98 |
% |
|
|
2 |
% |
|
up to $0.69 (1) |
Second Target Distribution
|
|
above $0.4025 up to $0.4375 |
|
|
85 |
% |
|
|
15 |
% |
|
above $0.69 (1) up to $0.75 (2) |
Third Target Distribution
|
|
above $0.4375 up to $0.525 |
|
|
75 |
% |
|
|
25 |
% |
|
above $0.75 (2) up to $0.90 (3) |
Thereafter
|
|
above $0.525 |
|
|
50 |
% |
|
|
50 |
% |
|
above $0.90 (3) |
|
|
(1) |
This amount is 115% of the hypothetical reset minimum quarterly
distribution. |
|
(2) |
This amount is 125% of the hypothetical reset minimum quarterly
distribution. |
|
(3) |
This amount is 150% of the hypothetical reset minimum quarterly
distribution. |
62
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and the general partner, including in respect of
incentive distribution rights, or IDRs, based on an average of
the amounts distributed for a quarter for the two quarters
immediately prior to the reset. The table assumes that there are
45,000,000 common units and 918,367 general partner units,
representing a 2% general partner interest, outstanding, and
that the average distribution to each common unit is $0.60 for
the two quarters prior to the reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner Cash Distributions | |
|
|
|
|
|
|
|
|
Prior to Reset | |
|
|
|
|
|
|
Common | |
|
| |
|
|
|
|
|
|
Unitholders Cash | |
|
|
|
2% General | |
|
|
|
|
|
|
Quarterly Distribution per Unit |
|
Distributions | |
|
Class B |
|
Partner | |
|
|
|
Total | |
|
|
Prior to Reset |
|
Prior to Reset | |
|
Units |
|
Interest | |
|
IDRs | |
|
Total | |
|
Distributions | |
|
|
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
Minimum Quarterly Distribution
|
|
$0.35 |
|
$ |
15,750,000 |
|
|
$ |
|
|
|
$ |
321,429 |
|
|
$ |
|
|
|
$ |
321,429 |
|
|
$ |
16,071,429 |
|
First Target Distribution
|
|
up to $0.4025 |
|
|
2,362,500 |
|
|
|
|
|
|
|
48,214 |
|
|
|
|
|
|
|
48,214 |
|
|
|
2,410,714 |
|
Second Target Distribution
|
|
above $0.4025 up to $0.4375 |
|
|
1,575,000 |
|
|
|
|
|
|
|
37,059 |
|
|
|
240,882 |
|
|
|
277,941 |
|
|
|
1,852,941 |
|
Third Target Distribution
|
|
above $0.4375 up to $0.525 |
|
|
3,937,500 |
|
|
|
|
|
|
|
105,000 |
|
|
|
1,207,500 |
|
|
|
1,312,500 |
|
|
|
5,250,000 |
|
Thereafter
|
|
above $0.525 |
|
|
3,375,000 |
|
|
|
|
|
|
|
135,000 |
|
|
|
3,240,000 |
|
|
|
3,375,000 |
|
|
|
6,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,000,000 |
|
|
$ |
|
|
|
$ |
646,702 |
|
|
$ |
4,688,382 |
|
|
$ |
5,335,084 |
|
|
$ |
32,335,084 |
|
The following table illustrates the total amount of available
cash from operating surplus that would be distributed to the
unitholders and the general partner with respect to the quarter
in which the reset occurs. The table reflects that as a result
of the reset there are 45,000,000 common units, 7,813,970 Class
B units and 1,077,836 general partner units, representing a 2%
general partner interest, outstanding, and that the average
distribution to each common unit is $0.60. The number of
Class B units was calculated by dividing (x) the
$4,688,382 received by the general partner in respect of its
incentive distribution rights, or IDRs, as the average of the
amounts received by the general partner in respect of its
incentive distribution rights for the two quarters prior to the
reset as shown in the table above by (y) the $0.60 of available
cash from operating surplus distributed to each common unit as
the average distributed per common unit for the two quarters
prior to the reset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner Cash Distributions | |
|
|
|
|
|
|
|
|
After Reset | |
|
|
|
|
|
|
Common | |
|
| |
|
|
|
|
|
|
Unitholders Cash | |
|
|
|
2% General | |
|
|
|
|
|
|
Quarterly Distribution per |
|
Distributions | |
|
Class B | |
|
Partner | |
|
|
|
Total | |
|
|
Unit After Reset |
|
After Reset | |
|
Units | |
|
Interest | |
|
IDRs |
|
Total | |
|
Distributions | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
Minimum Quarterly Distribution
|
|
$0.60 |
|
$ |
27,000,000 |
|
|
$ |
4,688,382 |
|
|
$ |
646,702 |
|
|
$ |
|
|
|
$ |
5,335,084 |
|
|
$ |
32,335,084 |
|
First Target Distribution
|
|
up to $0.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Target Distribution
|
|
above $0.69 up to $0.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Target Distribution
|
|
above $0.75 up to $0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
above $0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,000,000 |
|
|
$ |
4,688,382 |
|
|
$ |
646,702 |
|
|
$ |
|
|
|
$ |
5,335,084 |
|
|
$ |
32,335,084 |
|
Our general partner will be entitled to cause the minimum
quarterly distribution amount and the target distribution levels
to be reset on more than one occasion, provided that it may not
make a reset election except at a time when it has received
incentive distributions for the prior four consecutive fiscal
quarters based on the highest level of incentive distributions
that it is entitled to receive under our partnership agreement.
Percentage Allocations of Available Cash from Operating
Surplus
The following table illustrates the percentage allocations of
available cash from operating surplus between the unitholders
and our general partner based on the specified target
distribution levels. The amounts set forth under Marginal
Percentage Interest in Distributions are the percentage
interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
Quarterly Distribution Per Unit, until available cash from
operating surplus we distribute reaches the next target
distribution level, if any. The percentage interests shown for
the unitholders and the general partner for the minimum
quarterly distribution are also applicable
63
to quarterly distribution amounts that are less than the minimum
quarterly distribution. The percentage interests set forth below
for our general partner include its 2% general partner interest
and assume our general partner has contributed any additional
capital to maintain its 2% general partner interest and has not
transferred its incentive distribution rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Quarterly |
|
Marginal Percentage | |
|
|
Distribution |
|
Interest in | |
|
|
Per Unit |
|
Distributions | |
|
|
|
|
| |
|
|
|
|
|
|
General | |
|
|
Target Amount |
|
Unitholders | |
|
Partner | |
|
|
|
|
| |
|
| |
Minimum Quarterly Distribution
|
|
$0.35 |
|
|
98 |
% |
|
|
2 |
% |
First Target Distribution
|
|
up to $0.4025 |
|
|
98 |
% |
|
|
2 |
% |
Second Target Distribution
|
|
above $0.4025 up to $0.4375 |
|
|
85 |
% |
|
|
15 |
% |
Third Target Distribution
|
|
above $0.4375 up to $0.525 |
|
|
75 |
% |
|
|
25 |
% |
Thereafter
|
|
above $0.525 |
|
|
50 |
% |
|
|
50 |
% |
Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be Made.
Our partnership agreement requires that we make
distributions of available cash from capital surplus, if any, in
the following manner:
|
|
|
|
|
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until we distribute for each common unit that
was issued in this offering, an amount of available cash from
capital surplus equal to the initial public offering price; |
|
|
|
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until we distribute for each common
unit, an amount of available cash from capital surplus equal to
any unpaid arrearages in payment of the minimum quarterly
distribution on the common units; and |
|
|
|
thereafter, we will make all distributions of available
cash from capital surplus as if they were from operating surplus. |
Effect of a Distribution from Capital Surplus. Our
partnership agreement treats a distribution of capital surplus
as the repayment of the initial unit price from this initial
public offering, which is a return of capital. The initial
public offering price less any distributions of capital surplus
per unit is referred to as the unrecovered initial unit
price. Each time a distribution of capital surplus is
made, the minimum quarterly distribution and the target
distribution levels will be reduced in the same proportion as
the corresponding reduction in the unrecovered initial unit
price. Because distributions of capital surplus will reduce the
minimum quarterly distribution, after any of these distributions
are made, it may be easier for the general partner to receive
incentive distributions and for the subordinated units to
convert into common units. However, any distribution of capital
surplus before the unrecovered initial unit price is reduced to
zero cannot be applied to the payment of the minimum quarterly
distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, our
partnership agreement specifies that the minimum quarterly
distribution and the target distribution levels will be reduced
to zero. Our partnership agreement specifies that we then make
all future distributions from operating surplus, with 50% being
paid to the holders of units and 50% to the general partner. The
percentage interests shown for our general partner include its
2% general partner interest and assume the general partner has
not transferred the incentive distribution rights.
64
Adjustment to the Minimum Quarterly Distribution and Target
Distribution Levels
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, our partnership
agreement specifies that the following items will be
proportionately adjusted:
|
|
|
|
|
the minimum quarterly distribution; |
|
|
|
target distribution levels; |
|
|
|
the unrecovered initial unit price; |
|
|
|
the number of common units issuable during the subordination
period without a unitholder vote; and |
|
|
|
the number of common units into which a subordinated unit is
convertible. |
For example, if a two-for-one split of the common units should
occur, the minimum quarterly distribution, the target
distribution levels and the unrecovered initial unit price would
each be reduced to 50% of its initial level, the number of
common units issuable during the subordination period without
unitholder vote would double and each subordinated unit would be
convertible into two common units. Our partnership agreement
provides that we not make any adjustment by reason of the
issuance of additional units for cash or property.
In addition, if legislation is enacted or if existing law is
modified or interpreted by a governmental taxing authority, so
that we become taxable as a corporation or otherwise subject to
taxation as an entity for federal, state or local income tax
purposes, our partnership agreement specifies that the minimum
quarterly distribution and the target distribution levels for
each quarter will be reduced by multiplying each distribution
level by a fraction, the numerator of which is available cash
for that quarter and the denominator of which is the sum of
available cash for that quarter plus the general partners
estimate of our aggregate liability for the quarter for such
income taxes payable by reason of such legislation or
interpretation. To the extent that the actual tax liability
differs from the estimated tax liability for any quarter, the
difference will be accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
General. If we dissolve in accordance with the
partnership agreement, we will sell or otherwise dispose of our
assets in a process called liquidation. We will first apply the
proceeds of liquidation to the payment of our creditors. We will
distribute any remaining proceeds to the unitholders and the
general partner, in accordance with their capital account
balances, as adjusted to reflect any gain or loss upon the sale
or other disposition of our assets in liquidation.
The allocations of gain and loss upon liquidation are intended,
to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding
subordinated units upon our liquidation, to the extent required
to permit common unitholders to receive their unrecovered
initial unit price plus the minimum quarterly distribution for
the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on
the common units. However, there may not be sufficient gain upon
our liquidation to enable the holders of common units to fully
recover all of these amounts, even though there may be cash
available for distribution to the holders of subordinated units.
Any further net gain recognized upon liquidation will be
allocated in a manner that takes into account the incentive
distribution rights of the general partner.
Manner of Adjustments for Gain. The manner of the
adjustment for gain is set forth in the partnership agreement.
If our liquidation occurs before the end of the subordination
period, we will allocate any gain to the partners in the
following manner:
|
|
|
|
|
first, to the general partner and the holders of units
who have negative balances in their capital accounts to the
extent of and in proportion to those negative balances; |
65
|
|
|
|
|
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until the capital account for each
common unit is equal to the sum of: (1) the unrecovered
initial unit price; (2) the amount of the minimum quarterly
distribution for the quarter during which our liquidation
occurs; and (3) any unpaid arrearages in payment of the
minimum quarterly distribution; |
|
|
|
third, 98% to the subordinated unitholders, pro rata, and
2% to the general partner until the capital account for each
subordinated unit is equal to the sum of: (1) the
unrecovered initial unit price; and (2) the amount of the
minimum quarterly distribution for the quarter during which our
liquidation occurs; |
|
|
|
fourth, 98% to all unitholders, pro rata, and 2% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
first target distribution per unit over the minimum quarterly
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the minimum
quarterly distribution per unit that we distributed 98% to the
unitholders, pro rata, and 2% to the general partner, for each
quarter of our existence; |
|
|
|
fifth, 85% to all unitholders, pro rata, and 15% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
second target distribution per unit over the first target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the first
target distribution per unit that we distributed 85% to the
unitholders, pro rata, and 15% to the general partner for each
quarter of our existence; |
|
|
|
sixth, 75% to all unitholders, pro rata, and 25% to the
general partner, until we allocate under this paragraph an
amount per unit equal to: (1) the sum of the excess of the
third target distribution per unit over the second target
distribution per unit for each quarter of our existence; less
(2) the cumulative amount per unit of any distributions of
available cash from operating surplus in excess of the second
target distribution per unit that we distributed 75% to the
unitholders, pro rata, and 25% to the general partner for each
quarter of our existence; and |
|
|
|
thereafter, 50% to all unitholders, pro rata, and 50% to
the general partner. |
The percentage interests set forth above for our general partner
include its 2% general partner interest and assume the general
partner has not transferred the incentive distribution rights.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that clause (3) of the second
bullet point above and all of the third bullet point above will
no longer be applicable.
Manner of Adjustments for Losses. If our
liquidation occurs before the end of the subordination period,
we will generally allocate any loss to the general partner and
the unitholders in the following manner:
|
|
|
|
|
first, 98% to holders of subordinated units in proportion
to the positive balances in their capital accounts and 2% to the
general partner, until the capital accounts of the subordinated
unitholders have been reduced to zero; |
|
|
|
second, 98% to the holders of common units in proportion
to the positive balances in their capital accounts and 2% to the
general partner, until the capital accounts of the common
unitholders have been reduced to zero; and |
|
|
|
thereafter, 100% to the general partner. |
66
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that all of the first bullet point
above will no longer be applicable.
Adjustments to Capital Accounts. Our partnership
agreement requires that we make adjustments to capital accounts
upon the issuance of additional units. In this regard, our
partnership agreement specifies that we allocate any unrealized
and, for tax purposes, unrecognized gain or loss resulting from
the adjustments to the unitholders and the general partner in
the same manner as we allocate gain or loss upon liquidation. In
the event that we make positive adjustments to the capital
accounts upon the issuance of additional units, our partnership
agreement requires that we allocate any later negative
adjustments to the capital accounts resulting from the issuance
of additional units or upon our liquidation in a manner which
results, to the extent possible, in the general partners
capital account balances equaling the amount which they would
have been if no earlier positive adjustments to the capital
accounts had been made.
67
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA
The following table shows selected historical financial and
operating data of DCP Midstream Partners Predecessor and pro
forma financial data of DCP Midstream Partners, LP for the
periods and as of the dates indicated. The selected historical
financial data as of December 31, 2003 and 2004 and as of
September 30, 2005, as well as the selected historical
financial data for the years ended December 31, 2002, 2003
and 2004, and for the nine months ended September 30, 2005
are derived from the audited financial statements of DCP
Midstream Partners Predecessor. The selected historical
financial data as of December 31, 2000, 2001 and 2002 and
for the years ended December 31, 2000 and 2001 and for the
nine months ended September 30, 2004 are derived from the
unaudited financial statements of DCP Midstream Partners
Predecessor. The selected pro forma financial data for the nine
months ended September 30, 2005 and for the year ended
December 31, 2004 are derived from the unaudited pro forma
financial statements of DCP Midstream Partners, LP included in
this prospectus beginning on page F-2. The pro forma
adjustments have been prepared as if certain transactions to be
effected at the closing of this offering had taken place on
September 30, 2005, in the case of the pro forma balance
sheet, or as of January 1, 2004, in the case of the pro
forma statement of operations for the nine months ended
September 30, 2005 and for the year ended December 31,
2004. These transactions include:
|
|
|
|
|
the issuance by us of common units to the public; |
|
|
|
the payment of estimated underwriting commissions and other
expenses; |
|
|
|
the proceeds received from borrowings under our new credit
facility; |
|
|
|
the distribution to Duke Energy Field Services of a portion of
the net proceeds from this offering and from borrowings under
our new credit facility; |
|
|
|
the purchase of United States Treasury and other qualifying
securities; |
|
|
|
|
the retention by Duke Energy Field Services of DCP Midstream
Partners Predecessors accounts receivable and a 5%
interest in the Black Lake Pipe Line Company; and |
|
|
|
|
the execution of a transportation agreement related to the
Seabreeze pipeline between us and Duke Energy Field Services. |
We derived the information in the following table from, and that
information should be read together with and is qualified in its
entirety by reference to, the historical and pro forma combined
financial statements and the accompanying notes included
elsewhere in this prospectus. The table should be read
68
together with Managements Discussion and Analysis of
Financial Condition and Results of Operations beginning on
page 70.
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DCP Midstream Partners, LP | |
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DCP Midstream Partners Predecessor | |
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Pro Forma | |
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($ in millions except7per-unit data) | |
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Nine Months | |
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Nine Months | |
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Ended | |
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Year Ended | |
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Ended | |
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Year Ended December 31, | |
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September 30, | |
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December 31, | |
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September 30, | |
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2000 | |
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2001 | |
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2002 | |
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2003 | |
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2004 | |
|
2004 | |
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2005 | |
|
2004 | |
|
2005 | |
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Statement of Operations Data:
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Total operating revenues
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$ |
369.2 |
|
|
$ |
347.9 |
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|
$ |
297.2 |
|
|
$ |
475.1 |
|
|
$ |
509.5 |
|
|
$ |
369.3 |
|
|
$ |
510.9 |
|
|
$ |
356.8 |
|
|
$ |
370.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Operating Costs and Expenses:
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|
|
|
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|
|
|
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Purchases of natural gas and NGLs
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|
|
324.1 |
|
|
|
304.1 |
|
|
|
256.8 |
|
|
|
430.6 |
|
|
|
452.6 |
|
|
|
327.5 |
|
|
|
464.4 |
|
|
|
299.7 |
|
|
|
323.9 |
|
|
Operating and maintenance expense
|
|
|
15.7 |
|
|
|
13.3 |
|
|
|
14.0 |
|
|
|
15.0 |
|
|
|
13.6 |
|
|
|
9.7 |
|
|
|
11.5 |
|
|
|
13.6 |
|
|
|
11.5 |
|
|
Depreciation and amortization expense
|
|
|
11.1 |
|
|
|
11.3 |
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
|
12.6 |
|
|
|
8.8 |
|
|
General and administrative expense
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|
|
6.7 |
|
|
|
5.6 |
|
|
|
6.1 |
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|
|
7.1 |
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|
|
6.5 |
|
|
|
4.8 |
|
|
|
8.2 |
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|
|
6.5 |
|
|
|
8.2 |
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|
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Total operating costs and
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
|
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expenses
|
|
|
357.6 |
|
|
|
334.3 |
|
|
|
289.2 |
|
|
|
465.5 |
|
|
|
485.3 |
|
|
|
351.4 |
|
|
|
492.9 |
|
|
|
332.4 |
|
|
|
352.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Operating income
|
|
|
11.6 |
|
|
|
13.6 |
|
|
|
8.0 |
|
|
|
9.6 |
|
|
|
24.2 |
|
|
|
17.9 |
|
|
|
18.0 |
|
|
|
24.4 |
|
|
|
18.0 |
|
Earnings from equity method investment
|
|
|
2.0 |
|
|
|
1.4 |
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.4 |
|
Impairment of equity method investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
|
3.5 |
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13.6 |
|
|
$ |
15.0 |
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
|
$ |
17.8 |
|
|
$ |
14.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.99 |
|
|
$ |
0.83 |
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
181.4 |
|
|
$ |
187.2 |
|
|
$ |
193.5 |
|
|
$ |
181.9 |
|
|
$ |
172.0 |
|
|
|
|
|
|
$ |
168.8 |
|
|
|
|
|
|
$ |
168.8 |
|
Total assets
|
|
$ |
268.0 |
|
|
$ |
232.2 |
|
|
$ |
249.3 |
|
|
$ |
239.5 |
|
|
$ |
241.1 |
|
|
|
|
|
|
$ |
278.4 |
|
|
|
|
|
|
$ |
339.2 |
|
Accounts payable
|
|
$ |
46.0 |
|
|
$ |
15.7 |
|
|
$ |
26.0 |
|
|
$ |
35.5 |
|
|
$ |
39.8 |
|
|
|
|
|
|
$ |
53.9 |
|
|
|
|
|
|
$ |
53.9 |
|
Long-term debt
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
171.0 |
|
Partners capital/Net parent equity
|
|
$ |
219.8 |
|
|
$ |
211.1 |
|
|
$ |
220.7 |
|
|
$ |
201.1 |
|
|
$ |
198.4 |
|
|
|
|
|
|
$ |
214.2 |
|
|
|
|
|
|
$ |
104.0 |
|
69
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The historical financial statements included in this
prospectus beginning on page F-9 reflect the assets,
liabilities and operations to be contributed to us by Duke
Energy Field Services and various wholly-owned subsidiaries upon
the closing of this offering. We refer to these assets,
liabilities and operations as the assets, liabilities and
operations of DCP Midstream Partners Predecessor. The following
discussion analyzes the financial condition and results of
operations of DCP Midstream Partners Predecessor. You should
read the following discussion of the financial condition and
results of operations for DCP Midstream Partners Predecessor in
conjunction with the historical combined financial statements
and notes of DCP Midstream Partners Predecessor and the pro
forma financial statements for DCP Midstream Partners, LP
included elsewhere in this prospectus.
Overview
We are a Delaware limited partnership recently formed by Duke
Energy Field Services to own, operate, acquire and develop a
diversified portfolio of complementary midstream energy assets.
We operate two business segments:
|
|
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|
|
our Natural Gas Services segment, which consists of our North
Louisiana natural gas gathering, processing and transportation
system; and |
|
|
|
our NGL Logistics segment, which consists of our interests in
two NGL pipelines. |
The historical financial statements of DCP Midstream Partners
Predecessor included in this prospectus and discussed elsewhere
herein include DCP Midstream Partners Predecessors 50%
ownership interest in Black Lake Pipe Line Company. However,
Duke Energy Field Services will retain a 5% interest and we will
own a 45% interest in Black Lake Pipe Line Company following
this offering.
Factors That Significantly Affect Our Results
Our results of operations for our Natural Gas Services segment
are impacted by increases and decreases in the volume of natural
gas that we gather and transport through our systems, which we
refer to as throughput volume. Throughput volumes and capacity
utilization rates generally are driven by wellhead production
and our competitive position on a regional basis and more
broadly by demand for natural gas, NGLs and condensate.
Our results of operations for our Natural Gas Services segment
are also impacted by the fees we receive and the margins we
generate. Our processing contract arrangements can have a
significant impact on our profitability. Because of the
volatility of the prices for natural gas, NGLs and condensate,
we have hedged 80% of our commodity price risk associated with
our gathering and processing arrangements through 2010 with
natural gas and crude oil swaps. With these swaps, we have
substantially reduced our exposure to commodity price movements
with respect to those volumes under these types of contractual
arrangements for this period. For additional information
regarding our hedging activities, please read
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk Hedging
Strategies. Actual contract terms will be based upon a
variety of factors, including natural gas quality, geographic
location, the competitive commodity and pricing environment at
the time the contract is executed and customer requirements. Our
gathering and processing contract mix and, accordingly, our
exposure to natural gas, NGL and condensate prices, may change
as a result of producer preferences, our expansion in regions
where some types of contracts are more common and other market
factors.
Our results of operations for our NGL Logistics segment are
impacted by the throughput volumes of the NGLs we transport on
our two NGL pipelines. Following the closing of this offering,
both of these NGL pipelines will transport NGLs exclusively on a
fee or tariff basis.
Upon the closing of this offering, Duke Energy Field Services
will contribute to us the assets, liabilities and operations
reflected in the historical financial statements other than the
accounts receivable of DCP
70
Midstream Partners Predecessor and a 5% interest in the Black
Lake Pipe Line Company which will not be contributed to us. The
historical financial statements of DCP Midstream Partners
Predecessor do not give effect to various items that will affect
our results of operations and liquidity following the closing of
this offering, including the items described below:
|
|
|
|
|
the indebtedness we incur at the closing of this offering will
increase our interest expense from the interest expense
reflected in our historical financial statements; |
|
|
|
we have entered into long-term hedging arrangement for
approximately 80% of our expected natural gas, NGL and
condensate commodity price risk relating to our gathering and
processing arrangements through 2010; and |
|
|
|
|
we anticipate initially incurring approximately
$8.4 million, some of which will be allocated to us by Duke
Energy Field Services, of additional general and administrative
expenses relating to operating as a separate publicly held
limited partnership, including compensation and benefit expenses
of our executive management personnel, costs associated with
annual and quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, independent auditor
fees, investor relations activities, registrar and transfer
agent fees, incremental director and officer liability insurance
costs, and director compensation. |
|
In addition, we expect that our results of operations for the
year ending December 31, 2005 will benefit from higher
throughput volumes in our Seabreeze pipeline as a result of the
completion of pipeline integrity repairs on the South Dean NGL
pipeline in mid-2005. The Black Lake pipeline is currently
experiencing increased operating costs due to pipeline integrity
testing that commenced in 2005 and will continue into 2006. We
expect that our results of operations related to our
non-controlling interest in the Black Lake pipeline will benefit
in 2007 from the completion of this pipeline integrity testing,
although it is possible that the integrity testing will result
in the need for pipeline repairs, in which case the operations
of this pipeline may be interrupted while the repairs are being
made. Duke Energy Field Services has agreed to indemnify us for
up to $5.3 million of our pro rata share of the costs
associated with repairing the Black Lake pipeline that are
determined to be necessary as a result of the pipeline integrity
testing and up to $4.0 million of the costs associated with
any repairs to the Seabreeze pipeline that are determined to be
necessary as a result of the pipeline integrity testing. The
indemnifiable costs include the direct costs and expenses
associated with making such repairs together with any lost cash
flows resulting from shutting down the pipeline during the
pendency of such repairs.
Finally, following the closing of this offering, we intend to
make cash distributions to our unitholders and our general
partner at an initial distribution rate of $0.35 per common
unit per quarter ($1.40 per common unit on an annualized
basis). Due to our cash distribution policy, we expect that we
will distribute to our unitholders most of the cash generated by
our operations. As a result, we expect that we will rely upon
external financing sources, including commercial borrowings and
other debt and common unit issuances, to fund our acquisition
and expansion capital expenditures, as well as our working
capital needs.
General Trends and Outlook
We expect our business to continue to be affected by the
following key trends. Our expectations are based on assumptions
made by us and information currently available to us. To the
extent our underlying assumptions about or interpretations of
available information prove to be incorrect, our actual results
may vary materially from our expected results.
Natural Gas Supply and Outlook. We believe that current
natural gas prices will continue to cause relatively high levels
of natural gas-related drilling in the United States as
producers seek to increase their level of natural gas
production. Although the number of natural gas wells drilled in
the United States has increased overall in recent years, a
corresponding increase in production has not been realized,
primarily as a result of smaller discoveries and the decline in
production from existing wells. We believe that an increase in
United States drilling activity, additional sources of supply
such as liquified natural gas, and imports of natural gas will
be required for the natural gas industry to meet the expected
increased demand for, and to
71
compensate for the slowing production of, natural gas in the
United States. A number of the areas in which we operate are
experiencing significant drilling activity as a result of recent
high natural gas prices, new increased drilling for deeper
natural gas formations and the implementation of new exploration
and production techniques.
While we anticipate continued high levels of exploration and
production activities in a number of the areas in which we
operate, fluctuations in energy prices can greatly affect
production rates and investments by third parties in the
development of new natural gas reserves. Drilling activity
generally decreases as natural gas prices decrease. We have no
control over the level of drilling activity in the areas of our
operations.
Processing Margins. During 2004 and the first nine months
of 2005, our overall processing margin benefited from rising
natural gas, NGL and condensate prices, primarily as a result of
our percentage-of-proceeds contracts which perform better in the
current natural gas, NGL and condensate price environment. Our
processing profitability is dependent upon pricing and market
demand for natural gas, NGLs and condensate, which are beyond
our control and have been volatile. We have mitigated our
exposure to commodity price movements for these commodities by
entering into hedging arrangements for 80% of our currently
anticipated natural gas, NGL and condensate price risk
associated with our percentage-of-proceeds arrangements and
gathering operations through 2010. For additional information
regarding our hedging activities, please read
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk Hedging
Strategies.
Hurricanes Katrina and Rita. Hurricanes Katrina and Rita
caused extensive damage to the Texas, Louisiana and Mississippi
Gulf Coast in late August and mid-September of 2005. These
storms did not cause any material damage to our properties or
create any immediate operational problems for us; however, these
storms have negatively affected the nations short term
energy supply and natural gas and NGL prices have increased
significantly. We do not expect any supply or pricing changes to
have an adverse impact on our results of operations.
Impact of Inflation. Inflation in the United States has
been relatively low in recent years and did not have a material
impact on our results of operations for the three-year period
ended December 31, 2004 or the nine-month period ended
September 30, 2005. It may in the future, however, increase
the cost to acquire or replace property, plant and equipment and
may increase the costs of labor and supplies. To the extent
permitted by competition, regulation and our existing
agreements, we have and will continue to pass along increased
costs to our customers in the form of higher fees.
Our Operations
We manage our business and analyze and report our results of
operations on a segment basis. Our operations are divided into
our Natural Gas Services segment and our NGL Logistics segment.
|
|
|
Natural Gas Services Segment |
Results of operations from our Natural Gas Services segment are
determined primarily by the volumes of natural gas gathered,
compressed, treated, processed, transported and sold through our
gathering, processing and pipeline systems; the volumes of NGLs
and condensate sold; and the level of natural gas, NGL and
condensate prices. We generate our revenues and our gross
margins for our Natural Gas Services segment principally under
the following types of contractual arrangements:
|
|
|
|
|
Fee-based arrangements. Under fee-based arrangements, we
receive a fee or fees for one or more of the following services:
gathering, compressing, treating, processing or transporting
natural gas. Our fee-based arrangements include natural gas
purchase arrangements pursuant to which we purchase natural gas
at the wellhead or other receipt points at an index related
price at the delivery point less a specified amount, which
specified amount is generally the same as the transportation
fees we would otherwise charge for transportation of natural gas
from the wellhead location to the delivery point. Revenues
associated with these arrangements may be included as sales of
natural gas, NGLs and condensate or transportation and
processing services. The revenue we earn is directly related to
the |
72
|
|
|
|
|
|
volume of natural gas that flows through our systems and is not
directly dependent on commodity prices. To the extent a
sustained decline in commodity prices results in a decline in
volumes, however, our revenues from these arrangements would be
reduced. For the nine months ended September 30, 2005, our
fee-based activities accounted for approximately 46% of our
gross margin and 74% of our volume for this segment. |
|
|
|
|
|
Percentage-of-proceeds arrangements. Under
percentage-of-proceeds arrangements, we generally purchase
natural gas from producers at the wellhead, transport the
wellhead natural gas through our gathering system, treat and
process the natural gas, and then sell the resulting residue
natural gas and NGLs at index prices based on published index
market prices. We remit to the producers either an agreed upon
percentage of the actual proceeds that we receive from our sales
of the residue natural gas and NGLs or an agreed upon percentage
of the proceeds based on index related prices for the natural
gas and the NGLs, regardless of the actual amount of the sales
proceeds we receive. Under these types of arrangements, our
revenues correlate directly with the price of natural gas and
NGLs. For the nine months ended September 30, 2005, our
percentage-of-proceeds activities accounted for approximately
48% of our gross margin and 20% of our volumes for this segment. |
|
We have hedged approximately 80% of our currently anticipated
natural gas and NGL commodity price risk associated with the
percentage-of-proceeds arrangements through 2010 with natural
gas and crude oil swaps. With these swaps, we expect our
exposure to commodity price movements to be substantially
reduced. Additionally, as part of our gathering operations, we
recover and sell condensate. The margins we earn from condensate
sales are directly correlated with crude oil prices. We have
hedged approximately 80% of our currently anticipated condensate
price risk through 2010 with crude oil swaps. For additional
information regarding our hedging activities, please read
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk Hedging
Strategies.
We also purchase a small portion of our natural gas under
percentage-of-index arrangements. Under percentage-of-index
arrangements, we purchase natural gas from the producers at the
wellhead at a price that is either at a fixed percentage of the
index price for the natural gas that they produce or at an index
based price less a fixed fee to gather, compress, treat and/or
process their natural gas. We then gather, compress treat and/or
process the natural gas and then sell the residue natural gas
and NGLs at index related prices. Under these types of
arrangements, our costs to purchase the natural gas from the
producer is based on the price of natural gas. As a result, our
gross margin under these arrangements increases as the price of
NGLs increases relative to the price of natural gas, and our
gross margin under these arrangements decreases as the price of
natural gas increases relative to the price of NGLs.
The natural gas supply for the gathering pipelines and
processing plants in our North Louisiana system is derived
primarily from natural gas wells located in five parishes in
northern Louisiana. The PELICO system also receives natural gas
produced in east Texas through its interconnect with other
pipelines that transport natural gas from east Texas into
western Louisiana. This five parish area has experienced
significant levels of drilling activity, providing us with
opportunities to access newly developed natural gas supplies.
Our primary suppliers of natural gas to the North Louisiana
system are Anadarko Petroleum Corporation and ConocoPhillips
(one of our affiliates), which collectively represented
approximately 48% of the 330 MMcf/d of natural gas supplied
to this system in 2004 and approximately 51% of the
328 MMcf/d of natural gas supplied to this system for the
nine months ended September 30, 2005. We actively seek new
supplies of natural gas, both to offset natural declines in the
production from connected wells and to increase throughput
volume. We obtain new natural gas supplies in our operating
areas by contracting for production from new wells, connecting
new wells drilled on dedicated acreage, or by obtaining natural
gas that has been released from other gathering systems.
We sell natural gas to marketing affiliates of natural gas
pipelines, marketing affiliates of integrated oil companies,
national wholesale marketers, industrial end-users and gas-fired
power plants. We typically sell natural gas under market index
related pricing terms. In addition, under our merchant
arrangements, we use a subsidiary of Duke Energy Field Services
(Duke Energy Field Services Marketing, LP) as our agent to
purchase natural gas from third parties at pipeline interconnect
points, as well as residue gas from our
73
Minden and Ada processing plants, and then resell the aggregated
natural gas to third parties. To the extent possible, we match
the pricing of our supply portfolio to our sales portfolio in
order to lock in value and reduce our overall commodity price
risk. We manage the commodity price risk of our supply portfolio
and sales portfolio with both physical and financial
transactions. As a service to our customers, we may enter into
physical fixed price natural gas purchases and sales, utilizing
financial derivatives to swap this fixed price risk back to
market index. We account for such a physical fixed price
transaction and the related financial derivative as a fair value
hedge. We occasionally will enter into financial derivatives to
lock in price differentials across the PELICO system to maximize
the value of pipeline capacity. These financial derivatives are
accounted for using mark-to-market accounting. We also gather,
process and transport natural gas under fee-based transportation
contracts.
The NGLs extracted from the natural gas at the Minden processing
plant are sold at market index prices to an affiliate of Duke
Energy Field Services and transported to the Mont Belvieu hub
via the Black Lake pipeline of which we own a 45% interest. The
NGLs extracted from the natural gas at the Ada processing plant
are sold at market index prices to third parties and are
delivered to the third parties trucks at the tailgate of
the plant.
Historically, we have gathered and transported NGLs either under
fee-based transportation contracts or through purchasing the
NGLs at the inlet of the pipeline and selling the NGLs at the
outlet. In conjunction with our formation, we will enter into a
contractual arrangement with Duke Energy Field Services that
will provide that Duke Energy Field Services will purchase the
NGLs that were historically purchased by us, and Duke Energy
Field Services will pay us to transport the NGLs pursuant to a
fee-based rate that will be applied to the volumes transported.
We will enter into this fee-based contractual arrangement with
the objective of generating approximately the same operating
income per barrel transported that we realized when we were the
purchaser and seller of NGLs.
Our pipelines provide transportation services to customers on a
fee basis. Therefore, the results of operations for this
business are generally dependent upon the volume of product
transported and the level of fees charged to customers. We will
not take title to the products transported on our NGL pipelines;
rather, the shipper retains title and the associated commodity
price risk. For the Seabreeze pipeline, we are responsible for
any line loss or gain in NGLs. For the Black Lake pipeline, any
line loss or gain in NGLs is allocated to the shipper. The
volumes of NGLs transported on our pipelines are dependent on
the level of production of NGLs from processing plants connected
to our NGL pipelines. When natural gas prices are high relative
to NGL prices, it is less profitable to process natural gas
because of the higher value of natural gas compared to the value
of NGLs and because of the increased cost of separating the
mixed NGLs from the natural gas. As a result, we have
experienced periods in the past, and will likely experience
periods in the future, in which higher natural gas prices reduce
the volume of natural gas processed at plants connected to our
NGL pipelines and, in turn, lower the NGL throughput on our
assets. In the markets we serve, our pipelines are the sole
pipeline facility transporting NGLs from the supply source.
How We Evaluate Our Operations
Our management uses a variety of financial and operational
measurements to analyze our performance. These measurements
include the following: (1) volumes, (2) gross margin,
(3) operating and maintenance expense and general and
administrative expense, (4) EBITDA and
(5) distributable cash flow.
Volumes. We view throughput volumes on our North
Louisiana system and the Seabreeze and Black Lake pipelines as
an important factor affecting our profitability. We gather and
transport some of the natural gas and NGLs under fee-based
transportation contracts. Revenue from these contracts is
derived by applying the rates stipulated to the volumes
transported. Pipeline throughput volumes from existing wells
connected to our pipelines will naturally decline over time as
wells deplete. Accordingly, to maintain or to increase
throughput levels on these pipelines and the utilization rate of
the North Louisiana systems natural gas processing plants,
we must continually obtain new supplies of natural gas and NGLs.
Our ability to maintain
74
existing supplies of natural gas and NGLs and obtain new
supplies are impacted by (1) the level of workovers or
recompletions of existing connected wells and successful
drilling activity in areas currently dedicated to our pipelines
and (2) our ability to compete for volumes from successful
new wells in other areas. The throughput volumes of NGLs on our
Seabreeze pipeline and the Black Lake pipeline are substantially
dependent upon the quantities of NGLs produced at our processing
plants as well as NGLs produced at other processing plants that
have pipeline connections with the NGL pipelines. We regularly
monitor producer activity in the areas served by the North
Louisiana system and the Seabreeze and Black Lake pipelines and
pursue opportunities to connect new supply to these pipelines.
Gross Margin. We view our gross margin as an
important performance measure of the core profitability of our
operations. We review our gross margin monthly for consistency
and trend analysis.
With respect to our Natural Gas Services segment, we calculate
our gross margin as our total operating revenue for this segment
less natural gas and NGL purchases. Operating revenue consists
of sales of natural gas, NGLs and condensate resulting from our
gathering, compression, treating, processing and transportation
activities, fees associated with the gathering of natural gas,
and any gains and losses realized from our non-trading
derivative activity related to our natural gas asset based
marketing. Purchases include the cost of natural gas and NGLs
purchased by us from third parties. Our gross margin is impacted
by our contract portfolio. We purchase the wellhead natural gas
from the producers under fee-based arrangements,
percentage-of-proceeds arrangements or percentage-of-index
arrangements. Our gross margin generated from
percentage-of-proceeds gathering and processing contracts is
directly correlated to the price of natural gas and NGLs. Under
percentage-of-index arrangements, our gross margin is adversely
affected when the price of NGLs falls in relation to the price
of natural gas. Generally, our contract structure allows for us
to allocate fuel costs and other measurement losses to the
producer or shipper and, therefore, do not impact gross margin.
Additionally, as part of our gathering operations, we recover
and sell condensate. The margins we earn from condensate sales
are directly correlated with crude oil prices.
Gross margin should not be considered an alternative to, or more
meaningful than, net income, operating income, cash flows from
operating activities or any other measure of financial
performance presented in accordance with GAAP. Please read
Summary Non-GAAP Financial Measures
beginning on page 16.
Operating and Maintenance Expense and General and
Administrative Expense. Operating and maintenance
expense are costs associated with the operation of a specific
asset. Direct labor, ad valorem taxes, repair and maintenance,
utilities and contract services comprise the most significant
portion of our operating and maintenance expense. These expenses
are relatively independent of the volumes through our systems
but may fluctuate slightly depending on the activities performed
during a specific period.
In addition, we also review our general and administrative
expense, a substantial amount of which is incurred through Duke
Energy Field Services and allocated to us. For the year ended
December 31, 2004, our general and administrative expense
was $6.5 million. Under an omnibus agreement with Duke
Energy Field Services, we will pay Duke Energy Field Services an
annual administrative fee, initially in the amount of
$4.8 million, for the provision by Duke Energy Field
Services or its affiliates of various general and administrative
services to us for three years following this offering. This
allocated general and administrative expense relates to the
assets being contributed to us at the closing of this offering.
For the two years following the first year after the offering,
the fee shall be increased by the percentage increase in the
consumer price index for the applicable year. In addition, our
general partner will have the right to agree to further
increases in connection with expansions of our operations
through the acquisition or construction of new assets or
businesses with the concurrence of our conflicts committee. We
will also be obligated to reimburse Duke Energy Field Services
for our allocable share of insurance expenses related to our
businesses and properties as well as insurance expenses related
to director and officer liability coverage. We expect that our
allocable share of these insurance expenses will be
approximately $2.0 million in 2006.
We anticipate initially incurring approximately
$8.4 million of additional general and administrative
expense per year, some of which will be allocated to us by Duke
Energy Field Services, associated with being a separate publicly
held limited partnership. These public limited partnership
expenses are related to compensation and benefit expenses of our
executive management personnel. Also included in the public
75
limited partnership expenses are expenses associated with annual
and quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, independent
auditor fees, investor relations activities, registrar and
transfer agent fees, incremental director and officer liability
insurance costs and director compensation.
EBITDA. We define EBITDA as net income plus net
interest expense and depreciation and amortization expense.
EBITDA is used as a supplemental liquidity measure by our
management and by external users of our financial statements
such as investors, commercial banks, research analysts and
others, to assess the ability of our assets to generate cash
sufficient to pay interest costs, support our indebtedness, make
cash distributions to our unitholders and general partner and
finance maintenance capital expenditures. EBITDA is also a
financial measurement that we expect will be reported to our
lenders and used as a gauge for compliance with some of our
anticipated financial covenants under our credit facility. Our
EBITDA may not be comparable to a similarly titled measure of
another company because other entities may not calculate EBITDA
in the same manner.
EBITDA is also used as a supplemental performance measure by our
management and by external users of our financial statements,
such as investors, commercial banks, research analysts and
others, to assess:
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financial performance of our assets without regard to financing
methods, capital structure or historical cost basis; |
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our operating performance and return on capital as compared to
those of other companies in the midstream energy industry,
without regard to financing methods or capital structure; and |
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the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities. |
EBITDA should not be considered an alternative to, or more
meaningful than, net income, operating income, cash flows from
operating activities or any other measure of financial
performance presented in accordance with GAAP as measures of
operating performance, liquidity or ability to service debt
obligations.
Distributable Cash Flow. We define distributable
cash flow as EBITDA, less interest expense and maintenance
capital expenditures. Distributable cash flow is used as a
supplemented financial measure by our management and by external
users of our financial statements, such as investors, commercial
banks, research analysts and other, to assess our ability to
make cash distributions to our unitholders and our general
partner.
Critical Accounting Policies and Estimates
Our financial statements reflect the selection and application
of accounting policies that require management to make estimates
and assumptions. We believe that the following are the more
critical judgment areas in the application of our accounting
policies that currently affect our financial condition and
results of operations.
Revenue Recognition Our primary types
of sales and service activities reported as operating revenue
include:
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sales of natural gas, NGLs and condensate; |
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natural gas gathering, processing and transportation, from which
we generate revenues primarily through the compression,
gathering, treating, processing and transportation of natural
gas; and |
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NGL transportation from which we generate revenues from
transportation fees. |
Revenues associated with sales of natural gas, NGLs and
condensate are recognized when title passes to the customer,
which is when the risk of ownership passes to the purchaser and
physical delivery occurs. Revenues associated with
transportation and processing are recognized when the service is
provided.
For gathering services, we receive fees from natural gas
producers to transport the natural gas from the wellhead to the
processing plant. For processing services, we either receive
fees or commodities as payment for these services, depending on
the type of contract. Commodities received are in turn sold and
recognized
76
as revenue in accordance with the criteria outlined above. Under
the percentage-of-proceeds contract type, we are paid for our
services by keeping a percentage of the NGLs produced and the
residue gas resulting from processing the natural gas. Under the
percentage-of-index contract type, we purchase wellhead natural
gas and sell processed natural gas and NGLs to third parties.
We recognize revenues for non-hedging derivative activity net in
the Combined Statements of Operations as gains and losses from
non-trading derivative activity, in accordance with EITF Issue
No. 02-03, Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities.
These activities include mark-to-market gains and losses on
energy contracts and the financial or physical settlement of
energy contracts. We generally report revenues under the
percentage-of-proceeds, percentage-of-index and fee-based
contracts gross in the Combined Statements of Operations, in
accordance with EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent.
We act as the principal in these transactions, take title to
the product, and incur the risks and rewards of ownership.
Impairment of Long-Lived Assets
Management periodically evaluates whether the carrying value of
long-lived assets has been impaired when circumstances indicate
the carrying value of those assets may not be recoverable. This
evaluation is based on undiscounted cash flow projections. The
carrying amount is not recoverable if it exceeds the
undiscounted sum of cash flows expected to result from the use
and eventual disposition of the asset. Management considers
various factors when determining if these assets should be
evaluated for impairment, including but not limited to:
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significant adverse changes in legal factors or in the business
climate; |
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a current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset; |
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an accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a
long-lived asset; |
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significant adverse changes in the extent or manner in which an
asset is used or in its physical condition; |
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a significant change in the market value of an asset; and |
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a current expectation that, more likely than not, an asset will
be sold or otherwise disposed of before the end of its estimated
useful life. |
If the carrying value is not recoverable, the impairment loss is
measured as the excess of the assets carrying value over
its fair value. Management assesses the fair value of long-lived
assets using commonly accepted techniques, and may use more than
one method, including, but not limited to, recent third party
comparable sales, internally developed discounted cash flow
analysis and analysis from outside advisors. Significant changes
in market conditions resulting from events such as the condition
of an asset or a change in managements intent to utilize
the asset would generally require management to reassess the
cash flows related to the long-lived assets.
Impairment of Equity Method Investment
We evaluate our equity method investment for impairment when
events or changes in circumstances indicate, in
managements judgment, that the carrying value of such
investments may have experienced an other-than-temporary decline
in value. When evidence of loss in value has occurred,
management compares the estimated fair value of the investment
to the carrying value of the investment to determine whether an
impairment has occurred. Management assesses the fair value of
our equity method investment using commonly accepted techniques,
and may use more than one method, including, but not limited to,
recent third party comparable sales, internally developed
discounted cash flow analysis and analysis from outside
advisors. If the estimated fair value is less than the carrying
value and management considers the decline in value to be other
than temporary, the excess of the carrying value over the
estimated fair value is recognized in the financial statements
as an impairment.
77
Accounting for Risk Management and Hedging Activities and
Financial Instruments Each derivative not
qualifying for the normal purchases and normal sales exception
under Statement of Financial Accounting Standard No. 133,
or SFAS 133, Accounting for Derivative Instruments
and Hedging Activities as amended, is recorded on a
gross basis in the combined balance sheets at its fair value as
unrealized gains or unrealized losses on non-trading derivative
and hedging transactions. Derivative assets and liabilities
remain classified in our combined balance sheets as unrealized
gains or unrealized losses on non-trading derivative and hedging
transactions at fair value until the contractual settlement
period occurs.
All derivative activity reflected in the combined financial
statements was transacted by Duke Energy Field Services and its
subsidiaries and allocated to us. Management designates each
energy commodity derivative as either trading or non-trading.
Certain non-trading derivatives are further designated as either
a hedge of a forecasted transaction or future cash flow (cash
flow hedge), a hedge of a recognized asset, liability or firm
commitment (fair value hedge), or normal purchases or normal
sales, while certain non-trading derivatives, which are related
to asset-based activity, are designated as non-trading
derivative activity. For the periods presented, we did not have
any trading activity, however, we do have cash flow and fair
value hedge activity, normal purchases and normal sales
activity, and non-trading derivative activity included in the
combined financial statements. For each derivative, the
accounting method and presentation of gains and losses or
revenue and expense in the Combined Statements of Operations are
as follows:
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Classification of Contract |
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Accounting Method | |
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Presentation of Gains & Losses or Revenue & Expense |
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Non-Trading Derivative Activity
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Mark-to-market (a) |
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Net basis in Gains and losses from non-trading derivative
activity |
Cash Flow Hedge
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Hedge method (b) |
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Gross basis in the same income statement category as the related
hedged item |
Fair Value Hedge
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Hedge method (b) |
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Gross basis in the same income statement category as the related
hedged item |
Normal Purchases or Normal Sales
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Accrual method (c) |
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Gross basis upon settlement in the corresponding income
statement category based on purchase or sale |
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(a) |
Mark-to-market An accounting method whereby the
change in the fair value of the asset or liability is recognized
in the results of operations in Gains and losses from
non-trading derivative activity during the current period. |
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(b) |
Hedge method An accounting method whereby the
effective portion of the change in the fair value of the asset
or liability is recorded as a balance sheet adjustment and there
is no recognition in the results of operations for the effective
portion until the service is provided or the associated delivery
period occurs. |
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(c) |
Accrual method An accounting method whereby there is
no recognition in the results of operations for changes in fair
value of a contract until the service is provided or the
associated delivery period occurs. |
Cash Flow and Fair Value Hedges For
derivatives designated as a cash flow hedge or a fair value
hedge, management prepares formal documentation of the hedge in
accordance with SFAS 133. In addition, management formally
assesses, both at the inception of the hedge and on an ongoing
basis, whether the hedge contract is highly effective in
offsetting changes in fair values of hedged items. All
components of each derivative gain or loss are included in the
assessment of hedge effectiveness, unless otherwise noted.
The fair value of a derivative designated as a cash flow hedge
is recorded for balance sheet purposes as Unrealized gains or
Unrealized losses on non-trading derivative and hedging
transactions. The effective portion of the change in fair value
of a derivative designated as a cash flow hedge is recorded in
net parent equity as accumulated other comprehensive income, or
AOCI, and the ineffective portion is recorded in the Combined
Statement of Operations. During the period in which the hedged
transaction occurs, amounts in AOCI associated with the hedged
transaction are reclassified to the Combined Statements of
Operations in the same accounts as the item being hedged. Hedge
accounting is discontinued prospectively when it is determined
that the derivative no longer qualifies as an effective hedge,
or when it is no longer probable that the hedged transaction
will occur. When hedge accounting is discontinued because the
derivative no longer
78
qualifies as an effective hedge, the derivative is subject to
the mark-to-market accounting method prospectively. The
derivative continues to be carried on the Combined Balance
Sheets at its fair value; however, subsequent changes in its
fair value are recognized in current period earnings. Gains and
losses related to discontinued hedges that were previously
accumulated in AOCI will remain in AOCI until the hedged
transaction occurs, unless it is no longer probable that the
hedged transaction will occur, in which case, the gains and
losses that were previously deferred in AOCI will be immediately
recognized in current period earnings.
The fair value of a derivative designated as a case flow hedge
or a fair value hedge is recorded for balance sheet purposes as
unrealized gains or unrealized losses on non-trading derivative
and hedging transactions. We recognize the gain or loss on the
derivative instrument, as well as the offsetting loss or gain on
the hedged item in earnings in the current period. All
derivatives designated and accounted for as fair value hedges
are classified in the same category as the item being hedged in
the results of operations.
Valuation When available, quoted market
prices or prices obtained through external sources are used to
verify a contracts fair value. For contracts with a
delivery location or duration for which quoted market prices are
not available, fair value is determined based on pricing models
developed primarily from historical and expected correlations
with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the
transaction as well as the potential impact of liquidating open
positions in an orderly manner over a reasonable time period
under current conditions. Changes in market prices and
management estimates directly affect the estimated fair value of
these contracts. Accordingly, it is reasonably possible that
such estimates may change in the near term.
Natural Gas and NGL Imbalance
Accounting Quantities of natural gas or NGLs
over-delivered or under-delivered related to imbalance
agreements with customers, producers or pipelines are recorded
monthly as other receivables or other payables using then
current market prices or the weighted average prices of natural
gas or NGLs at the plant or system. These imbalances are settled
with deliveries of natural gas or NGLs or with cash.
79
Results of Operations
The following table and discussion is a summary of our combined
results of operations for the three years ended
December 31, 2004 and the nine months ended
September 30, 2004 and 2005. The results of operations by
segment are discussed in further detail following this combined
overview discussion.
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Nine Months Ended | |
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Year Ended December 31, | |
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September 30, | |
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2002 | |
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2003 | |
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2004 | |
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2004 | |
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2005 | |
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($ in millions except operating data) | |
Operating revenues:
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Sales of natural gas, NGLs and condensate
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$ |
283.2 |
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$ |
454.0 |
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$ |
489.7 |
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$ |
354.4 |
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$ |
494.2 |
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Transportation and processing services
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14.3 |
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18.6 |
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19.9 |
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15.0 |
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16.7 |
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Gains and (losses) from non-trading derivative activity
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(0.3 |
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2.5 |
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(0.1 |
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(0.1 |
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Total operating revenues
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297.2 |
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475.1 |
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509.5 |
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369.3 |
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510.9 |
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Purchases of natural gas and NGLs
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256.8 |
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430.6 |
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452.6 |
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327.5 |
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464.4 |
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Gross margin (a)
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40.4 |
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44.5 |
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56.9 |
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41.8 |
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46.5 |
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Operating and maintenance expense
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14.0 |
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15.0 |
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13.6 |
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9.7 |
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11.5 |
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General and administrative expense
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6.1 |
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7.1 |
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6.5 |
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4.8 |
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8.2 |
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Earnings from equity method investment
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0.5 |
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0.4 |
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0.6 |
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0.4 |
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0.4 |
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Impairment of equity method investment
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4.4 |
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4.4 |
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EBITDA (b)
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20.8 |
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22.8 |
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33.0 |
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23.3 |
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27.2 |
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Depreciation and amortization expense
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12.3 |
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12.8 |
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12.6 |
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9.4 |
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8.8 |
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Net income
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$ |
8.5 |
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$ |
10.0 |
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$ |
20.4 |
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$ |
13.9 |
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$ |
18.4 |
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Segment financial and operating data:
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Natural Gas Services Segment
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Financial data:
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Gross margin (a)
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$ |
39.1 |
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$ |
42.2 |
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$ |
53.6 |
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$ |
39.3 |
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$ |
43.8 |
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Operating data:
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Natural gas throughput (MMcf/d)
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363 |
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|
348 |
|
|
|
328 |
|
|
|
332 |
|
|
|
339 |
|
|
|
NGL gross production (Bbls/d)
|
|
|
4,186 |
|
|
|
4,381 |
|
|
|
4,690 |
|
|
|
4,652 |
|
|
|
4,795 |
|
NGL Logistics Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (a)
|
|
$ |
1.3 |
|
|
$ |
2.3 |
|
|
$ |
3.3 |
|
|
$ |
2.5 |
|
|
$ |
2.7 |
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seabreeze throughput (Bbls/d)
|
|
|
7,206 |
|
|
|
14,685 |
|
|
|
14,966 |
|
|
|
14,903 |
|
|
|
15,334 |
|
|
|
Black Lake throughput (Bbls/d) (c)
|
|
|
5,099 |
|
|
|
5,547 |
|
|
|
5,256 |
|
|
|
5,237 |
|
|
|
4,972 |
|
|
|
|
|
(a) |
|
Gross margin consists of total operating revenues less purchases
of natural gas and NGLs and segment gross margin for each
segment consists of total operating revenues for that segment
less purchases of natural gas and NGLs for that segment. Our
gross margin equals the sum of our segment gross margins. Please
read Summary Non-GAAP Financial Matters
on page 16. |
|
|
|
(b) |
|
EBITDA consists of net income plus depreciation and amortization
expense. Please read Summary Non-GAAP
Financial Measures on page 16. |
|
|
|
(c) |
|
Represents 50% of the throughput volumes of the Black Lake
pipeline. Following this offering, we will own a 45% interest in
the Black Lake Pipe Line Company. |
|
80
|
|
|
Nine Months Ended September 30, 2005 vs. Nine Months
Ended September 30, 2004 |
Total Operating Revenues Total operating
revenues increased $141.6 million, or 38%, to
$510.9 million in the first nine months of 2005 from
$369.3 million in the same period of 2004. This increase
was primarily due to the following factors:
|
|
|
|
|
|
$108.8 million increase attributable primarily to higher
commodity prices for our Natural Gas Services segment; and |
|
|
|
|
|
$32.8 million increase attributable to higher NGL prices
for our Seabreeze pipeline. |
|
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs increased $136.9 million, or 42%,
to $464.4 million in the first nine months of 2005 from
$327.5 million in the same period of 2004. This increase
was primarily due to the following factors:
|
|
|
|
|
|
$104.3 million increase attributable to higher costs of raw
natural gas supply driven primarily by higher commodity prices
for our Natural Gas Services segment; and |
|
|
|
|
|
$32.6 million increase attributable to higher NGL prices
for our Seabreeze pipeline. |
|
Gross Margin Gross margin increased
$4.7 million, or 11%, to $46.5 million in the first
nine months of 2005 from $41.8 million in the same period
of 2004, primarily as a result of the following factors:
|
|
|
|
|
|
$4.5 million increase attributable primarily to higher
commodity prices for our Natural Gas Services segment; and |
|
|
|
|
|
$0.2 million increase due to increased per unit margin for
our Seabreeze pipeline. |
|
Impact of Hurricane Rita In September 2005,
we experienced operational disruptions for several days as a
result of the impact of Hurricane Rita on the energy industry in
our areas of operations. These disruptions reduced our total
operating revenues by approximately $10.1 million, our
purchases by approximately $9.5 million and our gross
margin by approximately $0.6 million.
Operating and Maintenance Expense Operating
and maintenance expense increased $1.8 million, or 19%, to
$11.5 million in the first nine months of 2005 from
$9.7 million in the same period of 2004. This increase was
primarily the result of higher maintenance and pipeline repair
costs for our Natural Gas Services Segment.
General and Administrative Expense General
and administrative expense increased $3.4 million, or 71%,
to $8.2 million in the first nine months of 2005 from
$4.8 million in the same period of 2004. This increase was
primarily the result of public offering costs of approximately
$2.7 million and higher allocated costs from Duke Energy
Field Services of approximately $0.5 million due to higher
overall Duke Energy Field Services general and administrative
costs.
Impairment of Equity Method Investment In
2004, we recorded an impairment totaling $4.4 million as
impairment of equity method investment, which is included in the
NGL Logistics segment.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased
$0.6 million, or 6%, to $8.8 million in the first nine
months of 2005 from $9.4 million in the same period of 2004
as a result of an asset that became fully depreciated at the
beginning of 2005.
|
|
|
Year Ended December 31, 2004 vs. Year Ended
December 31, 2003 |
Total Operating Revenues Total operating
revenues increased $34.4 million, or 7%, to
$509.5 million in 2004 from $475.1 million in 2003.
This increase was primarily due to the following factors:
|
|
|
|
|
$24.8 million increase attributable primarily to higher
commodity prices for our Seabreeze pipeline; and |
|
|
|
$9.6 million increase attributable primarily to higher
commodity prices, partially offset by lower sales volumes for
our Natural Gas Services segment. |
81
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs increased $22.0 million, or 5%, to
$452.6 million in 2004 from $430.6 million in 2003.
This increase was primarily due to the following factors:
|
|
|
|
|
$23.8 million increase attributable to higher commodity
prices in our Seabreeze pipeline; and |
|
|
|
$1.8 million decrease attributable to lower natural gas
throughput in our Natural Gas Services segment, offset by higher
raw natural gas supply prices. |
Gross Margin Gross margin increased
$12.4 million, or 28%, to $56.9 million in 2004 from
$44.5 million in 2003, primarily as a result of the
following factors:
|
|
|
|
|
$11.4 million increase attributable to
percentage-of-proceeds processing arrangements, mainly due to
higher commodity prices and improved per unit margin from our
PELICO system; and |
|
|
|
$1.0 million increase attributable to higher per unit
margins for our Seabreeze pipeline. |
Operating and Maintenance Expense Operating
and maintenance expense decreased $1.4 million, or 9%, to
$13.6 million in 2004 from $15.0 million in 2003. This
decrease was primarily the result of lower repairs and
maintenance for our Natural Gas Services segment.
General and Administrative Expense General
and administrative expense decreased $0.6 million, or 8%,
to $6.5 million in 2004 from $7.1 million in 2003.
This decrease was primarily the result of lower allocated costs
from Duke Energy Field Services due to lower overall Duke Energy
Field Services general and administrative costs.
Earnings from Equity Method Investment
Earnings from equity method investment increased
$0.2 million, to $0.6 million in 2004 from
$0.4 million in 2003. This increase was primarily the
result of lower Black Lake pipeline operating and administrative
costs.
Impairment of Equity Method Investment In
2004, we recorded an impairment totaling $4.4 million as
impairment of equity method investment, which is included in the
NGL Logistics segment.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased
$0.2 million, or 2%, to $12.6 million in 2004 from
$12.8 million in 2003, primarily as a result of certain
assets that became fully depreciated at the beginning of 2004.
|
|
|
Year Ended December 31, 2003 vs. Year Ended
December 31, 2002 |
Total Operating Revenues Total operating
revenues increased $177.9 million, or 60%, to
$475.1 million in 2003 from $297.2 million in 2002.
This increase was primarily due to the following factors:
|
|
|
|
|
$93.6 million increase attributable to a full year of
operation and higher commodity prices for our Seabreeze pipeline
in 2003; and |
|
|
|
$84.3 million increase attributable primarily to higher
commodity prices for our Natural Gas Services segment. |
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs increased $173.8 million, or 68%,
to $430.6 million in 2003 from $256.8 million in 2002.
This increase was primarily due to the following factors:
|
|
|
|
|
$92.6 million increase attributable to a full year of
operation and higher commodity prices for our Seabreeze
pipeline; and |
|
|
|
$81.2 million increase attributable to higher costs of raw
natural gas supply driven by higher commodity prices, partially
offset by lower volumes for our Natural Gas Services segment. |
82
Gross Margin Gross margin increased
$4.1 million, or 10%, to $44.5 million in 2003 from
$40.4 million in the same period of 2002, primarily as a
result of the following factors:
|
|
|
|
|
$1.0 million increase attributable to a full year of
operation of our Seabreeze pipeline; and |
|
|
|
$3.1 million increase attributable to higher commodity
prices. |
Operating and Maintenance Expense Operating
and maintenance expense increased $1.0 million, or 7%, to
$15.0 million in 2003 from $14.0 million in 2002. This
increase was primarily the result of higher outside labor for
repairs and maintenance for our Natural Gas Services Segment.
General and Administrative Expense General
and administrative expense increased $1.0 million, or 16%,
to $7.1 million in 2003 from $6.1 million in 2002.
This increase is primarily the result of higher allocated costs
from Duke Energy Field Services due to higher overall Duke
Energy Field Services general and administrative costs.
Earnings from Equity Method Investment
Earnings from equity method investment decreased
$0.1 million to $0.4 million in 2003 from
$0.5 million in 2002. This decrease is primarily the result
of lower fees charged by the Black Lake pipeline.
Depreciation and Amortization Expense
Depreciation and amortization expense increased
$0.5 million, or 4%, to $12.8 million in 2003 from
$12.3 million in 2002. This increase is primarily the
result of a full year of operations of our Seabreeze pipeline in
2003.
|
|
|
Results of Operations Natural Gas Services
Segment |
This segment consists of our North Louisiana system, which
includes our PELICO system and our Minden and Ada processing
plants and gathering systems.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions except operating data) | |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
245.4 |
|
|
$ |
322.6 |
|
|
$ |
333.5 |
|
|
$ |
244.0 |
|
|
$ |
351.0 |
|
|
Transportation and processing services
|
|
|
14.3 |
|
|
|
18.6 |
|
|
|
19.9 |
|
|
|
15.0 |
|
|
|
16.7 |
|
|
Gains and (losses) from non-trading derivative activity
|
|
|
(0.3 |
) |
|
|
2.5 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
259.4 |
|
|
|
343.7 |
|
|
|
353.3 |
|
|
|
258.9 |
|
|
|
367.7 |
|
Purchases of natural gas and NGLs
|
|
|
220.3 |
|
|
|
301.5 |
|
|
|
299.7 |
|
|
|
219.6 |
|
|
|
323.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (a)
|
|
|
39.1 |
|
|
|
42.2 |
|
|
|
53.6 |
|
|
|
39.3 |
|
|
|
43.8 |
|
|
Operating and maintenance expense
|
|
|
13.7 |
|
|
|
14.7 |
|
|
|
13.4 |
|
|
|
9.5 |
|
|
|
11.3 |
|
|
Depreciation and amortization expense
|
|
|
11.8 |
|
|
|
11.9 |
|
|
|
11.7 |
|
|
|
8.7 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Services segment net income
|
|
$ |
13.6 |
|
|
$ |
15.6 |
|
|
$ |
28.5 |
|
|
$ |
21.1 |
|
|
$ |
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas throughput (MMcf/d)
|
|
|
363 |
|
|
|
348 |
|
|
|
328 |
|
|
|
332 |
|
|
|
339 |
|
|
NGL gross production (Bbls/d)
|
|
|
4,186 |
|
|
|
4,381 |
|
|
|
4,690 |
|
|
|
4,652 |
|
|
|
4,795 |
|
|
|
(a) |
Segment gross margin for each segment consists of total
operating revenues for that segment less purchases of natural
gas and NGLs for that segment. Our gross margin equals the sum
of our segment gross margins. Please read
Summary Non-GAAP Financial Measures on
page 16. |
|
|
|
Nine Months Ended September 30, 2005 vs. Nine Months
Ended September 30, 2004 |
Total Operating Revenues Total operating
revenues increased $108.8 million, or 42%, to
$367.7 million in the first nine months of 2005 from
$258.9 million in the same period of 2004. This increase
was primarily due to the following factors:
|
|
|
|
|
|
$67.2 million increase attributable to an increase in
natural gas prices; |
|
|
|
|
|
$10.5 million increase attributable to an increase in NGL
and condensate prices; |
|
83
|
|
|
|
|
|
$29.3 million increase attributable to higher natural gas
and NGL sales volumes driven primarily by incremental natural
gas demand at our Minden and Ada processing plants related to
our merchant arrangements and higher gas supply volumes for our
Ada processing plant and gathering system; and |
|
|
|
|
|
$1.7 million increase attributable to higher processing
fees primarily driven by incremental fee based services of our
Ada gathering system and higher transportation fees on our
PELICO system. |
|
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs increased $104.3 million, or 47%,
to $323.9 million in the first nine months of 2005 from
$219.6 million in the same period of 2004. This increase
was primarily due to higher costs of raw natural gas supply
driven by higher commodity prices.
Gross Margin Gross margin increased
$4.5 million, or 11%, to $43.8 million in the first
nine months of 2005 from $39.3 million in the same period
of 2004, primarily as a result of the following factors:
|
|
|
|
|
|
$5.7 million increase attributable to higher commodity
prices; |
|
|
|
|
|
$1.4 million increase attributable to higher fees and
volumes for our Ada processing plant and gathering system as
described above; and |
|
|
|
|
|
$2.4 million decrease attributable to lower per unit margin
for our PELICO system driven primarily by lower contractual
premiums charged to customers related to pipeline imbalances. |
|
Operating and Maintenance Expense Operating
and maintenance expense increased $1.8 million, or 19%, to
$11.3 million in the first nine months of 2005 from
$9.5 million in the same period of 2004. This increase was
primarily the result of higher outside services, parts and
supplies and labor for maintenance and pipeline repairs.
NGL production during the first nine months of 2005 increased
143 Bbls/d, or 3%, to 4,795 Bbls/d from
4,652 Bbls/d in the same period of 2004 due primarily to
increased NGL recovery during the first nine months of 2005 as a
result of favorable market economics for processing NGLs.
Natural gas transported and/or processed during the first nine
months of 2005 increased 7 MMcf/d, or 2%, to
339 MMcf/d from 332 MMcf/d for the first nine months
of 2004 as a result of higher natural gas supply.
|
|
|
Year Ended December 31, 2004 vs. Year Ended
December 31, 2003 |
Total Operating Revenues Total operating
revenues increased $9.6 million, or 3%, to
$353.3 million in 2004 from $343.7 million in 2003.
This increase was primarily due to the following factors:
|
|
|
|
|
$17.0 million increase attributable to higher natural gas
prices; |
|
|
|
$12.5 million increase attributable to higher NGL and
condensate prices; |
|
|
|
$4.5 million increase attributable to higher NGL sales
volume due to favorable market economics for processing NGLs; |
|
|
|
$1.2 million increase attributable to higher transportation
and processing fees due primarily to the incremental fee based
services of our Ada gathering system offset by gas supply
declines; |
|
|
|
$23.1 million decrease attributable to lower natural gas
sales volume driven by wellhead gas supply decline and higher
NGL recoveries; and |
|
|
|
$2.6 million decrease attributable to lower non-trading
derivative activity primarily due to natural gas asset based
marketing. |
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs decreased $1.8 million to
$299.7 million in 2004 from $301.5 million in 2003.
This decrease was primarily due to the following factors:
|
|
|
|
|
$23.3 million decrease attributable to lower raw natural
gas supply volume due to declining wellhead production; and |
84
|
|
|
|
|
$21.5 million increase attributable to higher costs of raw
natural gas supply which is primarily due to higher commodity
prices. |
Gross Margin Gross margin increased
$11.4 million, or 27%, to $53.6 million in 2004 from
$42.2 million in 2003, primarily as a result of the
following factors:
|
|
|
|
|
$8.0 million increase attributable to
percentage-of-proceeds processing arrangements, mainly due to
higher commodity prices; |
|
|
|
$2.3 million increase attributable to higher per unit
margins for our PELICO system primarily due to higher
contractual premiums charged to customers related to pipeline
imbalances; and |
|
|
|
$1.2 million increase attributable to higher transportation
and processing fees as described above. |
NGL production during 2004 increased 309 Bbls/d, or 7%, to
4,690 Bbls/d in 2004 from 4,381 Bbls/d during 2003 as
a result of favorable market economics for processing NGLs.
Natural gas transported and/or processed during 2004 decreased
20 MMcf/d, or 6%, to 328 MMcf/d from 348 MMcf/d
during 2003 as a result of lower natural gas supply.
Operating and Maintenance Expense Operating
and maintenance expense decreased $1.3 million, or 9%, to
$13.4 million in 2004 from $14.7 million during 2003.
This decrease was primarily the result of lower outside services
for repairs and maintenance.
|
|
|
Year Ended December 31, 2003 vs. Year Ended
December 31, 2002 |
Total Operating Revenues Total operating
revenues increased $84.3 million, or 32%, to
$343.7 million in 2003 from $259.4 million in 2002.
This increase was primarily due to the following factors:
|
|
|
|
|
$114.5 million increase attributable to higher natural gas
prices; |
|
|
|
$8.6 million increase attributable to higher NGL and
condensate prices; |
|
|
|
$4.3 million increase attributable to higher fees as a
result of replacing purchase and sales contracts with fee-based
throughput contracts for our PELICO system; |
|
|
|
$2.8 million increase attributable to net margin from
non-trading derivative activity primarily due to natural gas
asset-based marketing; |
|
|
|
$42.9 million decrease attributable to lower natural gas
sales volumes primarily as a result of replacing purchase and
sales contracts with fee-based throughput contracts for our
PELICO system; and |
|
|
|
$2.9 million decrease attributable to lower NGL and sales
volumes driven primarily by certain customers directly marketing
their share of the product. |
Purchases of Natural Gas and NGLs Purchases
of natural gas and NGLs increased $81.2 million, or 37%, to
$301.5 million in 2003 from $220.3 million in 2002.
This increase was primarily due to the following factors:
|
|
|
|
|
$117.0 million increase attributable to higher costs of raw
natural gas supply which is primarily due to higher commodity
prices; and |
|
|
|
$35.8 million decrease attributable to lower purchased raw
natural gas supply volumes due primarily to replacing purchase
and sales contracts with fee based throughput contracts for our
PELICO system. |
85
Gross Margin Gross margin increased
$3.1 million, or 8%, to $42.2 million in 2003 from
$39.1 million in the same period of 2002, primarily as a
result of the following factors:
|
|
|
|
|
$6.0 million increase attributable to
percentage-of-proceeds processing arrangements, mainly due to
higher NGL and condensate prices; |
|
|
|
$1.9 million decrease attributable to lower fractionation
activity, which was due to the shut down of the fractionator at
the Minden processing plant in late 2002; and |
|
|
|
$1.0 million decrease attributable to lower throughput
volume as discussed above. |
NGL production during 2003 increased 195 Bbls/d, or 5%, to
4,381 Bbls/d in 2003 from 4,186 Bbls/d during 2002 as
a result of an increase in NGL recovery capacity at our Minden
natural gas processing plant. Natural gas transported and/ or
processed during 2003 decreased 15 MMcf/d, or 4%, to
348 MMcf/d in 2003 from 363 MMcf/d during 2002 as a
result of lower natural gas supply.
Operating and Maintenance Expense Operating
and maintenance expense increased $1.0 million, or 7%, to
$14.7 million in 2003 from $13.7 million in 2002. This
increase was primarily the result of higher outside labor for
repairs and maintenance.
|
|
|
Results of Operations NGL Logistics
Segment |
This segment includes our NGL transportation pipelines, which
includes our Seabreeze pipeline and our interest in the Black
Lake pipeline.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions except operating data) | |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of NGLs
|
|
$ |
37.8 |
|
|
$ |
131.4 |
|
|
$ |
156.2 |
|
|
$ |
110.4 |
|
|
$ |
143.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
37.8 |
|
|
|
131.4 |
|
|
|
156.2 |
|
|
|
110.4 |
|
|
|
143.2 |
|
Purchases of NGLs
|
|
|
36.5 |
|
|
|
129.1 |
|
|
|
152.9 |
|
|
|
107.9 |
|
|
|
140.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin (a)
|
|
|
1.3 |
|
|
|
2.3 |
|
|
|
3.3 |
|
|
|
2.5 |
|
|
|
2.7 |
|
|
Operating and maintenance expense
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
Earnings from equity method investment
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
Impairment of equity method investment
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
|
|
4.4 |
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
0.5 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Logistics segment net income
|
|
$ |
1.0 |
|
|
$ |
1.5 |
|
|
$ |
(1.6 |
) |
|
$ |
(2.4 |
) |
|
$ |
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seabreeze throughput (Bbls/d)
|
|
|
7,206 |
|
|
|
14,685 |
|
|
|
14,966 |
|
|
|
14,903 |
|
|
|
15,334 |
|
|
Black Lake throughput (Bbls/d) (b)
|
|
|
5,099 |
|
|
|
5,547 |
|
|
|
5,256 |
|
|
|
5,237 |
|
|
|
4,972 |
|
|
|
(a) |
Segment gross margin for each segment consists of total
operating revenues for that segment less purchases of natural
gas and NGLs for that segment. Our gross margin equals the sum
of our segment gross margins. Please read
Summary Non-GAAP Financial Measures on
page 16. |
|
|
(b) |
Represents 50% of the throughput volumes of the Black Lake
pipeline. Following this offering, we will own a 45% interest in
the Black Lake Pipe Line Company. |
86
|
|
|
Nine Months Ended September 30, 2005 vs. Nine Months
Ended September 30, 2004 |
Total Operating Revenues Total operating
revenues increased $32.8 million, or 30%, to
$143.2 million in the first nine months of 2005 from
$110.4 million the same period in 2004. This increase was
primarily due to the following factors:
|
|
|
|
|
|
$29.6 million increase attributable to higher NGL prices
for our Seabreeze pipeline; and |
|
|
|
|
|
$3.2 million increase attributable to higher throughput
volume for our Seabreeze pipeline due to a temporary supply
disruption in the first, second and third quarters of 2004 which
was restored during June of 2005. |
|
Purchases of NGLs Purchases of NGLs increased
$32.6 million, or 30%, to $140.5 million in the first
nine months of 2005 from $107.9 million the same period in
2004. The increase was due primarily to the following factors:
|
|
|
|
|
|
$29.5 million increase attributable to higher NGL prices
for our Seabreeze pipeline; and |
|
|
|
|
|
$3.1 million increase attributable to higher throughput
volumes for our Seabreeze pipeline due to a temporary supply
disruption in the first and second quarters of 2004 which was
restored during June of 2005. |
|
Gross Margin Gross margin increased
$0.2 million, or 8%, to $2.7 million in the first nine
months of 2005 from $2.5 million in the same period in 2004
mainly as a result of higher per unit margins driven primarily
by our Seabreeze pipeline transporting a larger portion of our
volumes under higher margin supply contracts.
Impairment of Equity Method Investment In the
first nine months of 2004, we recorded an impairment totaling
$4.4 million as impairment of equity method investment.
|
|
|
Year Ended December 31, 2004 vs. Year Ended
December 31, 2003 |
Total Operating Revenues Total operating
revenues increased $24.8 million, or 19%, to
$156.2 million in 2004 from $131.4 million in 2003.
This increase was primarily due to the following factors:
|
|
|
|
|
$22.3 million increase attributable to higher commodity
prices for our Seabreeze pipeline; and |
|
|
|
$2.5 million increase attributable to higher throughput
volumes for our Seabreeze pipeline due to additional supply
sources. |
Purchases of NGLs Purchases of NGLs increased
$23.8 million, or 18%, to $152.9 million in 2004 from
$129.1 million in 2003. The increase was due primarily to
the following factors:
|
|
|
|
|
$21.3 million increase attributable to higher NGL prices
for our Seabreeze pipeline; and |
|
|
|
$2.5 million increase attributable to higher throughput
volumes for our Seabreeze pipeline as described above. |
Gross Margin Gross margin increased
$1.0 million, or 43%, to $3.3 million in 2004 from
$2.3 million in 2003 mainly as a result of higher per unit
margin for our Seabreeze pipeline driven primarily by our
Seabreeze pipeline transporting a larger portion of our volumes
under higher margin supply contracts.
Earnings from Equity Method Investment
Earnings from equity method investment increased
$0.2 million to $0.6 million in 2004 from
$0.4 million in 2003. This increase was primarily the
result of lower Black Lake pipeline operating and administrative
costs.
Impairment of Equity Method Investment In
2004, we recorded an impairment totaling $4.4 million as
impairment of equity method investment.
87
|
|
|
Year Ended December 31, 2003 vs. Year Ended
December 31, 2002 |
Total Operating Revenues Total operating
revenues increased $93.6 million, or 248%, to
$131.4 million in 2003 from $37.8 million in 2002.
This increase was primarily due to the following factors:
|
|
|
|
|
$64.5 million increase attributable to a full year of
operations of our Seabreeze pipeline in 2003; and |
|
|
|
$29.1 million increase attributable to higher NGL prices
for our Seabreeze pipeline. |
Purchases of NGLs Purchases of NGLs increased
$92.6 million, or 254%, to $129.1 million in 2003 from
$36.5 million in 2002. The increase was due primarily to
the following factors:
|
|
|
|
|
$63.8 million increase attributable to a full year of
operations of our Seabreeze pipeline; and |
|
|
|
$28.8 million increase attributable to higher NGL prices
for our Seabreeze pipeline. |
Gross Margin Gross margin increased
$1.0 million, or 77%, to $2.3 million in 2003 from
$1.3 million in 2002 mainly attributable to a full year of
operations for our Seabreeze pipeline.
Earnings from Equity Method Investment
Earnings from equity method investment decreased
$0.1 million to $0.4 million in 2003 from
$0.5 million in 2002. This decrease is primarily the result
of lower fees charged by the Black Lake pipeline.
Liquidity and Capital Resources
Historically, our sources of liquidity included cash generated
from operations and funding from Duke Energy Field Services. Our
cash receipts were deposited in Duke Energy Field Services
bank accounts and all cash disbursements were made from these
accounts. Thus, historically our financial statements have
reflected no cash balances. Cash transactions handled by Duke
Energy Field Services for us were reflected in net parent equity
as intercompany advances between Duke Energy Field Services and
us. Following this offering, we plan to maintain our own bank
accounts but will continue to allow Duke Energy Field
Services personnel to manage our cash and investments.
We expect our sources of liquidity to include:
|
|
|
|
|
|
the retention of a portion of the proceeds from our initial
public offering as described below; |
|
|
|
|
cash generated from operations; |
|
|
|
cash distributions from the Black Lake Pipe Line Company; |
|
|
|
borrowings under our credit facility; |
|
|
|
cash realized from the liquidation of United States Treasury and
other securities that will be pledged under our credit facility; |
|
|
|
issuance of additional partnership units; and |
|
|
|
debt offerings. |
We expect to use a portion of the retained $94.6 million to
fund payables of $53.9 million and use the remaining amount
of approximately $40.7 million to fund future capital
expenditures (including potential acquisitions), working capital
and other general partnership purposes. We believe that cash
generated from these sources will be sufficient to meet our
short-term working capital requirements, long-term capital
expenditure requirements and quarterly cash distributions. Our
hedging program may require us to post collateral depending on
commodity price movements. Duke Energy Field Services has issued
parental guarantees for our hedging program, which reduces our
requirements to post collateral.
Changes in natural gas, NGL and condensate prices and the terms
of our processing arrangements have a direct impact on our
generation and use of cash from operations due to their impact
on net income, along with the resulting changes in working
capital. We have hedged approximately 80% of our anticipated
natural gas and NGL price risk associated with our
percentage-of-proceeds arrangements through 2010 with natural
88
gas and crude oil swaps. Additionally, as part of our gathering
operations, we recover and sell condensate. We have hedged
approximately 80% of our anticipated condensate price risk
associated with our gathering operations through 2010 with crude
oil swaps. For additional information regarding our hedging
activities, please read Quantitative and
Qualitative Disclosures about Market Risk Commodity
Price Risk Hedging Strategies.
Working Capital Working capital is the amount
by which current assets exceed current liabilities. Our working
capital requirements are primarily driven by changes in accounts
receivable and accounts payable. These changes are impacted by
changes in the prices of commodities that we buy and sell. In
general, our working capital requirements increase in periods of
rising commodity prices and decline in periods of falling
commodity prices. However, our working capital needs do not
necessarily change at the same rate as commodity prices because
both accounts receivable and accounts payable are impacted by
the same commodity prices. In addition, the timing of payments
received by our customers or paid to our suppliers can also
cause fluctuations in working capital because we settle with
most of our larger suppliers and customers on a monthly basis
and often near the end of the month. We had working capital of
$33.2 million as of September 30, 2005, compared to
working capital of $18.5 million as of December 31,
2004 and $7.4 million as of December 31, 2003. During
these periods, the increasing working capital trend is primarily
attributable to higher commodity prices and the timing of
fluctuations in accounts receivable and accounts payable as
described above. We expect that our future working capital
requirements will be impacted by these same factors.
DCP Midstream Partners Predecessor Cash flow
Net cash provided by operating activities, net cash used in
investing activities and net cash provided by (used in)
financing activities for the years ended December 31, 2002,
2003 and 2004, and for the nine months ended September 30,
2004 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
Year Ended | |
|
Ended | |
|
|
December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions) | |
Net cash provided by operating activities
|
|
$ |
21.3 |
|
|
$ |
30.8 |
|
|
$ |
25.6 |
|
|
$ |
26.3 |
|
|
$ |
7.7 |
|
Net cash used in investing activities
|
|
$ |
(22.4 |
) |
|
$ |
(1.2 |
) |
|
$ |
(2.5 |
) |
|
$ |
(0.3 |
) |
|
$ |
(4.7 |
) |
Net cash provided by (used in) financing activities
|
|
$ |
1.1 |
|
|
$ |
(29.6 |
) |
|
$ |
(23.1 |
) |
|
$ |
(26.0 |
) |
|
$ |
( 3.0 |
) |
Cash Flows Provided by Operating Activities
The changes in net cash provided by operating activities are
attributable to our net income adjusted for non-cash charges as
presented in the Combined Statements of Cash Flows and changes
in working capital as discussed above.
Cash Flows Used in Investing Activities Net
cash used in investing activities from 2002 through
September 30, 2005 was primarily used for capital
expenditures, which generally consisted of expenditures for
construction and expansion of our infrastructure in addition to
well connections and other upgrades to our existing facilities.
Cash Flows Provided by/Used in Financing
Activities Net cash provided by/used in
financing activities from 2002 through September 30, 2005
represents the pass through of our net cash flows to Duke Energy
Field Services under its cash management program as discussed
above.
Capital Requirements
The midstream energy business can be capital intensive,
requiring significant investment to maintain and upgrade
existing operations. In our Natural Gas Services segment, a
significant portion of the cost of constructing new gathering
lines to connect to our gathering system is generally paid for
by the natural gas producer. In this segment, our expansion
capital expenditures may include the construction of new
pipelines that would facilitate greater movement of natural gas
from western Louisiana and eastern Texas to the market hub that
the PELICO system is connected to near Perryville, Louisiana.
This hub provides access to several
89
intrastate and interstate pipelines, including pipelines that
transport natural gas to the northeastern United States.
Our capital requirements have consisted primarily of, and we
anticipate will continue to consist of the following:
|
|
|
|
|
maintenance capital expenditures, which are capital expenditures
made to replace partially or fully depreciated assets to
maintain the existing operating capacity of our assets and to
extend their useful lives, or other capital expenditures that
are incurred in maintaining existing system volumes and related
cash flows; and |
|
|
|
expansion capital expenditures such as those to acquire
additional assets to grow our business, to expand and upgrade
gathering systems and processing plants and to construct or
acquire similar systems or facilities. |
Given our objective of growth through acquisitions, expansions
of existing assets and other internal growth projects, we
anticipate that we will continue to invest significant amounts
of capital to grow and acquire assets. We actively consider a
variety of assets for potential acquisitions and expansion
projects.
We have budgeted maintenance capital expenditures of
$3.4 million for the year ending December 31, 2005 and
$2.2 million for the year ending December 31, 2006.
During the first nine months of 2005, our capital expenditures,
including maintenance and expansion capital expenditures,
totaled $5.3 million. We expect to fund future capital
expenditures with funds generated from our operations,
borrowings under our new credit facility, the issuance of
additional partnership units as appropriate given market
conditions, and the liquidation of United States Treasury and
other qualifying securities that will be pledged under our
credit facility.
Description of Credit Agreement. In connection
with the closing of this offering, we will enter into a credit
agreement for up to a $400 million credit facility with a
syndicate of financial institutions that will consist of:
|
|
|
|
|
|
up to a $250 million revolving credit facility; and |
|
|
|
|
|
up to a $175 million term loan facility. |
|
We expect that the revolving credit facility will be available
for general partnership purposes, including working capital,
capital expenditures and acquisitions. We expect that we will
borrow approximately $110 million under our revolving
credit facility at the closing of this offering and, as a
result, that we will have approximately $140 million of
remaining borrowing capacity under the revolving credit facility
immediately after the closing. We expect the undrawn portion of
the revolving credit facility will be available for letters of
credit.
We expect that we will be permitted to make up to two draws
under the term loan facility within forty days of the date of
closing of this offering, and amounts repaid under the term loan
facility may not be reborrowed. We expect that, at the closing
of this offering, we will borrow approximately
$61.0 million under the term loan facility. The actual
amount we borrow under the term loan facility will equal
(i) the amount of net proceeds of this offering in excess
of the amount of such proceeds that may be tax efficiently
distributed to affiliates of Duke Energy Field Services at the
closing of this offering less (ii) approximately
$94.6 million in proceeds available to fund payables of
$53.9 million and use the remaining amount of approximately
$40.7 million to fund future capital expenditures
(including potential acquisitions), working capital and other
general partnership purposes, which amount of excess proceeds
will be invested in United States Treasury and other qualifying
securities. In order to reduce our cost of borrowings under the
term loan facility, we will pledge the United States Treasury
and other qualifying securities to secure the term loan
facility. We will then distribute the $61.0 million
borrowed under the term loan facility to our general partner,
which can be done tax efficiently. In the event the underwriters
exercise their option to purchase up to an additional 1,350,000
common units from us in full, we will borrow up to approximately
$25.2 million in additional funds under the term loan
facility and we will purchase and then pledge an equal amount of
United States Treasury and other qualifying securities to
further secure the additional borrowings under the term loan
90
facility. The proceeds of the additional term loan borrowings
will be used to redeem from a subsidiary of Duke Energy Field
Services a number of common units equal to the number of common
units issued upon exercise of the underwriters option, at
a price per common unit equal to the proceeds per common unit
before expenses but after underwriting discounts and a
structuring fee. See Use of Proceeds.
We expect that our obligations under the revolving credit
facility will be unsecured and that the term loan facility will
be secured at all times by the United States Treasury and
other qualifying securities in an amount equal to or greater
than the outstanding principal amount of the term loan. We
expect that we may sell any portion of the collateral for the
term loan facility at any time as long as we use the proceeds
from the sale to repay term loan borrowings. We expect that upon
any prepayment of term loan borrowings, the amount of our
revolving credit facility will be automatically increased to the
extent that the repayment of our term loan facility is made in
connection with a permitted acquisition or permitted capital
expenditure. We expect that indebtedness under the credit
agreement will rank equally with all our outstanding unsecured
and unsubordinated debt (except that the term loan facility will
have a priority claim to the United States Treasury and
other qualifying securities pledged to secure it).
We may prepay all loans at any time without penalty, subject to
the reimbursement of lender breakage costs in the case of
prepayment of LIBOR borrowings. Indebtedness under the revolving
credit facility will bear interest, at our option, at either
(1) the higher of lenders prime rate and the federal
funds rate plus 0.50% or (2) LIBOR plus an applicable
margin which ranges from 0.65% to 1.375% dependent upon the
leverage level. The term loan facility will bear interest at
LIBOR plus a rate per annum of 0.15%.
We expect that the credit agreement will prohibit us from making
distributions of available cash to unitholders if any default or
event of default (as defined in the credit agreement) exists. We
expect the credit agreement will require us to maintain a
leverage ratio (the ratio of our consolidated indebtedness to
our consolidated EBITDA, in each case as will be defined by the
credit agreement) of not more than 4.75 to 1.0 and on a
temporary basis for not more than three consecutive quarters
following the consummation of certain acquisitions, not more
than 5.25 to 1.0. We expect the credit agreement will require us
to maintain a interest coverage ratio (the ratio of our
consolidated EBITDA to our consolidated interest expense, in
each case as will be defined by the credit agreement) of not
less than 3.0 to 1.0 determined as of the last day of each
quarter for the four-quarter period ending on the date of
determination.
In addition, we expect the credit agreement will contain various
covenants that may limit, among other things, our ability to:
|
|
|
|
|
|
grant liens; |
|
|
|
|
|
incur additional indebtedness; |
|
|
|
|
|
engage in a merger, consolidation or dissolution; |
|
|
|
|
|
enter into transactions with affiliates; |
|
|
|
|
|
sell or otherwise dispose of our assets, businesses and
operations; |
|
|
|
|
|
materially alter the character of our business as conducted at
the closing of this offering; and |
|
|
|
|
|
make acquisitions, investments and capital expenditures. |
|
If an event of default exists under the credit agreement, the
lenders will be able to accelerate the maturity of the credit
agreement and exercise other rights and remedies. We expect each
of the following could be an event of default under the credit
agreement:
|
|
|
|
|
|
failure to pay any principal when due or any interest or fees
within five business days of the due date; |
|
|
|
|
|
failure to perform or otherwise comply with the covenants in the
credit agreement; |
|
|
|
|
|
failure of any representation or warranty to be true and correct
in any material respect; |
|
91
|
|
|
|
|
|
failure to pay any other material debt, to be defined as the
greater of (1) $10.0 million or (2) the lesser of
(A) 3.0% of our net tangible consolidated assets and (B)
$100.0 million, when due or within applicable grace period; |
|
|
|
|
|
a change of control; and |
|
|
|
|
|
other customary defaults, including specified bankruptcy or
insolvency events, the Employee Retirement Income Security Act
of 1974, or ERISA, violations, and judgment defaults. |
|
The credit agreement is subject to a number of conditions,
including the negotiation, execution and delivery of definitive
documentation.
Total Contractual Cash Obligations. A summary of
our total contractual cash obligations as of September 30,
2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period | |
|
|
(Millions) | |
|
|
| |
|
|
|
|
Less | |
|
|
|
|
|
|
than 1 | |
|
More than | |
|
|
Total | |
|
Year | |
|
5 Years | |
|
|
| |
|
| |
|
| |
Purchase commitments (a)
|
|
$ |
2.9 |
|
|
$ |
2.9 |
|
|
|
|
|
Other long-term liabilities (b)
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3.2 |
|
|
$ |
2.9 |
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Purchase commitments total $2.9 million of various
non-cancelable commitments for capital projects expected to be
completed in 2006. Purchase commitments exclude
$53.9 million of accounts payable and $3.9 million of
other current liabilities recognized on the September 30,
2005 combined balance sheet. Purchase commitments also exclude
$3.6 million of current and $2.5 million of long-term
unrealized losses on non-trading derivative and hedging
transactions included in the September 30, 2005 combined
balance sheet. These amounts represent the current fair value of
various derivative contracts and do not represent future cash
purchase commitments. These contracts may be settled financially
at the difference between the future market price and the
contractual price and may result in cash payments or cash
receipts in the future, but generally do not require delivery of
physical quantities. In addition, many of our gas purchase
contracts include short- and long-term commitments to purchase
produced gas at market prices. These contracts, which have no
minimum quantities, are excluded from the table. |
|
|
|
(b) |
|
Other long-term liabilities includes $0.2 million of asset
retirement obligations and $0.1 million of environmental
reserves recognized on the September 30, 2005 combined
balance sheet. |
|
Recent Accounting Pronouncements
New Accounting Standards
SFAS 154, Accounting Changes and Error
Corrections In June 2005, the FASB issued
SFAS 154, a replacement of APB Opinion No. 20,
Accounting Changes and FASB Statement
No. 3, Reporting Accounting Changes in Interim
Financial Statements. Among other changes,
SFAS 154 requires that a voluntary change in accounting
principle be applied retrospectively with all prior period
financial statements presented on the new accounting principle,
unless it is impracticable to do so. SFAS 154 also provides
that (1) a change in method of depreciating or amortizing a
long-lived nonfinancial asset be accounted for as a change in
estimate (prospectively) that was effected by a change in
accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a
restatement. The new standard is effective for
accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this
standard is permitted for accounting changes and correction of
errors made in fiscal years beginning after June 1, 2005.
The impact of SFAS 154 will depend on the nature and extent
of any changes in accounting principles after the effective
date, but we do not currently expect SFAS 154 to have a
material impact on our combined results of operations, cash
flows or financial position.
Financial Accounting Standards Board Interpretation
No. 47, or FIN 47, Accounting for Conditional
Asset Retirement Obligations In March
2005, the FASB issued FIN 47, which clarifies the
accounting for
92
conditional asset retirement obligations as used in
SFAS 143, Accounting for Asset Retirement
Obligations. A conditional asset retirement obligation
is an unconditional legal obligation to perform an asset
retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not
be within the control of the entity. Therefore, an entity is
required to recognize a liability for the fair value of a
conditional asset retirement obligation under SFAS 143 if
the fair value of the liability can be reasonably estimated.
FIN 47 permits, but does not require, restatement of
interim financial information. The provisions of FIN 47 are
effective for reporting periods ending after December 15,
2005. We do not currently expect FIN 47 to have a material
impact on our combined results of operations, cash flows or
financial position.
SFAS 153, Exchanges of Nonmonetary Assetsan
amendment of APB Opinion No. 29 In
December of 2004, the FASB issued SFAS 153, which amends
APB Opinion No. 29, or APB 29, by eliminating the
exception to the fair-value principle for exchanges of similar
productive assets, which were accounted for under APB 29
based on the book value of the asset surrendered with no gain or
loss recognition. SFAS 153 also eliminates
APB 29s concept of culmination of an earnings
process. The amendment requires that an exchange of nonmonetary
assets be accounted for at fair value if the exchange has
commercial substance and fair value is determinable within
reasonable limits. Commercial substance is assessed by comparing
the entitys expected cash flows immediately before and
after the exchange. If the difference is significant, the
transaction is considered to have commercial substance and
should be recognized at fair value. SFAS 153 is effective
for nonmonetary transactions occurring in fiscal periods
beginning after June 15, 2005. The adoption of
SFAS 153 did not have a material impact on our combined
results of operations, cash flows or financial position.
SFAS 123 (Revised 2004), or SFAS 123R, Share-Based
Payment In December of 2004, the FASB
issued SFAS 123R, which replaces SFAS 123 and
supercedes APB Opinion No. 25, or APB 25.
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, for public entities,
to be recognized in the financial statements based on their fair
values beginning with the first interim or annual period after
June 15, 2005. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. We do not currently expect
SFAS 123R to have a material impact on our combined results
of operations, cash flows, or financial position.
Quantitative and Qualitative Disclosures about Market Risk
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Risk and Accounting Policies |
We are exposed to market risks associated with commodity prices,
counterparty credit and interest rates. Upon the closing of this
offering, our management will establish comprehensive risk
management policies and procedures to monitor and manage these
market risks. In the interim, we will utilize Duke Energy Field
Services risk management policies and procedures and risk
management committee. Duke Energy Field Services risk
management committee is composed of senior executives who
receive regular briefings on positions and exposures, credit
exposures and overall risk management in the context of market
activities. The committee is responsible for the overall
management of credit risk and commodity price risk, including
monitoring exposure limits. We anticipate establishing a risk
management committee and risk policies and procedures similar to
those of Duke Energy Field Services.
See Critical Accounting Policies and
Estimates Revenue Recognition on page 76
for further discussion of the accounting for derivative
contracts.
Our principal customers in the Natural Gas Services segment are
large, natural gas marketing services and industrial end-users.
Substantially all of our natural gas and NGL sales are made at
market-based prices. This concentration of credit risk may
affect our overall credit risk in that these customers may be
similarly affected by changes in economic, regulatory or other
factors. Where exposed to credit risk, we analyze the
counterparties financial condition prior to entering into
an agreement, establish credit limits and monitor the
appropriateness of these limits on an ongoing basis. Duke Energy
Field Services credit policy promotes the
93
use of master collateral agreements to mitigate credit exposure.
Collateral agreements provide for a counterparty to post cash or
letters of credit for exposure in excess of the established
threshold. The threshold amount represents an open credit limit,
determined in accordance with DCP Midstream Partners
Predecessors credit policy. The collateral agreements also
provide that the inability to post collateral is sufficient
cause to terminate a contract and liquidate all positions. In
addition, our standard gas and NGL sales contracts contain
adequate assurance provisions which allow us to suspend
deliveries, cancel agreements or continue deliveries to the
buyer after the buyer provides security for payment in a form
satisfactory to us.
Physical forward contracts and financial derivatives are
generally cash settled at the expiration of the contract term.
These transactions are generally subject to specific credit
provisions within the contracts that would allow the seller, at
its discretion, to suspend deliveries, cancel agreements or
continue deliveries to the buyer after the buyer provides
security for payment satisfactory to the seller.
The credit markets recently have experienced 50-year record lows
in interest rates. As the overall economy strengthens, it is
likely that monetary policy will continue to tighten further,
resulting in higher interest rates to counter possible
inflation. Interest rates on future credit facilities and debt
offerings could be higher than current levels, causing our
financing costs to increase accordingly. Although this could
limit our ability to raise funds in the debt capital markets, we
expect to remain competitive with respect to acquisitions and
capital projects, as our competitors would face similar
circumstances.
We are exposed to the impact of market fluctuations in the
prices of natural gas, NGLs and condensate as a result of our
gathering, processing and sales activities. We employ
established policies and procedures to manage our risks
associated with these market fluctuations using various
commodity derivatives, including forward contracts, swaps,
futures and options. All derivative activity reflected in the
combined financial statements on pages F-10 through F-13
was transacted by Duke Energy Field Services and allocated to
us, as more fully discussed in the notes to our financial
statements beginning on page F-14.
Valuation Valuation of a contracts fair
value is performed by an internal group independent of the
trading areas of Duke Energy Field Services. While common
industry practices are used to develop valuation techniques,
changes in pricing methodologies or the underlying assumptions
could result in significantly different fair values and income
recognition. When available, quoted market prices or prices
obtained through external sources are used to verify a
contracts fair value. For contracts with a delivery
location or duration for which quoted market prices are not
available, fair value is determined based on pricing models
developed primarily from historical and expected correlations
with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the
transaction as well as the potential impact of liquidating open
positions in an orderly manner over a reasonable time period
under current conditions. Changes in market prices and
management estimates directly affect the estimated fair value of
these contracts. Accordingly, it is reasonably possible that
such estimates may change in the near term.
Hedging Strategies We closely monitor the
risks associated with these commodity price changes on our
future operations and, where appropriate, use various commodity
instruments such as natural gas and crude oil contracts to
mitigate the effect pricing fluctuations may have on the value
of our assets and operations.
In September 2005, we executed a series of derivative financial
instruments which have been designated as a cash flow hedge of
the price risk associated with our forecasted sales of natural
gas, NGLs and condensate. Because of the strong correlation
between NGL prices and crude oil prices and the lack of
liquidity in the NGL financial market, we have used crude oil
swaps to hedge NGL price risk. As a result of these
transactions, we have hedged approximately 80% of our expected
natural gas and NGL commodity price risk relating to our
percentage of proceeds gathering and processing contracts and
condensate commodity price risk relating to condensate recovered
from our gathering operations through 2010.
94
The natural gas and NGL price risk is associated with our
percentage-of-proceeds arrangements. The condensate price risk
is associated with our gathering operations where we recover and
sell condensate. The margins we earn from condensate sales are
directly correlated with crude oil prices. We continually
monitor our hedging program and expect to continue to adjust our
hedge position as conditions warrant.
The derivative financial instruments we have entered into are
typically referred to as swap contracts. These
swap contracts entitle us to receive payment from
the counterparty to the contract to the extent that the
reference price is below the swap price stated in
the contract, and we are required to make payment to the
counterparty to the extent that the reference price is higher
than the swap price stated in the contract. The swap
contracts we have entered into to hedge our exposure to price
risk associated with natural gas relate to the price of natural
gas, settle on a monthly basis and provide that the reference
price for each settlement period will be the monthly index price
for natural gas delivered into the Texas Gas Transmission
pipeline in the North Louisiana area as published by an
independent industry publication. The swap price for
each of these natural gas hedge contracts is $9.20 per MMBtu,
and the notional volume for each period covered, and time
periods covered, by these contracts is set forth in the table
below. The swap contracts we have entered into to hedge our
exposure to price risk associated with NGLs and condensate
relate to the price of crude oil, settle on a monthly basis and
provide that the reference price for each settlement period will
be the average price for the month in which the NYMEX futures
contracts for light, sweet crude delivered at Cushing, Oklahoma.
The weighted average swap price for these crude oil
hedge contracts is $63.27 per barrel, and the notional volume
for each period covered, and the time periods covered, by these
contracts is set forth in the table below.
The counterparties to each of the swap contracts we have entered
into are investment-grade rated financial institutions. We will
be required to provide collateral to the counterparties to the
crude oil hedge contracts to support our obligations to make
payments to the counterparties in the event that our potential
payment exposure to either counterparty under the crude oil
hedge contracts exceeds $15 million, which we refer to as
the collateral threshold, based on the five-year
forward price curve for NYMEX crude oil contracts, which
exposure would occur with one of the counterparties if this
forward curve price exceeds $83.50 per barrel of light,
sweet crude oil and with the other counterparty if this forward
curve price exceeds $96.31 per barrel of light, sweet crude
oil. As the swap contracts settle and the notional volume
outstanding decreases, the forward curve price at which point
collateral is required would be higher. The $15 million
collateral threshold level is dependent on Duke Energy Field
Services credit rating and would be reduced to $0 in the
event Duke Energy Field Services credit rating were to
fall below an investment grade rating. Duke Energy Field
Services has provided a $50.0 million guarantee through
September 30, 2006 to support our obligation to make
payments to the counterparty to the natural gas hedge contract
and a $25.0 million guarantee to each of the two
counterparties to our two crude oil hedge contracts, one of
which expires on February 28, 2006 and the other will
remain in existence through the termination of the hedge
contract.
95
The following table sets forth additional information about our
natural gas and crude oil swaps:
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Period |
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Commodity | |
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Notional Volume | |
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Reference Price | |
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Swap Price | |
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| |
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| |
January 2006 December 2006
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Natural Gas |
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4,200 MMBtu/d |
|
|
Texas Gas Transmission Price(1) |
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$9.20/MMBtu |
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January 2007 December 2007
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Natural Gas |
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4,100 MMBtu/d |
|
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Texas Gas Transmission Price(1) |
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$9.20/MMBtu |
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January 2008 December 2008
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Natural Gas |
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4,000 MMBtu/d |
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Texas Gas Transmission Price(1) |
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$9.20/MMBtu |
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January 2009 December 2009
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Natural Gas |
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4,000 MMBtu/d |
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Texas Gas Transmission Price(1) |
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$9.20/MMBtu |
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January 2010 December 2010
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Natural Gas |
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3,900 MMBtu/d |
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Texas Gas Transmission Price(1) |
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$9.20/MMBtu |
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January 2006 December 2006
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Crude Oil |
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670 Bbls/d |
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NYMEX Index Price(2) |
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$63.27/Bbl |
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January 2007 December 2007
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Crude Oil |
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660 Bbls/d |
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NYMEX Index Price(2) |
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$63.27/Bbl |
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January 2008 December 2008
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Crude Oil |
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650 Bbls/d |
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NYMEX Index Price(2) |
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$63.27/Bbl |
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January 2009 December 2009
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Crude Oil |
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650 Bbls/d |
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NYMEX Index Price(2) |
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$63.27/Bbl |
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January 2010 December 2010
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Crude Oil |
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640 Bbls/d |
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NYMEX Index Price(2) |
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$63.27/Bbl |
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(1) |
NYMEX index price for natural gas delivered into the Texas Gas
Transmission pipeline in the North Louisiana area. |
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(2) |
NYMEX index price for light, sweet crude oil delivered at
Cushing, Oklahoma. |
At October 31, 2005, the fair value of the crude oil and
natural gas swaps described above was $5.0 million and
$2.4 million, respectively.
In addition, we help our customers manage their commodity price
risk by offering natural gas at a fixed price. When we enter
into commercial arrangements with a fixed price, we also
transact an offsetting financial hedge. This hedging strategy
permits us to offer a service to our clients without subjecting
ourselves to commodity price risk.
To the extent that a hedge is effective, there is no impact to
the Combined Statements of Operations until delivery or
settlement occurs. Several factors influence the effectiveness
of a hedge contract, including the use of contracts with
different commodities or unmatched terms. Hedge effectiveness is
monitored regularly and measured each month.
The fair value of our qualifying hedge positions at a point in
time is not necessarily indicative of the results realized when
such contracts mature.
For contracts that are designated and qualify as effective hedge
positions of future cash flows, or fair values of assets,
liabilities or firm commitments, to the extent that the hedge
relationships are effective, their market value change impacts
are not recognized in current earnings. The unrealized gains or
losses on these contracts are deferred in accumulated other
comprehensive income, or AOCI, for cash flow hedges or included
in other current or noncurrent assets or liabilities on the
combined balance sheets for fair value hedges of firm
commitments. Amounts in AOCI are realized in earnings
concurrently with the transaction being hedged. However, in
instances where the hedging contract no longer qualifies for
hedge accounting, amounts included in AOCI through the date of
de-designation remain in AOCI until the underlying transaction
actually occurs. The derivative contract (if continued as an
open position) will be marked to market currently through
earnings. Several factors influence the effectiveness of a hedge
contract, including counterparty credit risk and using contracts
with different commodities or unmatched terms. Hedge
effectiveness is monitored regularly and measured each month.
The fair value of our qualifying hedge positions is expected to
be realized in future periods, as detailed in the following
table. The amount of cash ultimately realized for these
contracts will differ from the amounts
96
shown in the following table due to factors such as market
volatility, counterparty default and other unforeseen events
that could impact the amount and/or realization of these values.
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Fair Value of Contracts as of September 30, 2005 | |
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Maturity in | |
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Maturity in | |
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Maturity in | |
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Maturity in | |
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2009 and | |
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Total Fair | |
Sources of Fair Value |
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2006 | |
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2007 | |
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2008 | |
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Thereafter | |
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Value | |
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(millions) | |
Prices supported by quoted market prices and other external
sources
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$ |
(4.0 |
) |
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$ |
(0.3 |
) |
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$ |
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$ |
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|
$ |
(4.3 |
) |
Prices based on models or other valuation techniques
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(0.5 |
) |
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(0.8 |
) |
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0.9 |
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5.1 |
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4.7 |
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Total
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|
$ |
(4.5 |
) |
|
$ |
(1.1 |
) |
|
$ |
0.9 |
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|
$ |
5.1 |
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|
$ |
0.4 |
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The prices supported by quoted market prices and other
external sources category includes our New York Mercantile
Exchange swap positions in crude oil which have currently quoted
monthly crude oil prices for the next 30 months. In
addition, this category includes our forward positions in
natural gas basis swaps at points for which over-the-counter, or
OTC, broker quotes are available. On average, OTC quotes for
natural gas swaps extend 13 months into the future. These
positions are valued against internally developed forward market
price curves that are validated and recalibrated against OTC
broker quotes. This category also includes strip
transactions whose prices are obtained from external sources and
then modeled to daily or monthly prices as appropriate.
The Prices based on models and other valuation
methods category includes the value of transactions for
which an internally developed price curve was constructed as a
result of the long dated nature of the transaction or the
illiquidity of the market point.
Normal Purchases and Normal Sales If a
contract qualifies and is designated as a normal purchase or
normal sale, no recognition of the contracts fair value in
the combined financial statements is required until the
associated delivery period occurs. We have applied this
accounting election for contracts involving the purchase or sale
of physical natural gas or NGLs in future periods.
Natural Gas Asset-Based Marketing We actively
manage our natural gas activities with both physical and
financial transactions. To the extent possible, we match our
natural gas supply portfolio to our sales portfolio. The
majority of this financial activity is in the current or nearby
month and is accounted for using mark-to-market accounting with
changes in fair value recognized in current period earnings.
Duke Energy Field Services measures and monitors the risk in
commodity trading and marketing portfolios on a daily basis
utilizing a Value-at-Risk model to determine the potential
one-day favorable or unfavorable Daily Value at Risk, or DVaR,
as described below. DVaR is monitored daily in comparison to
established thresholds. Other measures are also used to limit
and monitor the risk in the commodity trading and marketing
portfolios (which includes all trading and marketing contracts
not designated as hedge positions) on a monthly and annual
basis. These measures include limits on the nominal size of
positions and periodic loss limits.
DVaR computations are based on a historical simulation, which
uses price movements over an 11-day period to simulate forward
price curves in the energy markets to estimate the potential
favorable or unfavorable impact of one days price movement
on the existing portfolio. The historical simulation emphasizes
the most recent market activity, which is considered the most
relevant predictor of immediate future market movements for
crude oil, NGLs, natural gas and other energy-related products.
DVaR computations use several key assumptions, including a 95%
confidence level for the resultant price movement and the
holding period specified for the calculation.
DVaR is an estimate based on historical price volatility. Actual
volatility can exceed predicted results. DVaR also assumes a
normal distribution of price changes, thus if the actual
distribution is not normal, the DVaR may understate or overstate
actual results. DVaR is used to estimate the risk of the entire
portfolio, and for locations that do not have daily trading
activity, it may not accurately estimate risk due to limited
price information. Stress tests may be employed in addition to
DVaR to measure risk where market data
97
information is limited. In the current DVaR methodology, options
are modeled in a manner equivalent to forward contracts which
may understate the risk.
When available, quoted market prices are used to record a
contracts fair value. However, market values for energy
trading contracts may not be readily determinable because the
duration of the contracts could exceed the liquid activity in a
particular market. If no active trading market exists for a
commodity or for a contracts duration, holders of these
contracts must calculate fair value using internally developed
valuation techniques or models. Key components used in these
valuation techniques include price curves, volatility,
correlation, interest rates and tenor. Of these components,
volatility and correlation are the most subjective. Internally
developed valuation techniques include the use of interpolation,
extrapolation, and fundamental analysis in the calculation of a
contracts fair value. All risk components for new and
existing transactions are valued using the same valuation
technique and market data and discounted using a LIBOR based
interest rate. Valuation adjustments for performance, market
risk and administration costs are used to adjust the fair value
of the contract to the gain or loss ultimately recognized in the
Combined Statements of Operations.
Our profitability is affected by changes in prevailing natural
gas, NGL and condensate prices. Historically, changes in the
prices of most NGL products and condensate have generally
correlated with changes in the price of crude oil. Natural gas,
NGL and condensate prices are volatile and are impacted by
changes in the supply and demand for natural gas, NGLs and
condensate as well as market uncertainty. For a discussion of
the volatility of natural gas and NGL prices, please read
Risk Factors Risks Related to Our
Business The cash flow from our Natural Gas Services
segment is affected by natural gas, NGL and condensate prices,
and decreases in these prices could adversely affect our ability
to make distributions to holders of our common units and
subordinated units beginning on page 20. For the year
ending December 31, 2006, we expect that a $1.00 per MMBtu
change in price of natural gas, a $0.10 per gallon change in NGL
prices and a $5.00 per barrel change in condensate prices would
change our gross margin by approximately $0.2 million,
$0.3 million and $0.3 million, respectively. These
sensitivities include the effect of our hedging strategies
executed in September 2005. Please read
Quantitative and Qualitative Disclosures about
Market Risk Commodity Price Risk Hedging
Strategies beginning on page 94 for more information
about these hedging strategies. The magnitude of the impact on
gross margin of changes in natural gas, NGL and condensate
prices presented may not be representative of the magnitude of
the impact on gross margin for different commodity prices or
contract portfolios. Prices for these products can also affect
our profitability indirectly by influencing the level of
drilling activity and related opportunities for our services.
98
BUSINESS
Our Partnership
We are a Delaware limited partnership recently formed by Duke
Energy Field Services to own, operate, acquire and develop a
diversified portfolio of complementary midstream energy assets.
We are currently engaged in the business of gathering,
compressing, treating, processing, transporting and selling
natural gas and the business of transporting and selling NGLs.
Supported by our relationship with Duke Energy Field Services
and its parents, Duke Energy and ConocoPhillips, we intend to
acquire and construct additional assets and we have a management
team dedicated to executing our growth strategy.
Our operations are organized into two business segments, Natural
Gas Services and NGL Logistics.
Our Natural Gas Services segment is comprised of our North
Louisiana system, which is an approximately 1,430-mile
integrated pipeline system located in northern Louisiana and
southern Arkansas that gathers, compresses, treats, processes,
transports and sells natural gas received from approximately
1,100 receipt points, each of which represents production from
one or more wells in the adjacent area, and that sells NGLs.
This system consists of the following:
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the Minden processing plant and gathering system, which includes
a cryogenic natural gas processing plant supplied by
approximately 700 miles of natural gas gathering pipelines,
connected to approximately 460 receipt points, with throughput
capacity of approximately 115 MMcf/d; |
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the Ada processing plant and gathering system, which includes a
refrigeration natural gas processing plant supplied by
approximately 130 miles of natural gas gathering pipelines,
connected to approximately 210 receipt points, with throughput
capacity of approximately 80 MMcf/d; and |
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the PELICO system, an approximately 600-mile intrastate natural
gas gathering and transportation pipeline with throughput
capacity of approximately 250 MMcf/d and connections to the
Minden and Ada processing plants and approximately 450 other
receipt points. The PELICO system delivers natural gas to
multiple interstate and intrastate pipelines, as well as
directly to industrial and utility end-use markets. |
Our NGL Logistics segment consists of the following:
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our Seabreeze pipeline, an approximately 68-mile intrastate NGL
pipeline in Texas with throughput capacity of
33 MBbls/d; and |
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our 45% interest in the Black Lake Pipe Line Company, the owner
of an approximately 317-mile interstate NGL pipeline in
Louisiana and Texas with throughput capacity of 40 MBbls/d. |
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Business Strategies
Our primary business objective is to increase our cash
distribution per unit over time. We intend to accomplish this
objective by executing the following business strategies:
Optimize: maximize the profitability of existing
assets. We intend to optimize the profitability of our
existing assets by adding new volumes of natural gas and NGLs
and undertaking additional initiatives to enhance utilization
and improve operating efficiencies. Our natural gas assets and
NGL pipelines have excess capacity, which allows us to connect
new supplies of natural gas and NGLs at minimal incremental cost.
Build: capitalize on organic expansion
opportunities. We continually evaluate economically
attractive organic expansion opportunities to construct new
midstream systems in new operating areas. For example, we
believe there are opportunities to expand our North Louisiana
system to transport increased volumes of natural gas produced in
east Texas to premium markets and interstate pipeline
connections on the eastern end of our North Louisiana system.
Acquire: pursue strategic and accretive
acquisitions. We plan to pursue strategic and accretive
acquisition opportunities within the midstream energy industry,
both in new and existing lines of business and
99
geographic areas of operation. In light of the recent industry
trend of large energy companies divesting their midstream
assets, we believe there will continue to be significant
acquisition opportunities. We intend to pursue acquisition
opportunities both independently and jointly with Duke Energy
Field Services and its parents, Duke Energy and ConocoPhillips,
and we may also acquire assets directly from them, which will
provide us with a broader array of growth opportunities than
those available to many of our competitors.
Competitive Strengths
We believe that we are well positioned to execute our primary
business objective and business strategies successfully because
of the following competitive strengths:
Affiliation with Duke Energy Field Services and its
parents. We expect that our relationship with Duke
Energy Field Services and its parents, Duke Energy and
ConocoPhillips, will provide us with significant business
opportunities. After this offering, Duke Energy Field Services
will continue to be one of the largest gatherers of natural gas
(based on wellhead volume), the largest producer of NGLs and one
of the largest marketers of NGLs in North America. Duke Energy
Field Services, through its previous ownership of the general
partner of TEPPCO Partners, L.P. from March 2000 until February
2005, has substantial experience in operating and growing a
master limited partnership engaged in the midstream energy
industry. Our relationship with Duke Energy Field Services, Duke
Energy and ConocoPhillips also provides us with access to a
significant pool of management talent. We believe our strong
relationships throughout the energy industry, including with
major producers of natural gas and NGLs in the United States,
will help facilitate implementation of our strategies.
Strategically located assets. We own and operate
one of the largest integrated natural gas gathering,
compression, treating, processing and transportation systems in
northern Louisiana, an active natural gas producing area. This
system is also well positioned, and we believe there are
opportunities to expand this system, to transport increased
volumes of natural gas from east Texas and west Louisiana to
premium markets on the eastern end of our North Louisiana system
and to interconnections with major interstate natural gas
pipelines that transport natural gas to consumer markets in the
eastern and northeastern United States. Our NGL pipelines are
also strategically located to transport NGLs from plants that
process natural gas produced in Texas and northern Louisiana to
large fractionation facilities and a petrochemical plant along
the Gulf Coast.
Stable cash flows. Our operations consist of a
favorable mix of fee-based and margin-based services, which
together with our hedging activities, generate relatively stable
cash flows. While our percentage-of-proceeds gathering and
processing contracts subject us to commodity price risk, we have
hedged approximately 80% of our natural gas and NGL commodity
price risk related to these arrangements through 2010. As part
of our gathering operations, we recover and sell condensate. We
have hedged approximately 80% of our expected condensate
commodity price risk relating to our natural gas gathering
operations through 2010. For additional information regarding
our hedging activities, please read Managements
Discussion and Analysis of Financial Condition and Results of
Operation Quantitative and Qualitative Disclosures
about Market Risk Hedging Strategies.
Integrated package of midstream services. We
provide an integrated package of services to natural gas
producers, including natural gas gathering, compression,
treating, processing, transportation and sales, and NGL sales.
We believe our ability to provide all of these services gives us
an advantage in competing for new supplies of natural gas
because we can provide substantially all of the services
producers, marketers and others require to move natural gas and
NGLs from wellhead to market on a cost-effective basis.
Experienced management team. Our senior management
team and board of directors will include some of the most senior
officers of Duke Energy Field Services who has extensive
experience in the midstream energy industry. Our management team
will have a proven track record of enhancing value through the
acquisition, optimization and integration of midstream assets.
Additionally, we believe Duke Energy Field Services has
established a reputation in the midstream business as a reliable
and cost-effective supplier of services to our customers and has
a track record of safe and efficient operation of our facilities.
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Our Relationship with Duke Energy Field Services and its
Parents
One of our principal attributes is our relationship with Duke
Energy Field Services and its parents, Duke Energy and
ConocoPhillips. Duke Energy Field Services is one of the largest
gatherers of natural gas (based on wellhead volume) the largest
producer of NGLs and one of the largest marketers of NGLs, in
North America. Duke Energy Field Services commenced operations
in 2000 following the contribution to it of the combined North
American midstream natural gas gathering, processing and
marketing and NGL businesses of Duke Energy and Phillips
Petroleum Company (prior to its merger with Conoco Inc.).
Currently, Duke Energy Field Services is owned 50% by Duke
Energy and 50% by ConocoPhillips.
Duke Energy Field Services intends to use us as an important
growth vehicle to pursue the acquisition and expansion of
midstream natural gas, NGL and other complementary energy
businesses and assets. We expect to have the opportunity to make
acquisitions directly from Duke Energy Field Services in the
future. However, we cannot say with any certainty which, if any,
of these acquisition opportunities may be made available to us
or if we will choose to pursue any such opportunity. In
addition, through our relationship with Duke Energy Field
Services and its parents, we will have access to a significant
pool of management talent, strong commercial relationships
throughout the energy industry and access to Duke Energy Field
Services broad operational, commercial, technical, risk
management and administrative infrastructure.
Duke Energy Field Services will have a significant interest in
our partnership through its ownership of a 2% general partner
interest in us, all of our incentive distribution rights and a
47.6% limited partner interest in us. We will enter into an
omnibus agreement with Duke Energy Field Services and some of
its affiliates that will govern our relationship with them
regarding certain reimbursement and indemnification matters.
Please read Certain Relationships and Related Party
Transactions Omnibus Agreement.
While our relationship with Duke Energy Field Services and its
parents is a significant attribute, it is also a source of
potential conflicts. For example, Duke Energy Field Services,
Duke Energy, ConocoPhillips or their affiliates are not
restricted from competing with us. Each of them may acquire,
construct or dispose of midstream or other assets in the future
without any obligation to offer us the opportunity to purchase
or construct those assets. Please read Conflicts of
Interest and Fiduciary Duties.
Natural Gas and NGLs Overview
The midstream natural gas industry is the link between
exploration and production of natural gas and the delivery of
its components to end-use markets, and consists of the
gathering, compression, treating, processing, transportation and
selling of natural gas, and the transportation and selling of
NGLs.
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Natural Gas Demand and Production |
Natural gas is a critical component of energy consumption in the
United States. According to the Energy Information
Administration, or the EIA, total annual domestic consumption of
natural gas is expected to increase from approximately 22.1
trillion cubic feet, or Tcf, in 2004 to approximately 25.4 Tcf
in 2010, representing an average annual growth rate of over
2.3% per year. The industrial and electricity generation
sectors are the largest users of natural gas in the United
States. During the last three years, these sectors accounted for
approximately 61% of the total natural gas consumed in the
United States. In 2004, natural gas represented approximately
24% of all end-user domestic energy requirements. During the
last five years, the United States has on average consumed
approximately 22.5 Tcf per year, with average annual domestic
production of approximately 19.1 Tcf during the same period.
Driven by growth in natural gas demand and high natural gas
prices, domestic natural gas production is projected to increase
from 18.9 Tcf per year to 20.4 Tcf per year between
2004 and 2010.
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Midstream Natural Gas Industry |
Once natural gas is produced from wells, producers then seek to
deliver the natural gas and its components to end-use markets.
The following diagram illustrates the natural gas gathering,
processing, fractionation, storage and transportation process,
which ultimately results in natural gas and its components being
delivered to end-users. We provide all of these services other
than fractionation to our customers.
The natural gas gathering process begins with the drilling of
wells into gas-bearing rock formations. Once the well is
completed, the well is connected to a gathering system. Onshore
gathering systems generally consist of a network of small
diameter pipelines that collect natural gas from points near
producing wells and transport it to larger pipelines for further
transmission.
Gathering systems are operated at design pressures that will
maximize the total throughput from all connected wells. Since
wells produce at progressively lower field pressures as they
age, it becomes increasingly difficult to deliver the remaining
production from the ground against a higher pressure that exists
in the connecting gathering system. Natural gas compression is a
mechanical process in which a volume of wellhead gas is
compressed to a desired higher pressure, allowing gas flow into
a higher pressure downstream pipeline to be brought to market.
Field compression is typically used to lower the pressure of a
gathering system to operate at a lower pressure or provide
sufficient pressure to deliver gas into a higher pressure
downstream pipeline. If field compression is not installed, then
the remaining natural gas in the ground will not be produced
because it cannot overcome the higher gathering system pressure.
In contrast, if field compression is installed, then a well can
continue delivering production that otherwise would not be
produced.
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Natural Gas Processing and Transportation |
The principal component of natural gas is methane, but most
natural gas also contains varying amounts of NGLs including
ethane, propane, normal butane, isobutane and natural gasoline.
NGLs have economic value and are utilized as a feedstock in the
petrochemical and oil refining industries or directly as
heating, engine or industrial fuels. Long-haul natural gas
pipelines have specifications as to the maximum NGL content of
the gas to be shipped. In order to meet quality standards for
long-haul pipeline transportation, natural gas collected through
a gathering system must be processed to separate hydrocarbon
liquids that can have higher values as mixed NGLs from the
natural gas. NGLs are typically recovered by cooling the natural
gas until the mixed NGLs become separated through condensation.
Cryogenic recovery methods are processes where this is
accomplished at temperatures lower than -150°F. These
methods provide higher NGL recovery yields. After being
extracted from natural gas, the mixed NGLs are typically
transported via NGL pipelines or trucks to a fractionator for
separation of the NGLs into their component parts.
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In addition to NGLs, natural gas collected through a gathering
system may also contain impurities, such as water, sulfur
compounds, nitrogen or helium. As a result, a natural gas
processing plant will typically provide ancillary services such
as dehydration and condensate separation prior to processing.
Dehydration removes water from the natural gas stream, which can
form ice when combined with natural gas and cause corrosion when
combined with carbon dioxide or hydrogen sulfide. Condensate
separation involves the removal of hydrocarbons from the natural
gas stream. Once the condensate has been removed, it may be
stabilized for transportation away from the processing plant via
truck, rail or pipeline. Natural gas with a carbon dioxide or
hydrogen sulfide content higher than permitted by pipeline
quality standards requires treatment with chemicals called
amines at a separate treatment plant prior to processing.
Natural Gas Services Segment
Our Natural Gas Services segment consists of the North Louisiana
system, which is a large integrated midstream natural gas system
that offers the following services:
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gathering; |
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compression; |
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treating; |
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processing; |
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transportation; and |
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sales of natural gas, NGLs and condensate. |
The system covers ten parishes in northern Louisiana and two
counties in southern Arkansas. Through our North Louisiana
system, we offer producers and customers wellhead-to-market
services. The North Louisiana system has numerous market outlets
for the natural gas that we gather, including several intrastate
and interstate pipelines, eight major industrial end-users and
three major power plants. The system is strategically located to
facilitate the transportation of natural gas from eastern Texas
and northern Louisiana to pipeline connections linking to
markets in the eastern and northeastern areas of the United
States.
The North Louisiana system consists of:
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our Minden processing plant, which has a processing capacity of
approximately 115 MMcf/d, and gathering system, which is an
approximately 700-mile natural gas gathering system with
throughput capacity of approximately 115 MMcf/d; |
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our Ada processing plant, which has a processing capacity of
approximately 45 MMcf/d, and gathering system, which is an
approximately 130-mile natural gas gathering system with
throughput capacity of approximately 80 MMcf/d; and |
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our PELICO system, an approximately 600-mile intrastate natural
gas pipeline with throughput capacity of approximately
250 MMcf/d. |
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A map representing the location of the assets that comprise the
North Louisiana system is set forth below:
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The natural gas supply for the gathering pipelines and
processing plants in our North Louisiana system is derived
primarily from natural gas wells located in the following five
parishes in northern Louisiana: Bienville, Claiborne, Jackson,
Lincoln and Webster. The PELICO system also receives natural gas
produced in eastern Texas through its interconnect with other
pipelines that transport natural gas from eastern Texas into
western Louisiana. This five parish area has experienced
significant levels of drilling activity, providing us with
opportunities to access newly developed natural gas supplies.
Natural gas production in this area has increased as a result of
additional drilling, which has generally targeted deeper natural
gas reservoirs in the Cotton Valley, Hosston and Smackover
formations. We believe that continued drilling activity within
our service area will result in future gas discoveries, which
will increase our well attachment opportunities for this area.
Drilling density is not yet mature for these deeper targets and
continued production growth is possible. Using historical
production reports filed by producers with the State of
Louisiana and reported by Petroleum Information/Dwights LLC, we
have determined that the number of wells drilled within this
five parish area for the period from 2000 through
August 31, 2005 was as follows:
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Wells Drilled (a) | |
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2000
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162 |
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2001
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190 |
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2002
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131 |
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2003
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164 |
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2004
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237 |
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Eight months ended August 31, 2005
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163 |
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(a) |
Represents the number of wells during a particular period for
which drilling commenced, but does not represent the actual
number of wells that were completed or that produced commercial
quality natural gas. |
We typically do not obtain independent evaluations of reserves
dedicated to our pipeline systems due to the lack of publicly
available producer reserve information. Accordingly, we do not
have traditional reserve estimates of total natural gas supply
dedicated to our systems or the anticipated life of such
producing reserves. However, we have documented natural gas
production trends for this five parish area, using information
filed by producers with the State of Louisiana and obtained from
Petroleum Information/Dwights LLC. We believe this information
provides a valuable perspective of the number of producing wells
and associated production trends adjacent to our pipelines, as
well as potential drilling activity near our pipelines.
Using the data described above, we have constructed the
following chart, which illustrates natural gas production trends
from 1985 to 2004 for the active wells within this five parish
area. The chart depicts the historical levels of natural gas
production presented as average daily volume in MMcf/d for all
wells in this area. Each band in the table reflects the natural
gas production resulting from natural gas wells completed in the
initial year represented by such band. As a result, each band
reflects the reduction over time in natural gas production due
to the natural declines associated with production of natural
gas reserves. Collectively, the
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bands represent the aggregate amount of natural gas production
for each year based on the cumulative effect of production from
natural gas wells drilled at various times during, and prior to,
such year.
Annual natural gas production in North Louisiana five parish
area by year of completion
(1985-2004) from Petroleum Information/ Dwights LLC
The North Louisiana natural gas gathering system, consisting of
the Minden and Ada gathering systems, has approximately
830 miles of natural gas gathering pipelines, ranging in
size from two inches to twelve inches in diameter. The system
has aggregate throughput capacity of approximately
195 MMcf/d and average throughput on the system was
approximately 125 MMcf/d in 2004. There are 26 compressor
stations located within the system, comprised of 62 units
with an aggregate of approximately 70,000 horsepower.
The Minden gathering system is an approximately 700-mile natural
gas gathering system located in Bossier, Claiborne, Jackson,
Lincoln, Ouachita and Webster parishes, Louisiana and two
Arkansas counties. The system gathers natural gas from producers
at approximately 460 receipt points and delivers it for
processing to the Minden processing plant. The Minden gathering
system also delivers NGLs produced at the Minden processing
plant to the Black Lake pipeline. The Minden gathering system
has throughput capacity of approximately 115 MMcf/d, and
had aggregate throughput of approximately 69 MMcf/d in 2004.
The Ada gathering system is an approximately 130-mile natural
gas gathering system located in Bienville and Webster parishes,
Louisiana. The system gathers natural gas from producers at
approximately 210 receipt points and delivers it for processing
to the Ada processing plant. The Ada gathering system has
throughput capacity of approximately 80 MMcf/d, and had
throughput of approximately 56 MMcf/d in 2004.
The Minden processing plant is a cryogenic natural gas
processing and treating plant located in Webster parish,
Louisiana. The Minden processing plant has a design capacity of
115 MMcf/d. In 2004, the Minden processing plant processed
approximately 69 MMcf/d of natural gas and produced
approximately 4,500 Bbls/d of NGLs. This processing plant
has amine treating and ethane recovery and rejection
capabilities such that we can recover approximately 80% of the
ethane contained in the natural gas stream. In addition, the
processing plant is able to reject ethane of effectively 13%
when justified by market economics. This processing flexibility
enables us to maximize the value of ethane for our customers. In
2002, we upgraded the Minden processing plant to enable greater
ethane recovery and rejection capabilities. As part of that
project, we reached an agreement with our customers to receive
100% of the realized margin attributable to the
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incremental value of ethane recovered as an NGL from the natural
gas stream when appropriate market conditions exist and until a
defined return on the initial investment is reached.
The Ada processing plant is a refrigeration natural gas
processing plant located in Bienville parish, Louisiana. The Ada
processing plant has a design capacity of 45 MMcf/d. In
2004, the facility processed approximately 45 MMcf/d of
natural gas and produced approximately 188 Bbls/d of NGLs.
The PELICO system is an approximately 600-mile intrastate
natural gas gathering and transportation pipeline with
250 MMcf/d of capacity and average throughput of
approximately 205 MMcf/d in 2004. The PELICO system gathers
and transports natural gas that does not require processing from
producers in the area at approximately 450 meter locations.
Additionally, the PELICO system transports processed gas from
the Minden and Ada processing plants and natural gas supplied
from third party interstate and intrastate natural gas
pipelines. The PELICO system also receives natural gas produced
in eastern Texas through its interconnect with other pipelines
that transport natural gas from eastern Texas into western
Louisiana.
The North Louisiana system has numerous market outlets for the
natural gas that we gather on the system. Our natural gas
pipelines connect to the Perryville Market Hub, a natural gas
marketing hub that provides connection to four intrastate or
interstate pipelines, including pipelines owned by Southern
Natural Gas Company, Texas Gas Transmission, LLC, CenterPoint
Energy Mississippi River Transmission Corporation and
CenterPoint Energy Gas Transmission Company. In addition, our
natural gas pipelines also have access to gas that flows through
pipelines owned by Texas Eastern Transmission, LP, Crosstex LIG,
LLC, Gulf South Pipeline Company LP, Tennessee Natural Gas
Company and Regency Intrastate Gas, LLC. The North Louisiana
system is also connected to eight major industrial end-users and
makes deliveries to three power plants. Generally, the gas flows
from our Minden and Ada gathering systems and PELICO system from
west to east toward the industrial and interstate markets with
the exception of some industrial end-users located near the
central-southern section of the PELICO system. This flow pattern
changes somewhat during the summer when utility loads increase
deliveries off the same central-southern section of the PELICO
system. Our access to numerous market outlets, including
interstate pipelines in northeastern Louisiana that deliver
natural gas to premium markets on the northeast and east coast,
and to several end-users located on our system provides us with
the flexibility to deliver our natural gas supply to markets
with the most attractive pricing.
The NGLs extracted from the natural gas at the Minden processing
plant are delivered to the Black Lake pipeline through our
wholly-owned approximately 9-mile Minden NGL pipeline. The NGLs
are sold at market index prices to an affiliate of Duke Energy
Field Services and transported to the Mont Belvieu hub via the
Black Lake pipeline of which we own a 45% interest. The NGLs
extracted from natural gas at the Ada processing plant are sold
at market index prices to third parties and are delivered to the
third parties trucks at the tailgate of the plant.
The primary suppliers of natural gas to our North Louisiana
system are Anadarko Petroleum Corporation and ConocoPhillips
(one of our affiliates), which collectively represented 48% of
the 330 MMcf/d natural gas supplied to this system in 2004
and approximately 50% of the 330 MMcf/d of natural gas
supplied to this system for the nine months ended
September 30, 2005. We actively seek new supplies of
natural gas to increase throughput volume and to offset natural
declines in the production from connected wells. We obtain new
natural gas supplies in our operating areas by contracting for
production from new wells, by connecting new wells drilled on
dedicated acreage and by obtaining natural gas that has been
released from other gathering systems.
We currently have approximately 1,100 receipt points on the
North Louisiana system receiving natural gas production from
individual wells or groups of wells. Approximately 60% of these
receipt points are
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located on our Minden gathering system and our Ada gathering
system. The remaining 40% of these receipt points are located on
the PELICO system. The natural gas supplied to the North
Louisiana system is generally dedicated to us under individually
negotiated long-term contracts that provide for the commitment
by the producer of all natural gas produced from designated
properties. Generally, the initial term of these purchase
agreements is for three to five years or, in some cases, the
life of the lease. Our PELICO system receives natural gas from
our Minden and Ada gathering systems and processing plants as
well as from interconnects with other intrastate pipelines that
deliver gas from other producing areas in eastern Texas and
northern Louisiana, and from other wellhead receipt points
directly connected to the system.
For natural gas that is gathered and then processed at our
Minden or Ada processing plants, we purchase the wellhead
natural gas from the producers primarily under
percentage-of-proceeds arrangements or fee-based arrangements.
Our gross margin generated from percentage-of-proceeds gathering
and processing contracts is directly correlated to the price of
natural gas and NGLs. To minimize this potential future
volatility, in connection with this offering we have hedged our
natural gas, NGLs and condensate for approximately 80% of our
anticipated natural gas, NGL and condensate attributable to
these contracts through 2010. We gather and transport natural
gas on the PELICO system under a combination of fee-based
transportation agreements and merchant arrangements. Under our
merchant arrangements, we, directly or through a subsidiary of
Duke Energy Field Services as our agent, purchase natural gas at
the wellhead and from third parties and related parties at
pipeline interconnect points, as well as residue gas from our
Minden and Ada processing plants, and then resell the aggregated
natural gas to third parties.
We have a fee-based contractual relationship with ConocoPhillips
pursuant to which ConocoPhillips has dedicated all of its
natural gas production within an area of mutual interest to our
Ada and Minden gathering and processing systems and the PELICO
system under multiple agreements that have a minimum term of
five years that expire in 2011. The area of mutual interest in
these contracts covers an area of approximately 129 square
miles in Webster and Bienville parishes. To date, ConocoPhillips
has drilled and connected approximately 145 wells to our
Ada gathering system, six wells to our Minden gathering system
and over 200 wells to our PELICO system, pursuant to these
contracts. We recently expanded our contractual relationship
with ConocoPhillips to provide system-wide low pressure services
on the Ada gathering system that decreased ConocoPhillips
production costs by allowing it to remove wellhead compressors
and, as a result of lower wellhead pressure, increased
ConocoPhillips natural gas production and extended the
life of certain of its wells. The additional production and the
addition of the system-wide low pressure services have resulted
in additional fee-based revenues for us. In addition, we have a
multi-year transportation agreement with Anadarko Petroleum
Corporation on the PELICO system that delivers gas from the
Vernon field to interstate markets on the east end of the system.
The North Louisiana system experiences competition in all of its
local markets. The North Louisiana systems principal areas
of competition include obtaining natural gas supplies for the
Minden processing plant and Ada processing plant and natural gas
transportation customers for the PELICO system. The North
Louisiana systems competitors include major integrated oil
and gas companies, interstate and intrastate pipelines, and
companies that gather, compress, treat, process, transport
and/or market natural gas. The PELICO system competes with
interstate and intrastate pipelines. These include pipelines
owned by Regency Intrastate Gas, LLC, Gulf South Pipeline
Company and Tennessee Natural Gas Co. The Minden and Ada
processing plants compete with other natural gas gathering and
processing systems owned by XTO Energy Inc., Regency Intrastate
Gas, LLC, Optigas Inc. and Gulf South Pipeline Company, as well
as producer-owned systems.
NGL Logistics Segment
General. Our NGL transportation assets consist of our
wholly-owned approximately 68-mile Seabreeze intrastate NGL
pipeline located in Texas and a 45% interest in the
approximately 317-mile Black Lake
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interstate NGL pipeline located in Louisiana and Texas. These
NGL pipelines transport mixed NGLs from natural gas processing
plants to fractionation facilities, a petrochemical plant and an
underground NGL storage facility. In aggregate, our NGL
transportation business has 73 MBbls/d of capacity and in
2004 average throughput was 25.5 MBbls/d.
In the markets we serve, our pipelines are the sole pipeline
facility transporting NGLs from the supply source. Our pipelines
provide transportation services to customers on a fee basis.
Therefore, the results of operations for this business are
generally dependent upon the volume of product transported and
the level of fees charged to customers. The volumes of NGLs
transported on our pipelines are dependent on the level of
production of NGLs from processing plants connected to our NGL
pipelines. When natural gas prices are high relative to NGL
prices, it is less profitable to process natural gas because of
the higher value of natural gas compared to the value of NGLs
and because of the increased cost of separating the mixed NGLs
from the natural gas. As a result, we have experienced periods
in the past, and will likely experience periods in the future,
that higher natural gas prices reduce the volume of NGLs
produced at plants connected to our NGL pipelines.
Seabreeze Pipeline.
Our Seabreeze pipeline is an approximately 68-mile private NGL
pipeline with current capacity configured at 33 MBbls/d. It
is located along the Gulf Coast area of southeastern Texas. For
2004, average throughput on the pipeline was approximately
15 MBbls/d. The Seabreeze pipeline was put into service in
2002 to deliver an NGL mix to the Formosa Point Comfort Chemical
Complex from Williams Markham Gas Plant, a large
processing plant with processing capacity of approximately
340 MMcf/d located in Matagorda County, Texas; Enterprise
Products Matagorda Plant, a large processing plant with
capacity of approximately 250 MMcf/d located in Matagorda
County, Texas; and TEPPCO Partners, L.P.s South Dean NGL
pipeline. The Seabreeze pipeline is the sole NGL pipeline for
the two processing plants and is the only delivery point for the
South Dean NGL pipeline. The South Dean NGL pipeline transports
NGLs from five natural gas processing plants located in
southeastern Texas that have aggregate processing capacity of
approximately 1.6 Bcf/d. Three of these processing plants
are owned by Duke Energy Field Services. The seven processing
plants that produce NGLs that flow into the Seabreeze pipeline
process natural gas produced in southern Texas and offshore in
the Gulf of Mexico (Boomvang and Nansen offshore production
platforms and the Matagorda Island Production Facility). The
Seabreeze pipeline delivers the NGLs it receives from these
sources to a fractionator at the Formosa Point Comfort Chemical
Complex and the Texas Brine Salt Dome storage facility.
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A map illustrating the location of the Seabreeze pipeline is set
forth below:
Upon closing, we will enter into a contractual arrangement with
a subsidiary of Duke Energy Field Services that will provide
that Duke Energy Field Services will purchase the NGLs that were
historically purchased by us, and Duke Energy Field Services
will pay us to transport the NGLs pursuant to a fee-based rate
that will be applied to the volumes transported. We will enter
into this fee-based contractual arrangement with the objective
of generating approximately the same operating income per barrel
transported that we realized when we were the purchaser and
seller of NGLs. We will not take title to the products
transported on the NGL pipeline; rather, the shipper retains
title and the associated commodity price risk. Duke Energy Field
Services is the sole shipper on the Seabreeze pipeline under a
17-year transportation agreement expiring in 2022. The Seabreeze
pipeline only collects fee-based transportation revenue under
this agreement. Duke Energy Field Services receives its supply
of NGLs that it then transports on the Seabreeze pipeline under
a 20-year NGL purchase agreement with Williams expiring in 2022
and a 5-year NGL purchase agreement with Enterprise Products
Partners expiring in 2007. Under these agreements, Williams and
Enterprise Products Partners have each dedicated all of their
respective NGL production from these processing plants to Duke
Energy Field Services. The Seabreeze pipeline delivers all of
Duke Energy Field Services volumes to a fractionator at
the Formosa Point Comfort Chemical Complex and the Texas Brine
Salt Dome storage facility operated by Underground Services
Markam. Duke Energy Field Services has a 20-year long-term sales
agreement with Formosa expiring in 2022. Additionally, Duke
Energy Field Services has a 10-year transportation agreement
with TEPPCO Partners, L.P. expiring in 2012 that covers all of
the NGL volumes transported on the South Dean NGL pipeline for
delivery to the Seabreeze pipeline.
For 2004, average throughput on the pipeline was approximately
15 MBbls/d. Throughput on the pipeline during 2004 was
negatively impacted by a shut down of the South Dean NGL
pipeline from March 2004 until June 2005 due to pipeline
integrity repairs. During July 2005 following the restart of the
South Dean NGL pipeline, we transported approximately
8 MBbls/d of NGLs received from the South Dean NGL
pipeline. As a result, we believe throughput should increase on
Seabreeze in the second half of 2005. The pipeline could be
expanded in the future to over 50 MBbls/d with the
installation of additional pumps. We are also evaluating an
extension of the Seabreeze pipeline to connect to an additional
Duke Energy Field Services processing plant in 2006 to
gather an additional 6 MBbls/d.
Black Lake Pipeline. We own a 45% interest in Black Lake
Pipe Line Company, which owns an approximately 317-mile
FERC-regulated interstate NGL pipeline with 40 MBbls/d of
capacity. For 2004,
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average throughput on the pipeline was approximately
10.5 MBbls/d. A map representing the location of the Black
Lake pipeline is set forth below:
The Black Lake pipeline was constructed in 1967 and delivers
NGLs from processing plants in northern Louisiana and
southeastern Texas to fractionation plants at Mont Belvieu on
the Texas Gulf Coast. The Black Lake pipeline receives NGL mix
from three natural gas processing plants in northern Louisiana,
including our Minden plant, Regency Intrastate Gas, LLCs
Dubach processing plant and Chesapeake Energy Corporations
Black Lake processing plant, which have aggregate natural gas
processing capacity of approximately 345 MMcf/d. The Black
Lake pipeline is the sole NGL pipeline for all of these natural
gas processing plants in northern Louisiana. In addition, the
Black Lake pipeline receives NGL mix from Duke Energy Field
Services Jasper pipeline, which has NGL throughput
capacity of approximately 18 MBbls/d and is the sole NGL
pipeline for the Brookeland Gas Plant. The Brookeland Gas Plant,
which is located in southeastern Texas, is 80% owned by Duke
Energy Field Services. Duke Energy Field Services is currently
considering a potential sale of its 80% interest in the
Brookeland Gas Plant and its 100% interest in the Jasper
pipeline to an unaffiliated third party.
There are currently five active shippers on the pipeline, with
Duke Energy Field Services historically being the largest,
representing approximately 6.7 MBbls/d in 2004. The Black
Lake pipeline generates revenues through a FERC-regulated
tariff. The current average rate per barrel is $0.86 for 2005.
Black Lake Pipe Line Company is a partnership that is owned 45%
by us, 5% by Duke Energy Field Services and 50% by BP. BP is the
operator of the pipeline. Black Lake Pipe Line Company is
required by its partnership agreement to make monthly cash
distributions equal to 100% of its available cash for each
month, which is defined generally as receipts plus reductions in
cash reserves less disbursements and increases in cash reserves.
In anticipation of a pipeline integrity project, Black Lake Pipe
Line Company suspended making monthly cash distributions in
December 2004 in order to reserve cash to pay the expenses of
this project. We expect that this project will be completed in
2006 and that monthly cash distributions will resume following
the completion of this project.
Safety and Maintenance Regulation
We are subject to regulation by the United States Department of
Transportation, referred to as DOT, under the Accountable
Pipeline and Safety Partnership Act of 1996, referred to as the
Hazardous Liquid Pipeline Safety Act, and comparable state
statutes with respect to design, installation, testing,
construction, operation, replacement and management of pipeline
facilities. The Hazardous Liquid Pipeline Safety Act
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covers petroleum and petroleum products and requires any entity
that owns or operates pipeline facilities to comply with such
regulations, to permit access to and copying of records and to
file certain reports and provide information as required by the
United States Secretary of Transportation. These regulations
include potential fines and penalties for violations. We believe
that we are in material compliance with these Hazardous Liquid
Pipeline Safety Act regulations.
We are also subject to the Natural Gas Pipeline Safety Act of
1968, referred to as NGPSA, and the Pipeline Safety Improvement
Act of 2002. The NGPSA regulates safety requirements in the
design, construction, operation and maintenance of gas pipeline
facilities while the Pipeline Safety Improvement Act establishes
mandatory inspections for all United States oil and natural gas
transportation pipelines and some gathering lines in
high-consequence areas within 10 years. The DOT has
developed regulations implementing the Pipeline Safety
Improvement Act that will require pipeline operators to
implement integrity management programs, including more frequent
inspections and other safety protections in areas where the
consequences of potential pipeline accidents pose the greatest
risk to people and their property. We currently estimate we will
incur costs of approximately $6.1 million between 2006 and
2010 to implement integrity management program testing along
certain segments of our natural gas and NGL pipelines. This does
not include the costs, if any, of any repair, remediation,
preventative or mitigating actions that may be determined to be
necessary as a result of the testing program. Duke Energy Field
Services has agreed to indemnify us for up to $5.3 million
of our pro rata share of the costs associated with any repairs
to the Black Lake pipeline that are determined to be necessary
as a result of the pipeline integrity testing and up to
$4.0 million of the costs associated with any repairs to
the Seabreeze pipeline that are determined to be necessary as a
result of the pipeline integrity testing.
States are largely preempted by federal law from regulating
pipeline safety but may assume responsibility for enforcing
federal intrastate pipeline regulations and inspection of
intrastate pipelines. In practice, states vary considerably in
their authority and capacity to address pipeline safety. We do
not anticipate any significant problems in complying with
applicable state laws and regulations in those states in which
we or the entities in which we own an interest operate. Our
natural gas pipelines have continuous inspection and compliance
programs designed to keep the facilities in compliance with
pipeline safety and pollution control requirements.
In addition, we are subject to a number of federal and state
laws and regulations, including the federal Occupational Safety
and Health Act, referred to as OSHA, and comparable state
statutes, whose purpose is to protect the health and safety of
workers, both generally and within the pipeline industry. In
addition, the OSHA hazard communication standard, the EPA
community right-to-know regulations under Title III of the
federal Superfund Amendment and Reauthorization Act and
comparable state statutes require that information be maintained
concerning hazardous materials used or produced in our
operations and that this information be provided to employees,
state and local government authorities and citizens. We and the
entities in which we own an interest are also subject to OSHA
Process Safety Management regulations, which are designed to
prevent or minimize the consequences of catastrophic releases of
toxic, reactive, flammable or explosive chemicals. These
regulations apply to any process which involves a chemical at or
above the specified thresholds or any process which involves
flammable liquid or gas, pressurized tanks, caverns and wells in
excess of 10,000 pounds at various locations. Flammable liquids
stored in atmospheric tanks below their normal boiling point
without the benefit of chilling or refrigeration are exempt. We
have an internal program of inspection designed to monitor and
enforce compliance with worker safety requirements. We believe
that we are in material compliance with all applicable laws and
regulations relating to worker health and safety.
Regulation of Operations
Regulation of pipeline gathering and transportation services,
natural gas sales and transportation of NGLs may affect certain
aspects of our business and the market for our products and
services.
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Intrastate Natural Gas Pipeline Regulation |
Intrastate natural gas pipeline operations are not generally
subject to rate regulation by FERC, but they are subject to
regulation by various agencies in the respective states where
they are located. However, to the extent that an intrastate
pipeline system transports natural gas in interstate commerce,
the rates, terms and conditions of such transportation service
are subject to FERC jurisdiction under Section 311 of the
NGPA. Under Section 311, intrastate pipelines providing
interstate service may avoid jurisdiction that would otherwise
apply under the Natural Gas Act. Section 311 regulates,
among other things, the provision of transportation services by
an intrastate natural gas pipeline on behalf of a local
distribution company or an interstate natural gas pipeline.
Under Section 311, rates charged for transportation must be
fair and equitable, and amounts collected in excess of fair and
equitable rates are subject to refund with interest.
Additionally, the terms and conditions of service set forth in
the intrastate pipelines Statement of Operating Conditions
are subject to FERC approval. Failure to observe the service
limitations applicable to transportation services provided under
Section 311, failure to comply with the rates approved by
FERC for Section 311 service, and failure to comply with
the terms and conditions of service established in the
pipelines FERC-approved Statement of Operating Conditions
could result in the assertion of federal Natural Gas Act
jurisdiction by FERC and/or the imposition of administrative,
civil and criminal penalties. The PELICO system is subject to
FERC jurisdiction under Section 311 of the NGPA. The
maximum rate that the PELICO system may currently charge is
$0.1965 per MMBtu. Pursuant to a FERC order, the PELICO
system is required to file a new Section 311 rate case with
FERC in 2006 at which time the PELICO systems rates, terms
and conditions of service may be subject to change, which we do
not expect to have a material adverse effect on our business.
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Gathering Pipeline Regulation |
Section 1(b) of the Natural Gas Act exempts natural gas
gathering facilities from the jurisdiction of FERC under the
Natural Gas Act. We believe that the natural gas pipelines in
our North Louisiana system meet the traditional tests FERC has
used to establish a pipelines status as a gatherer not
subject to FERC jurisdiction. However, the distinction between
FERC-regulated transmission services and federally unregulated
gathering services is the subject of substantial, on-going
litigation, so the classification and regulation of our
gathering facilities are subject to change based on future
determinations by FERC and the courts. State regulation of
gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take
requirements, and in some instances complaint-based rate
regulation.
Louisianas Pipeline Operations Section of the Department
of Natural Resources Office of Conservation is generally
responsible for regulating intrastate pipelines and gathering
facilities in Louisiana, and has authority to review and
authorize natural gas transportation transactions, and the
construction, acquisition, abandonment and interconnection of
physical facilities. Historically, apart from pipeline safety,
it has not acted to exercise this jurisdiction respecting
gathering facilities.
Our purchasing, gathering and intrastate transportation
operations are subject to Louisiana and Arkansas ratable take
and common purchaser statutes. The ratable take statutes
generally require gatherers to take, without undue
discrimination, natural gas production that may be tendered to
the gatherer for handling. Similarly, common purchaser statutes
generally require gatherers to purchase without undue
discrimination as to source of supply or producer. These
statutes are designed to prohibit discrimination in favor of one
producer over another producer or one source of supply over
another source of supply. These statutes have the effect of
restricting our right as an owner of gathering facilities to
decide with whom we contract to purchase or transport natural
gas.
Natural gas gathering may receive greater regulatory scrutiny at
both the state and federal levels now that FERC has taken a more
light-handed approach to regulation of the gathering activities
of interstate pipeline transmission companies and a number of
such companies have transferred gathering facilities to
unregulated affiliates. Many of the producing states have
adopted some form of complaint-based regulation that generally
allows natural gas producers and shippers to file complaints
with state regulators in an effort to resolve grievances
relating to natural gas gathering access and rate
discrimination. Our gathering operations could be
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adversely affected should they be subject in the future to the
application of state or federal regulation of rates and
services. Our gathering operations also may be or become subject
to safety and operational regulations relating to the design,
installation, testing, construction, operation, replacement and
management of gathering facilities. Additional rules and
legislation pertaining to these matters are considered or
adopted from time to time. We cannot predict what effect, if
any, such changes might have on our operations, but the industry
could be required to incur additional capital expenditures and
increased costs depending on future legislative and regulatory
changes.
The price at which we buy and sell natural gas currently is not
subject to federal regulation and, for the most part, is not
subject to state regulation. Our sales of natural gas are
affected by the availability, terms and cost of pipeline
transportation. As noted above, the price and terms of access to
pipeline transportation are subject to extensive federal and
state regulation. The FERC is continually proposing and
implementing new rules and regulations affecting those segments
of the natural gas industry, most notably interstate natural gas
transmission companies that remain subject to the FERCs
jurisdiction. These initiatives also may affect the intrastate
transportation of natural gas under certain circumstances. The
stated purpose of many of these regulatory changes is to promote
competition among the various sectors of the natural gas
industry, and these initiatives generally reflect more
light-handed regulation. We cannot predict the ultimate impact
of these regulatory changes to our natural gas marketing
operations, and we note that some of the FERCs more recent
proposals may adversely affect the availability and reliability
of interruptible transportation service on interstate pipelines.
We do not believe that we will be affected by any such FERC
action materially differently than other natural gas marketers
with whom we compete.
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Interstate NGL Pipeline Regulation |
The Black Lake pipeline is an interstate NGL pipeline subject to
FERC regulation. The FERC regulates interstate Natural Gas
Liquid pipelines under its Oil Pipeline Regulations, the
Interstate Commerce Act (ICA) and the Elkins Act. FERC requires
that interstate NGL pipelines file tariff publications that
contain all the rules and regulations governing the rates and
charges for services performed. These tariffs apply to the
interstate movement of NGLs. Pursuant to the ICA, rates can be
challenged at FERC either by protest when they are initially
filed or increased, or by complaint at any time they remain on
file with the jurisdictional agency. If the origin point and
destination point are in different states then a tariff for that
movement is required to be on file with FERC. Intrastate
movements where the origin and destination point are in the same
state are subject to applicable state regulation.
Environmental Matters
Our operation of pipelines, plants and other facilities for
gathering, transporting, processing or storing natural gas, NGLs
and other products is subject to stringent and complex federal,
state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to the
protection of the environment.
As an owner or operator of these facilities, we must comply with
these laws and regulations at the federal, state and local
levels. These laws and regulations can restrict or impact our
business activities in many ways, such as:
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restricting the way we can handle or dispose of our wastes; |
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limiting or prohibiting construction activities in sensitive
areas such as wetlands, coastal regions or areas inhabited by
endangered species; |
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requiring remedial action to mitigate pollution conditions
caused by our operations or attributable to former
operations; and |
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enjoining the operations of facilities deemed in non-compliance
with permits issued pursuant to such environmental laws and
regulations. |
Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of remedial requirements and the issuance of orders
enjoining future operations. Certain environmental statutes
impose strict joint and several liability for costs required to
clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, it is not uncommon for
neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the
release of substances or other waste products into the
environment.
The trend in environmental regulation is to place more
restrictions and limitations on activities that may affect the
environment, and thus there can be no assurance as to the amount
or timing of future expenditures for environmental compliance or
remediation, and actual future expenditures may be different
from the amounts we currently anticipate. We try to anticipate
future regulatory requirements that might be imposed and plan
accordingly to remain in compliance with changing environmental
laws and regulations and to minimize the costs of such
compliance. We also actively participate in industry groups that
help formulate recommendations for addressing existing or future
regulations.
We do not believe that compliance with federal, state or local
environmental laws and regulations will have a material adverse
effect on our business, financial position or results of
operations. In addition, we believe that the various
environmental activities in which we are presently engaged are
not expected to materially interrupt or diminish our operational
ability to gather, compress, treat, fractionate and process
natural gas. We cannot assure you, however, that future events,
such as changes in existing laws, the promulgation of new laws,
or the development or discovery of new facts or conditions will
cause us to incur significant costs. Below is a discussion of
the material environmental laws and regulations that relate to
our business. We believe that we are in substantial compliance
with all of these environmental laws and regulations.
We or the entities in which we own an interest inspect the
pipelines regularly using equipment rented from third-party
suppliers. Third parties also assist us in interpreting the
results of the inspections.
Duke Energy Field Services has agreed to indemnify us in an
aggregate amount not to exceed $15.0 million for
three years after the closing of this offering for
environmental noncompliance and remediation liabilities
associated with the assets transferred to us and occurring or
existing before the closing date.
Our operations are subject to the federal Clean Air Act and
comparable state laws and regulations. These laws and
regulations regulate emissions of air pollutants from various
industrial sources, including our processing plants and
compressor stations, and also impose various monitoring and
reporting requirements. Such laws and regulations may require
that we obtain pre-approval for the construction or modification
of certain projects or facilities expected to produce or
significantly increase air emissions, obtain and strictly comply
with air permits containing various emissions and operational
limitations, and utilize specific emission control technologies
to limit emissions. Our failure to comply with these
requirements could subject us to monetary penalties,
injunctions, conditions or restrictions on operations, and
potentially criminal enforcement actions. We believe that we are
in substantial compliance with these requirements. We may be
required to incur certain capital expenditures in the future for
air pollution control equipment in connection with obtaining and
maintaining operating permits and approvals for air emissions.
We believe, however, that our operations will not be materially
adversely affected by such requirements, and the requirements
are not expected to be any more burdensome to us than to any
other similarly situated companies.
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Hazardous Substances and Waste |
Our operations are subject to environmental laws and regulations
relating to the management and release of hazardous substances
or solid wastes (including petroleum hydrocarbons). These laws
generally regulate the generation, storage, treatment,
transportation and disposal of solid and hazardous waste, and
may impose strict, joint and several liability for the
investigation and remediation of areas, at a facility where
hazardous substances may have been released or disposed. For
instance, the Comprehensive Environmental Response,
Compensation, and Liability Act, referred to as CERCLA or the
Superfund law, and comparable state laws impose liability,
without regard to fault or the legality of the original conduct,
on certain classes of persons that contributed to the release of
a hazardous substance into the environment. These
persons include current and prior owners or operators of the
site where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances found at
the site. Under CERCLA, these persons may be subject to joint
and several strict liability for the costs of cleaning up the
hazardous substances that have been released into the
environment, for damages to natural resources and for the costs
of certain health studies. CERCLA also authorizes the EPA and,
in some instances, third parties to act in response to threats
to the public health or the environment and to seek to recover
from the responsible classes of persons the costs they incur. It
is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage
allegedly caused by hazardous substances or other pollutants
released into the environment. Despite the petroleum
exclusion of CERCLA Section 101(14) that currently
encompasses natural gas, we may nonetheless handle
hazardous substances within the meaning of CERCLA,
or similar state statutes, in the course of our ordinary
operations and, as a result, may be jointly and severally liable
under CERCLA for all or part of the costs required to clean up
sites at which these hazardous substances have been released
into the environment.
We also generate solid wastes, including hazardous wastes, that
are subject to the requirements of the Resource Conservation and
Recovery Act, referred to as RCRA, and comparable state
statutes. While RCRA regulates both solid and hazardous wastes,
it imposes strict requirements on the generation, storage,
treatment, transportation and disposal of hazardous wastes.
Certain petroleum production wastes are excluded from
RCRAs hazardous waste regulations. However, it is possible
that these wastes, which could include wastes currently
generated during our operations, will in the future be
designated as hazardous wastes and therefore be
subject to more rigorous and costly disposal requirements. Any
such changes in the laws and regulations could have a material
adverse effect on our maintenance capital expenditures and
operating expenses.
We currently own or lease, and our predecessor has in the past
owned or leased, properties where hydrocarbons are being or have
been handled for many years. Although we have utilized operating
and disposal practices that were standard in the industry at the
time, hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by us or on
or under the other locations where these hydrocarbons and wastes
have been taken for treatment or disposal. In addition, certain
of these properties have been operated by third parties whose
treatment and disposal or release of hydrocarbons or other
wastes was not under our control. These properties and wastes
disposed thereon may be subject to CERCLA, RCRA and analogous
state laws. Under these laws, we could be required to remove or
remediate previously disposed wastes (including wastes disposed
of or released by prior owners or operators), to clean up
contaminated property (including contaminated groundwater) or to
perform remedial operations to prevent future contamination. We
are not currently aware of any facts, events or conditions
relating to such requirements that could reasonably have a
material impact on our operations or financial condition.
The Federal Water Pollution Control Act of 1972, also referred
to as the Clean Water Act, or CWA, and analogous state laws
impose restrictions and strict controls regarding the discharge
of pollutants into navigable waters. Pursuant to the CWA and
analogous state laws, permits must be obtained to discharge
pollutants into state and federal waters. The CWA imposes
substantial potential civil and criminal penalties for
non-compliance. State laws for the control of water pollution
also provide varying civil and criminal penalties and
liabilities. In addition, some states maintain groundwater
protection programs that require permits for
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discharges or operations that may impact groundwater conditions.
The EPA has promulgated regulations that require us to have
permits in order to discharge certain storm water run-off. The
EPA has entered into agreements with certain states in which we
operate whereby the permits are issued and administered by the
respective states. These permits may require us to monitor and
sample the storm water run-off. We believe that compliance with
existing permits and compliance with foreseeable new permit
requirements will not have a material adverse effect on our
financial condition or results of operations.
Title to Properties and Rights-of-Way
Our real property falls into two categories: (1) parcels
that we own in fee and (2) parcels in which our interest
derives from leases, easements, rights-of-way, permits or
licenses from landowners or governmental authorities permitting
the use of such land for our operations. Portions of the land on
which our plants and other major facilities are located are
owned by us in fee title, and we believe that we have
satisfactory title to these lands. The remainder of the land on
which our plant sites and major facilities are located are held
by us pursuant to ground leases between us, as lessee, and the
fee owner of the lands, as lessors. We, or our predecessors,
have leased these lands for many years without any material
challenge known to us relating to the title to the land upon
which the assets are located, and we believe that we have
satisfactory leasehold estates to such lands. We have no
knowledge of any challenge to the underlying fee title of any
material lease, easement, right-of-way, permit or license held
by us or to our title to any material lease, easement,
right-of-way, permit or lease, and we believe that we have
satisfactory title to all of our material leases, easements,
rights-of-way, permits and licenses.
Some of the leases, easements, rights-of-way, permits and
licenses to be transferred to us require the consent of the
grantor of such rights, which in certain instances is a
governmental entity. Our general partner expects to obtain,
prior to the closing of this offering, sufficient third-party
consents, permits and authorizations for the transfer of the
assets necessary to enable us to operate our business in all
material respects as described in this prospectus. With respect
to any material consents, permits or authorizations that have
not been obtained prior to closing of this offering, the closing
of this offering will not occur unless reasonable basis exist
that permit our general partner to conclude that such consents,
permits or authorizations will be obtained within a reasonable
period following the closing, or the failure to obtain such
consents, permits or authorizations will have no material
adverse effect on the operation of our business.
Duke Energy Field Services or its affiliates initially may
continue to hold record title to portions of certain assets
until we make the appropriate filings in the jurisdictions in
which such assets are located and obtain any consents and
approvals that are not obtained prior to transfer. Such consents
and approvals would include those required by federal and state
agencies or political subdivisions. In some cases, Duke Energy
Field Services or its affiliates may, where required consents or
approvals have not been obtained, temporarily hold record title
to property as nominee for our benefit and in other cases may,
on the basis of expense and difficulty associated with the
conveyance of title, cause its affiliates to retain title, as
nominee for our benefit, until a future date. We anticipate that
there will be no material change in the tax treatment of our
common units resulting from the holding by Duke Energy Field
Services or its affiliates of title to any part of such assets
subject to future conveyance or as our nominee.
Employees
To carry out our operations, DCP Midstream GP, LLC or its
affiliates expect to employ approximately 65 people who
provide direct support for our operations. None of these
employees are covered by collective bargaining agreements. Our
general partner considers its employee relations to be good.
Legal Proceedings
We are not a party to any legal proceeding but are a party to
various administrative and regulatory proceedings that have
arisen in the ordinary course of our business. Please read
Regulation of Operations Intrastate
Natural Gas Pipeline Regulation and
Environmental Matters.
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MANAGEMENT
Management of DCP Midstream Partners, LP
Because our general partner is a limited partnership, its
general partner, DCP Midstream GP, LLC, will manage our
operations and activities. Our general partner is not elected by
our unitholders and will not be subject to re-election on a
regular basis in the future. Unitholders will not be entitled to
elect the directors of DCP Midstream GP, LLC or directly or
indirectly participate in our management or operation. Our
general partner owes a fiduciary duty to our unitholders. Our
general partner will be liable, as general partner, for all of
our debts (to the extent not paid from our assets), except for
indebtedness or other obligations that are made expressly
nonrecourse to it. Our general partner therefore may cause us to
incur indebtedness or other obligations that are nonrecourse to
it.
The directors of DCP Midstream GP, LLC will oversee our
operations. Duke Energy Field Services will elect all ten
members to the board of directors of DCP Midstream GP, LLC with
four directors being independent as defined under the
independence standards established by the New York Stock
Exchange. The New York Stock Exchange does not require a listed
limited partnership like us to have a majority of independent
directors on the board of directors of our general partner or to
establish a nominating and governance committee.
In compliance with the requirements of the New York Stock
Exchange, the members of the board of directors of DCP Midstream
GP, LLC will appoint Paul F. Ferguson, Jr. as an independent
member to the board upon the closing of this offering, a second
independent member within 90 days of the effective date of
the registration statement of which this prospectus is a part
and a third independent member within 12 months of the
effective date of the registration statement. The independent
members of the board of directors of DCP Midstream GP, LLC will
serve as the initial members of the conflicts and audit
committees of the board of directors of DCP Midstream GP, LLC.
Pursuant to the terms of the limited partnership agreement of
DCP Midstream GP, LP and the limited liability company agreement
of DCP Midstream GP, LLC, neither our general partner nor the
general partner of our general partner will be permitted to
cause us, without the prior written approval of Duke Energy
Field Services, to:
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sell all or substantially all of our assets, |
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merge or consolidate, |
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dissolve or liquidate, |
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make or consent to a general assignment for the benefit of
creditors, |
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file or consent to the filing of any bankruptcy, insolvency or
reorganization petition for relief under the United States
Bankruptcy Code or otherwise such relief from debtor or
protection from creditors, or |
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take various actions similar to the foregoing. |
At least two members of the board of directors of DCP Midstream
GP, LLC will serve on a conflicts committee to review specific
matters that the board believes may involve conflicts of
interest. The conflicts committee will determine if the
resolution of the conflict of interest is fair and reasonable to
us. The members of the conflicts committee may not be officers
or employees of our general partner or directors, officers, or
employees of its affiliates, and must meet the independence and
experience standards established by the New York Stock Exchange
and the Securities Exchange Act of 1934, as amended, to serve on
an audit committee of a board of directors, and certain other
requirements. Any matters approved by the conflicts committee
will be conclusively deemed to be fair and reasonable to us,
approved by all of our partners, and not a breach by our general
partner of any duties it may owe us or our unitholders.
In addition, DCP Midstream GP, LLC will have an audit committee
of at least three directors who meet the independence and
experience standards established by the New York Stock Exchange
and the Securities
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Exchange Act of 1934, as amended. The audit committee will
assist the board of directors in its oversight of the integrity
of our financial statements and our compliance with legal and
regulatory requirements and corporate policies and controls. The
audit committee will have the sole authority to retain and
terminate our independent registered public accounting firm,
approve all auditing services and related fees and the terms
thereof, and pre-approve any non-audit services to be rendered
by our independent registered public accounting firm. The audit
committee will also be responsible for confirming the
independence and objectivity of our independent registered
public accounting firm. Our independent registered public
accounting firm will be given unrestricted access to the audit
committee. DCP Midstream GP, LLC will also have a
compensation committee, which will, among other things, oversee
the compensation plans described below.
All of our executive management personnel will be employees of
our general partner and will devote all of their time to our
business and affairs. The officers of DCP Midstream GP, LLC will
manage the day-to-day affairs of our business. We will also
utilize a significant number of employees of Duke Energy Field
Services to operate our business and provide us with general and
administrative services. We will reimburse Duke Energy Field
Services for allocated expenses of operational personnel who
perform services for our benefit and we will reimburse Duke
Energy Field Services for allocated general and administrative
expenses. Please read Reimbursement of
Expenses of Our General Partner.
Directors and Executive Officers
The following table shows information regarding the current
director, director nominees and executive officers of DCP
Midstream GP, LLC. Directors are elected for one-year terms.
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Position with DCP Midstream GP, LLC | |
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Jim W. Mogg
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56 |
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Chairman of the Board |
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Michael J. Bradley
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51 |
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President, Chief Executive Officer and Director Nominee |
Thomas E. Long
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48 |
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Vice President and Chief Financial Officer |
Michael S. Richards
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45 |
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Vice President, General Counsel and Secretary |
Greg K. Smith
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39 |
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Vice President, Business Development |
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William H. Easter III
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55 |
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Director Nominee |
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Paul F. Ferguson, Jr.
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56 |
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Director Nominee |
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John E. Lowe
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46 |
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Director Nominee |
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Our directors hold office until the earlier of their death,
resignation, removal or disqualification or until their
successors have been elected and qualified. Officers serve at
the discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.
Jim W. Mogg was elected Chairman of the Board of DCP
Midstream GP LLC in August 2005. Mr. Mogg is Group Vice
President and Chief Development Officer of Duke Energy.
Mr. Mogg assumed his current position in January 2004. He
previously served as President and Chief Executive Officer of
Duke Energy Field Services from December 1994 and Chairman,
President and Chief Executive Officer of Duke Energy Field
Services from 1999 through December 2003. In these capacities,
Mr. Mogg was significantly involved in the development and
growth of Duke Energy Field Services. From October 1997 until
March 2005, Mr. Mogg also served as a director of the
general partner of TEPPCO Partners, L.P. Mr. Mogg was
appointed Chairman of the Compensation committee of the general
partner of TEPPCO Partners, L.P. in April 2000 and Chairman of
the Board in May 2002.
Michael J. Bradley was elected President and Chief
Executive Officer of DCP Midstream GP, LLC in August 2005.
Mr. Bradley has been Group Vice President, Gathering and
Processing of Duke Energy Field Services since July 2004. From
April 2002 until July 2004, Mr. Bradley was Executive Vice
President, Gathering and Processing of Duke Energy Field
Services. From 1999 until April 2002, Mr. Bradley was
119
Senior Vice President, Northern Division of Duke Energy Field
Services. Mr. Bradley joined Duke Energy Field Services in
1994 and served as Senior Vice President. In these capacities,
Mr. Bradley was significantly involved in the development
and growth of Duke Energy Field Services. From February 2003
until March 2005, Mr. Bradley also served as a director of
the general partner of TEPPCO Partners, L.P.
Thomas E. Long was elected Vice President and Chief
Financial Officer of DCP Midstream GP, LLC in September 2005.
Mr. Long has been Vice President of National Methanol
Company, Duke Energys international chemical joint venture
since December 2004. From April 2002 until December 2004,
Mr. Long served as Vice President and Treasurer of Duke
Energy Field Services. From April 1, 2000 until April 2002,
Mr. Long served as Vice President, Investor Relations of
Duke Energy Field Services. Mr. Long joined Duke Energy in
1979 and served in a variety of positions in accounting,
finance, tax, investor relations and business development.
Michael S. Richards was elected Vice President, General
Counsel and Secretary of DCP Midstream GP, LLC in September
2005. Mr. Richards has been Assistant General Counsel and
Assistant Secretary of Duke Energy Field Services since February
2000. He was previously Assistant General Counsel and Assistant
Secretary at KN Energy, Inc. from December 1997 until he joined
Duke Energy Field Services. Prior to that, he was Senior Counsel
and Risk Manager at Total Petroleum (North America) Ltd. from
1994 through 1997. Mr. Richards was previously in private
practice where he focused on securities and corporate finance.
Greg K. Smith was elected Vice President, Business
Development of DCP Midstream GP, LLC in September 2005.
Mr. Smith has been Vice President, Corporate Development of
Duke Energy Field Services since June 2002. From July 1996 until
June 2002, Mr. Smith held several positions at Duke Energy
Field Services, including Commercial Director and Senior
Attorney. Mr. Smith was previously an attorney with El Paso
Natural Gas from 1992 until July 1996.
William H. Easter III is Chairman of the Board, President
and Chief Executive Officer of Duke Energy Field Services. Prior
to joining Duke Energy Field Services in January 2004,
Mr. Easter served as Vice President of State Government
Affairs for ConocoPhillips from 2002 through 2003. From 1998 to
2002, Mr. Easter served as General Manager of the Gulf
Coast business unit for Conoco Inc. and from 1992 to 1998 he
served as Managing Director and Chief Executive Officer of
Conoco Jet Nordic in Stockholm, Sweden. From March 2004 until
March 2005, Mr. Easter served as a director of the general
partner of TEPPCO Partners, L.P.
Paul F. Ferguson, Jr. was a director of the general
partner of TEPPCO Partners, L.P. from October 2004 until his
resignation in 2005. Mr. Ferguson was a member of the
Compensation, Audit and Special Committees of the general
partner of TEPPCO Partners, L.P. He was elected Chairman of the
Audit Committee in October 2004. He served as Senior Vice
President and Treasurer of Duke Energy from June 1997 to June
1998, when he retired. Mr. Ferguson served as Senior Vice
President and Chief Financial Officer of PanEnergy Corp. from
September 1995 to June 1997. He held various other financial
positions with PanEnergy Corp. from 1989 to 1995 and served as
Treasurer of Texas Eastern Corporation from 1988 to 1989.
John E. Lowe is Executive Vice President, Planning,
Strategy and Corporate Affairs of ConocoPhillips. He has
responsibility for planning and strategic transactions, emerging
businesses, government affairs and communications. Mr. Lowe
previously served as Senior Vice President, Corporate Strategy
and Development and was responsible for the forward strategy,
development opportunities and public relations functions of
Phillips Petroleum Company. He was named to this position in
2001 after serving as Senior Vice President of Planning and
Strategic transactions in 2000 and Vice President of Planning
and Strategic Transactions in 1999. Lowe currently serves on the
board of directors for Chevron Phillips Chemical Company, Duke
Energy Field Services, the Houston Museum of Natural Science and
the National Association of Manufacturers. He is a certified
public accountant.
120
Reimbursement of Expenses of Our General Partner
Our general partner will not receive any management fee or other
compensation for its management of our partnership. Under the
terms of the omnibus agreement, we will reimburse Duke Energy
Field Services for the payment of certain operating expenses and
for the provision of various general and administrative services
for our benefit with respect to the assets contributed to us at
the closing of this offering. The omnibus agreement will further
provide that we will reimburse Duke Energy Field Services for
our allocable portion of the premiums on insurance policies
covering our assets.
Executive Compensation
Our general partner and DCP Midstream GP, LLC were formed in
August 2005. Accordingly, DCP Midstream GP, LLC has not accrued
any obligations with respect to management incentive or
retirement benefits for its directors and officers for the 2004
or 2005 fiscal years. It is the current intention that DCP
Midstream GP, LLC will initially have ten employees including
the Chief Executive Officer, the Chief Financial Officer, the
general counsel, a senior business development executive and
support staff. The compensation of the executive officers of DCP
Midstream GP, LLC will be set by the compensation committee of
DCP Midstream GP, LLCs board of directors. The officers
and employees of DCP Midstream GP, LLC may participate in
employee benefit plans and arrangements sponsored by Duke Energy
Field Services. DCP Midstream GP, LLC has not entered into any
employment agreements with any of its officers. We anticipate
that the board of directors will grant awards to our key
employees and our outside directors pursuant to the Long-Term
Incentive Plan described below following the closing of this
offering; however, the board has not yet made any determination
as to the number of awards, the type of awards or when the
awards would be granted.
Compensation of Directors
Officers or employees of DCP Midstream GP, LLC or its affiliates
who also serve as directors will not receive additional
compensation for their service as a director of DCP Midstream
GP, LLC. Our general partner anticipates that directors who are
not officers or employees of DCP Midstream GP, LLC or its
affiliates will receive compensation for attending meetings of
the board of directors and committee meetings. The amount of
such compensation has not yet been determined. In addition, each
non-employee director will be reimbursed for his out-of-pocket
expenses in connection with attending meetings of the board of
directors or committees. Each director will be fully indemnified
by us for his actions associated with being a director to the
fullest extent permitted under Delaware law.
Long-Term Incentive Plan
General. DCP Midstream GP, LLC intends to adopt a
Long-Term Incentive Plan, or the Plan, for employees,
consultants and directors of DCP Midstream GP, LLC and its
affiliates who perform services for us. The summary of the Plan
contained herein does not purport to be complete and is
qualified in its entirety by reference to the Plan. The Plan
provides for the grant of restricted units, phantom units, unit
options and substitute awards and, with respect to unit options
and phantom units, the grant of distribution equivalent rights,
or DERs. Subject to adjustment for certain events, an aggregate
of 850,000 common units may be delivered pursuant to awards
under the Plan. Units that are cancelled, forfeited or are
withheld to satisfy DCP Midstream GP, LLCs tax withholding
obligations are available for delivery pursuant to other awards.
The Plan will be administered by the compensation committee of
DCP Midstream GP, LLCs board of directors.
Restricted Units and Phantom Units. A restricted
unit is a common unit that is subject to forfeiture. Upon
vesting, the grantee receives a common unit that is not subject
to forfeiture. A phantom unit is a notional unit that entitles
the grantee to receive a common unit upon the vesting of the
phantom unit or, in the discretion of the compensation
committee, cash equal to the fair market value of a common unit.
The compensation committee may make grants of restricted units
and phantom units under the Plan to eligible individuals
containing such terms, consistent with the Plan, as the
compensation committee may determine, including the period over
which restricted units and phantom units granted will vest. The
compensation
121
committee may, in its discretion, base vesting on the
grantees completion of a period of service or upon the
achievement of specified financial objectives or other criteria.
In addition, the restricted and phantom units will vest
automatically upon a change of control (as defined in the Plan)
of us or DCP Midstream GP, LLC, subject to any contrary
provisions in the award agreement.
If a grantees employment, consulting or membership on the
board terminates for any reason, the grantees restricted
units and phantom units will be automatically forfeited unless,
and to the extent, the award agreement or the compensation
committee provides otherwise. Common units to be delivered with
respect to these awards may be common units acquired by DCP
Midstream GP, LLC in the open market, common units already owned
by DCP Midstream GP, LLC, common units acquired by DCP Midstream
GP, LLC directly from us or any other person, or any combination
of the foregoing. DCP Midstream GP, LLC will be entitled to
reimbursement by us for the cost incurred in acquiring common
units. If we issue new common units with respect to these
awards, the total number of common units outstanding will
increase.
Distributions made by us with respect to awards of restricted
units may, in the compensation committees discretion, be
subject to the same vesting requirements as the restricted
units. The compensation committee, in its discretion, may also
grant tandem DERs with respect to phantom units on such terms as
it deems appropriate. DERs are rights that entitle the grantee
to receive, with respect to a phantom unit, cash equal to the
cash distributions made by us on a common unit.
We intend for the restricted units and phantom units granted
under the Plan to serve as a means of incentive compensation for
performance and not primarily as an opportunity to participate
in the equity appreciation of the common units. Therefore,
participants will not pay any consideration for the common units
they receive with respect to these types of awards, and neither
we nor our general partner will receive remuneration for the
units delivered with respect to these awards.
Unit Options. The Plan also permits the grant of
options covering common units. Unit options may be granted to
such eligible individuals and with such terms as the
compensation committee may determine, consistent with the Plan;
however, a unit option must have an exercise price equal to the
fair market value of a common unit on the date of grant.
Upon exercise of a unit option, DCP Midstream GP, LLC will
acquire common units in the open market at a price equal to the
prevailing price on the principal national securities exchange
upon which the common units are then traded, or directly from us
or any other person, or use common units already owned by the
general partner, or any combination of the foregoing. DCP
Midstream GP, LLC will be entitled to reimbursement by us for
the difference between the cost incurred by DCP Midstream GP,
LLC in acquiring the common units and the proceeds received by
DCP Midstream GP, LLC from an optionee at the time of exercise.
Thus, we will bear the cost of the unit options. If we issue new
common units upon exercise of the unit options, the total number
of common units outstanding will increase, and DCP Midstream GP,
LLC will remit the proceeds it received from the optionee upon
exercise of the unit option to us. The unit option plan has been
designed to furnish additional compensation to employees,
consultants and directors and to align their economic interests
with those of common unitholders.
Substitution Awards. The compensation committee,
in its discretion, may grant substitute or replacement awards to
eligible individuals who, in connection with an acquisition made
by us, DCP Midstream GP, LLC or an affiliate, have forfeited an
equity-based award in their former employer. A substitute award
that is an option may have an exercise price less than the value
of a common unit on the date of grant of the award.
122
Termination of Long-Term Incentive Plan. DCP
Midstream GP, LLCs board of directors, in its discretion,
may terminate the Plan at any time with respect to the common
units for which a grant has not theretofore been made. The Plan
will automatically terminate on the earlier of the 10th
anniversary of the date it was initially approved by our
unitholders or when common units are no longer available for
delivery pursuant to awards under the Plan. DCP Midstream GP,
LLCs board of directors will also have the right to alter
or amend the Plan or any part of it from time to time and the
Committee may amend any award; provided, however, that no change
in any outstanding award may be made that would materially
impair the rights of the participant without the consent of the
affected participant. Subject to unitholder approval, if
required by the rules of the principal national securities
exchange upon which the common units are traded, the board of
directors of DCP Midstream GP, LLC may increase the number of
common units that may be delivered with respect to awards under
the Plan.
123
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of our
units that will be issued upon the consummation of this offering
and the related transactions and held by:
|
|
|
|
|
each person who then will beneficially own 5% or more of the
then outstanding units; |
|
|
|
|
all of the directors and director nominees of DCP Midstream GP,
LLC; |
|
|
|
|
each named executive officer of DCP Midstream GP, LLC; and |
|
|
|
|
all directors, director nominees and officers of DCP Midstream
GP, LLC as a group. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of | |
|
|
|
|
|
|
|
|
|
|
Total Common | |
|
|
|
|
|
|
|
|
Percentage of | |
|
and | |
|
|
Common Units | |
|
Percentage of | |
|
Subordinated | |
|
Subordinated | |
|
Subordinated | |
|
|
to be | |
|
Common Units to | |
|
Units to be | |
|
Units to be | |
|
Units to be | |
|
|
Beneficially | |
|
be Beneficially | |
|
Beneficially | |
|
Beneficially | |
|
Beneficially | |
Name of Beneficial Owner(1) |
|
Owned | |
|
Owned | |
|
Owned | |
|
Owned | |
|
Owned | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
DCP LP Holdings, LP
|
|
|
1,357,143 |
|
|
|
13.1 |
% |
|
|
7,142,857 |
|
|
|
100 |
% |
|
|
48.6 |
% |
Jim W. Mogg
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
Michael J. Bradley
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
Thomas E. Long
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
Michael S. Richards
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
Greg K. Smith
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
William H. Easter III
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
Paul F. Ferguson, Jr.
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
John E. Lowe
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
All directors, director nominees and executive officers as a
group (8 persons)
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
(1) |
The address for all beneficial owners in this table is
370 17th Street, Suite 2775, Denver, Colorado 80202. |
124
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
After this offering, our general partner and its affiliates will
own 1,357,143 common units and 7,142,857 subordinated units
representing an aggregate 47.6% limited partner interest in us.
In addition, our general partner will own a 2% general partner
interest in us and the incentive distribution rights.
Distributions and Payments to Our General Partner and its
Affiliates
The following table summarizes the distributions and payments to
be made by us to our general partner and its affiliates in
connection with the formation, ongoing operation and any
liquidation of DCP Midstream Partners, LP. These distributions
and payments were determined by and among affiliated entities
and, consequently, are not the result of arms-length
negotiations.
Formation Stage
|
|
|
The consideration received by our general partner and its
affiliates for the contribution of the assets and liabilities
to us |
|
1,357,143 common units; |
|
|
|
7,142,857 subordinated units; |
|
|
|
357,143 general partner units; |
|
|
|
the incentive distribution rights; and |
|
|
|
|
$179.0 million cash payment from the proceeds
of the offering and borrowings under our credit facility. |
|
Operational Stage
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|
|
|
|
Distributions of available cash to our general partner and its
affiliates |
|
We will generally make cash distributions 98% to our unitholders
pro rata, including our general partner and its affiliates, as
the holders of an aggregate 1,357,143 common units and
7,142,857 subordinated units, and 2% to our general partner. In
addition, if distributions exceed the minimum quarterly
distribution and other higher target distribution levels, our
general partner will be entitled to increasing percentages of
the distributions, up to 50% of the distributions above the
highest target distribution level. |
|
|
|
Assuming we have sufficient available cash to pay the full
minimum quarterly distribution on all of our outstanding units
for four quarters, our general partner and its affiliates would
receive an annual distribution of approximately
$0.5 million on their general partner units and
$11.9 million on their common and subordinated units. |
|
|
Payments to our general partner and its affiliates |
|
We will reimburse Duke Energy Field Services and its affiliates
for the payment of certain operating expenses and for the
provision of various general and administrative services for our
benefit. For further information regarding the administrative
fee, please read Certain Relationship and Related Party
Transactions Omnibus Agreement
Reimbursement of Operating and General and Administrative
Expense beginning on page 127. |
|
125
|
|
|
|
Withdrawal or removal of our general partner |
|
If our general partner withdraws or is removed, its general
partner interest and its incentive distribution rights will
either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair
market value of those interests. Please read The
Partnership Agreement Withdrawal or Removal of the
General Partner beginning on page 146. |
|
Liquidation Stage
|
|
|
Liquidation |
|
Upon our liquidation, the partners, including our general
partner, will be entitled to receive liquidating distributions
according to their respective capital account balances. |
Agreements Governing the Transactions
We and other parties have entered into or will enter into the
various documents and agreements that will effect the offering
transactions, including the vesting of assets in, and the
assumption of liabilities by, us and our subsidiaries, and the
application of the proceeds of this offering. These agreements
will not be the result of arms-length negotiations, and
they, or any of the transactions that they provide for, may not
be effected on terms at least as favorable to the parties to
these agreements as they could have been obtained from
unaffiliated third parties. All of the transaction expenses
incurred in connection with these transactions, including the
expenses associated with transferring assets into our
subsidiaries, will be paid from the proceeds of this offering.
Omnibus Agreement
Upon the closing of this offering, we will enter into an omnibus
agreement with Duke Energy Field Services, our general partner
and others that will address the following matters:
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|
our obligation to reimburse Duke Energy Field Services the
payment of operating expenses, including salary and benefits of
operating personnel, it incurs on our behalf in connection with
our business and operations; |
|
|
|
|
our obligation to pay Duke Energy Field Services an annual
administrative fee for providing us general and administrative
services with respect to our business and operations, which is
fixed at $4.8 million, subject to an increase for 2007 and
2008 based on increases in the Consumer Price Index and subject
to further increases in connection with expansions of our
operations through the acquisition or construction of new assets
or businesses with the concurrence of our conflicts committee; |
|
|
|
|
|
our obligation to reimburse Duke Energy Field Services for
insurance coverage expenses it incurs with respect to our
business and operations and with respect to director and officer
liability coverage; |
|
|
|
|
|
Duke Energy Field Services obligation to indemnify us for
certain liabilities and our obligation to indemnify Duke Energy
Field Services for certain liabilities; |
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|
|
|
|
Duke Energy Field Services obligation to continue to
maintain its credit support, including without limitation
guarantees and letters of credit, for our obligations related to
derivative financial instruments, such as commodity price
hedging contracts, to the extent that such credit support
arrangements are in effect as of the closing of this offering
until the earlier to occur of the fifth anniversary of the
closing of this offering or such time as we obtain an investment
grade credit rating from either Moodys Investor Services,
Inc. or Standard & Poors Ratings Group with respect to
any of our unsecured indebtedness; and |
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|
|
Duke Energy Field Services obligation to continue to
maintain its credit support, including without limitation
guarantees and letters of credit, for our obligations related to
commercial contracts with |
|
126
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|
|
respect to our business or operations that are in effect at the
closing of this offering until the expiration of such contracts. |
The table below reflects the categories of expenses for which we
are obligated to reimburse Duke Energy Field Services pursuant
to the omnibus agreement, which includes an estimate of the
amounts for each category that we will pay to Duke Energy Field
Services for the twelve months ending December 31, 2006.
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|
Estimates for the | |
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|
Twelve Months | |
|
|
Ending | |
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|
December 31, 2006 | |
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| |
|
|
(In millions) | |
Reimbursement of operating expenses
|
|
$ |
15.5 |
|
Reimbursement of general and administrative expenses
|
|
|
5.6 |
|
Reimbursement of public company expenses
|
|
|
1.6 |
|
Reimbursement of compensation and benefits for executive
management of our general partner
|
|
|
2.4 |
|
|
|
|
|
|
Total
|
|
$ |
25.1 |
|
|
|
|
|
Our general partner and its affiliates will also receive
payments from us pursuant to the contractual arrangements
described below under the caption Contracts
with Affiliates.
Any or all of the provisions of the omnibus agreement, other
than the indemnification provisions described below, will be
terminable by Duke Energy Field Services at its option if our
general partner is removed without cause and units held by our
general partner and its affiliates are not voted in favor of
that removal. The omnibus agreement will also terminate in the
event of a change of control of us, our general partner or the
general partner of our general partner.
Reimbursement of Operating
and General and Administrative Expense
Under the omnibus agreement we reimburse Duke Energy Field
Services for the payment of certain operating expenses and for
the provision of various general and administrative services for
our benefit with respect to the assets contributed to us at the
closing of this offering. The omnibus agreement will further
provide that we will reimburse Duke Energy Field Services for
our allocable portion of the premiums on insurance policies
covering our assets.
Pursuant to these arrangements, Duke Energy Field Services will
perform centralized corporate functions for us, such as legal,
accounting, treasury, insurance administration and claims
processing, risk management, health, safety and environmental,
information technology, human resources, credit, payroll,
internal audit, taxes and engineering. We will reimburse Duke
Energy Field Services for the direct expenses to provide these
services as well as other direct expenses it incurs on our
behalf, such as salaries of operational personnel performing
services for our benefit and the cost of their employee
benefits, including 401(k), pension and health insurance
benefits.
Competition
None of Duke Energy Field Services nor any of its affiliates,
including Duke Energy and ConocoPhillips, will be restricted,
under either our partnership agreement or the omnibus agreement,
from competing with us. Duke Energy Field Services and any of
its affiliates, including Duke Energy and ConocoPhillips, may
acquire, construct or dispose of additional midstream energy or
other assets in the future without any obligation to offer us
the opportunity to purchase or construct those assets.
Indemnification
Under the omnibus agreement, Duke Energy Field Services will
indemnify us for three years after the closing of this offering
against certain potential environmental claims, losses and
expenses associated with the
127
operation of the assets and occurring before the closing date of
this offering. Duke Energy Field Services maximum
liability for this indemnification obligation will not exceed
$15 million and Duke Energy Field Services will not have
any obligation under this indemnification until our aggregate
losses exceed $250,000. Duke Energy Field Services will have no
indemnification obligations with respect to environmental claims
made as a result of additions to or modifications of
environmental laws promulgated after the closing date of this
offering. We have agreed to indemnify Duke Energy Field Services
against environmental liabilities related to our assets to the
extent Duke Energy Field Services is not required to indemnify
us.
Additionally, Duke Energy Field Services will indemnify us for
losses attributable to title defects, retained assets and
liabilities (including preclosing litigation relating to
contributed assets) and income taxes attributable to pre-closing
operations. We will indemnify Duke Energy Field Services for all
losses attributable to the postclosing operations of the assets
contributed to us, to the extent not subject to Duke Energy
Field Services indemnification obligations. In addition,
Duke Energy Field Services has agreed to indemnify us for up to
$5.3 million of our pro rata share of the costs associated
with any repairs to the Black Lake pipeline that are determined
to be necessary as a result of pipeline integrity testing that
is currently ongoing and is expected to be completed by the end
of this year. Duke Energy Field Services has also agreed to
indemnify us for up to $4.0 million of the costs associated
with any repairs to the Seabreeze pipeline that are determined
to be necessary as a result of pipeline integrity testing that
is scheduled for next year.
Contracts with Affiliates
We charge transportation fees, sell a portion of our residue gas
and NGLs to, and purchase raw natural gas and NGLs from, Duke
Energy Field Services, ConocoPhillips, and their respective
affiliates. Management anticipates continuing to purchase and
sell these commodities to Duke Energy Field Services,
ConocoPhillips and their respective affiliates in the ordinary
course of business.
Natural Gas Gathering and
Processing Arrangements
We have a fee-based contractual relationship with
ConocoPhillips, which includes multiple contracts, pursuant to
which ConocoPhillips has dedicated all of its natural gas
production within an area of mutual interest to our Ada, Minden
and PELICO systems under multiple agreements that have terms of
up to five years and are market based. These agreements provide
for the gathering, processing and transportation services at our
Ada and Minden gathering and processing systems and the PELICO
system. At our Ada gathering and processing system, we collect
fees from ConocoPhillips for gathering and compressing the
natural gas from the wellhead or receipt point and processing
the natural gas at the Ada processing plant. At our Minden
gathering and processing system, we purchase natural gas from
ConocoPhillips at the wellhead or receipt point, transport the
wellhead natural gas through our gathering system, treat and
process the natural gas, and then sell the resulting residue
natural gas and NGLs at index prices based on published index
market prices. At our PELICO system, we collect fees for
compression and transportation services. Please read
Business Natural Gas Services
Segment Customers and Contracts and DCP
Midstream Partners Predecessor Notes to Combined Financial
Statements Agreements and Transactions with
Affiliates.
Merchant Arrangements
Under our merchant arrangements, we use a subsidiary of Duke
Energy Field Services (Duke Energy Field Services Marketing, LP)
as our agent to purchase natural gas from third parties at
pipeline interconnect points, as well as residue gas from our
Minden and Ada processing plants, and then resell the aggregated
natural gas to third parties. We also sell our NGLs at the
Minden processing plant to a subsidiary of Duke Energy Field
Services (Duke Energy NGL Services, LP) who then transports the
NGLs on our 45% owned Black Lake pipeline. We also have a
condensate sales agreement with TEPPCO Partners L.P. where we
sell substantially all of our condensate to them under a
market-based agreement. In February 2005, Duke Energy Field
Services sold its interest in TEPPCO Partners L.P. and as such
the revenues are no longer accounted for as affiliate
transactions. Please read DCP Midstream Partners
Predecessor Notes to Combined Financial Statements
Agreements and Transactions with Affiliates.
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Transportation
Arrangements
Upon the closing of this offering, we will enter into a
contractual arrangement with a subsidiary of Duke Energy Field
Services (Duke Energy NGL Services, LP) that will provide that
the Duke Energy Field Services subsidiary will pay us to
transport NGLs on our Seabreeze pipeline pursuant to a fee-based
rate that will be applied to the volumes transported. This
fee-based contract will be a 17-year transportation agreement
expiring in 2022. Under this agreement, we are required to
reserve sufficient capacity in the Seabreeze pipeline to ensure
our ability to accept up to 38,000 Bbls/d of NGLs tendered
by the Duke Energy Field Services subsidiary each day prior to
utilizing the excess capacity for our own use or for that of any
third parties, and the Duke Energy Field Services subsidiary is
required to tender all NGLs processed at certain plants that it
owns, controls or otherwise has an obligation to market for
others. Duke Energy Field Services historically is also the
largest shipper on the Black Lake pipeline, primarily due to the
NGLs delivered to it from our Minden processing plant. Please
read DCP Midstream Partners Predecessor Notes to Combined
Financial Statements Agreements and Transaction with
Affiliates.
We have entered into long-term natural gas and crude oil swap
contracts whereby we receive a fixed price for natural gas and
crude oil and we pay a floating price. Duke Energy Field
Services has issued parental guarantees to our counterparties in
these transactions. With this credit support, we have more
favorable collateral and margin terms than we would have
otherwise received. For more information regarding our hedging
activities and credit support provided by Duke Energy Field
Services, please read Managements Discussion and
Analysis of Financial Condition and Results of
Operations Quantitative and Qualitative Disclosures
about Market Risk Commodity Price Risk
Hedging Strategies and Managements Discussion
and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a
result of the relationships between our general partner and its
affiliates (including Duke Energy Field Services) on the one
hand, and our partnership and our limited partners, on the other
hand. The directors and officers of DCP Midstream GP, LLC have
fiduciary duties to manage DCP Midstream GP, LLC and our general
partner in a manner beneficial to its owners. At the same time,
our general partner has a fiduciary duty to manage our
partnership in a manner beneficial to us and our unitholders.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us or any other partner, on the
other hand, our general partner will resolve that conflict. Our
partnership agreement contains provisions that modify and limit
our general partners fiduciary duties to our unitholders.
Our partnership agreement also restricts the remedies available
to unitholders for actions taken that, without those
limitations, might constitute breaches of fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its duties to us or our
unitholders if the resolution of the conflict is:
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approved by the conflicts committee, although our general
partner is not obligated to seek such approval; |
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates; |
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or |
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fair and reasonable to us, taking into account the totality of
the relationships among the parties involved, including other
transactions that may be particularly favorable or advantageous
to us. |
Our general partner may, but is not required to, seek the
approval of such resolution from the conflicts committee of its
board of directors. If our general partner does not seek
approval from the conflicts committee and its board of directors
determines that the resolution or course of action taken with
respect to the conflict of interest satisfies either of the
standards set forth in the third and fourth bullet points above,
then it will be presumed that, in making its decision, the board
of directors acted in good faith, and in any proceeding brought
by or on behalf of any limited partner or the partnership, the
person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. Unless the resolution of
a conflict is specifically provided for in our partnership
agreement, our general partner or the conflicts committee may
consider any factors it determines in good faith to consider
when resolving a conflict. When our partnership agreement
provides that someone act in good faith, it requires that person
to reasonably believe he is acting in the best interests of the
partnership.
Conflicts of interest could arise in the situations described
below, among others.
Duke Energy Field Services and its affiliates are not
limited in their ability to compete with us, which could cause
conflicts of interest and limit our ability to acquire
additional assets or businesses which in turn could adversely
affect our results of operations and cash available for
distribution to our unitholders.
Neither our partnership agreement nor the omnibus agreement
between us, Duke Energy Field Services and others will prohibit
Duke Energy Field Services and its affiliates, including Duke
Energy and ConocoPhillips, from owning assets or engaging in
businesses that compete directly or indirectly with us. In
addition, Duke Energy Field Services and its affiliates,
including Duke Energy and ConocoPhillips, may acquire, construct
or dispose of additional midstream or other assets in the
future, without any obligation to offer us the opportunity to
purchase or construct any of those assets. Each of these
entities is a large, established participant in the midstream
energy business, and each has significantly greater resources
and experience than we have, which factors may make it more
difficult for us to compete with these entities with
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respect to commercial activities as well as for acquisitions
candidates. As a result, competition from these entities could
adversely impact our results of operations and cash available
for distribution.
Neither our partnership agreement nor any other agreement
requires Duke Energy Field Services to pursue a business
strategy that favors us or utilizes our assets or dictates what
markets to pursue or grow. Duke Energy Field Services
directors have a fiduciary duty to make these decisions in the
best interests of the owners of Duke Energy Field Services,
which may be contrary to our interests.
Because certain of the directors of our general partner are also
directors and/or officers of Duke Energy Field Services, such
directors have fiduciary duties to Duke Energy Field Services
that may cause them to pursue business strategies that
disproportionately benefit Duke Energy Field Services or which
otherwise are not in our best interests.
Our general partner is allowed to take into account the
interests of parties other than us, such as Duke Energy Field
Services, in resolving conflicts of interest.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement permits our general partner to make a number of
decisions in its individual capacity, as opposed to in its
capacity as our general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or any limited partner. Examples include the exercise
of its right to make a determination to receive Class B
units in exchange for resetting the target distribution levels
related to its incentive distribution rights, its limited call
right, its voting rights with respect to the units it owns, its
registration rights and its determination whether or not to
consent to any merger or consolidation of the partnership.
We will not have any employees and will rely on the
employees of our general partner and its affiliates.
All of our executive management personnel will be employees of
our general partner and will devote all of their time to our
business and affairs. We will also utilize a significant number
of employees of Duke Energy Field Services to operate our
business and provide us with general and administrative services
for which we will reimburse Duke Energy Field Services for
allocated expenses of operational personnel who perform services
for our benefit and we will reimburse Duke Energy Field Services
for allocated general and administrative expenses. Affiliates of
our general partner and Duke Energy Field Services will also
conduct businesses and activities of their own in which we will
have no economic interest. If these separate activities are
significantly greater than our activities, there could be
material competition for the time and effort of the officers and
employees who provide services to Duke Energy Field Services and
its affiliates.
Our general partner has limited its liability and reduced
its fiduciary duties, and has also restricted the remedies
available to our unitholders for actions that, without the
limitations, might constitute breaches of fiduciary duty.
In addition to the provisions described above, our partnership
agreement contains provisions that restrict the remedies
available to our unitholders for actions that might otherwise
constitute breaches of fiduciary duty. For example, our
partnership agreement:
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provides that the general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed that the decision was in the best interests of our
partnership; |
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner and not
involving a vote of unitholders must be on terms no less
favorable to us than those generally being provided to or
available from unrelated third parties or be fair and
reasonable to us, as determined by the general partner in
good faith, and that, in determining whether a transaction or
resolution is fair and |
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reasonable, our general partner may consider the totality
of the relationships between the parties involved, including
other transactions that may be particularly advantageous or
beneficial to us; and |
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that our general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct. |
Except in limited circumstances, our general partner has
the power and authority to conduct our business without
unitholder approval.
Under our partnership agreement, our general partner has full
power and authority to do all things, other than those items
that require unitholder approval or with respect to which our
general partner has sought conflicts committee approval, on such
terms as it determines to be necessary or appropriate to conduct
our business including, but not limited to, the following:
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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
our securities, and the incurring of any other obligations; |
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the purchase, sale or other acquisition or disposition of our
securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to our securities; |
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the mortgage, pledge, encumbrance, hypothecation or exchange of
any or all of our assets; |
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the negotiation, execution and performance of any contracts,
conveyances or other instruments; |
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the distribution of our cash; |
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the selection and dismissal of employees and agents, outside
attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of
employment or hiring; |
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the maintenance of insurance for our benefit and the benefit of
our partners; |
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the formation of, or acquisition of an interest in, the
contribution of property to, and the making of loans to, any
limited or general partnerships, joint ventures, corporations,
limited liability companies or other relationships; |
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the control of any matters affecting our rights and obligations,
including the bringing and defending of actions at law or in
equity and otherwise engaging in the conduct of litigation,
arbitration or mediation and the incurring of legal expense and
the settlement of claims and litigation; |
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the indemnification of any person against liabilities and
contingencies to the extent permitted by law; |
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the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over our business or assets; and |
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the entering into of agreements with any of its affiliates to
render services to us or to itself in the discharge of its
duties as our general partner. |
Our partnership agreement provides that our general partner must
act in good faith when making decisions on our
behalf, and our partnership agreement further provides that in
order for a determination by our general partner to be made in
good faith, our general partner must believe that
the determination is in our best interests. Please read
The Partnership Agreement Voting Rights
for information regarding matters that require unitholder
approval.
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Our general partner determines the amount and timing of
asset purchases and sales, capital expenditures, borrowings,
issuance of additional partnership securities and the creation,
reduction or increase of reserves, each of which can affect the
amount of cash that is distributed to our unitholders. |
The amount of cash that is available for distribution to
unitholders is affected by decisions of our general partner
regarding such matters as:
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amount and timing of asset purchases and sales; |
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cash expenditures; |
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borrowings; |
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the issuance of additional units; and |
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the creation, reduction or increase of reserves in any quarter. |
In addition, our general partner may use an amount, initially
equal to $25.0 million, which would not otherwise
constitute available cash from operating surplus, in order to
permit the payment of cash distributions on its units and
incentive distribution rights. All of these actions may affect
the amount of cash distributed to our unitholders and the
general partner and may facilitate the conversion of
subordinated units into common units. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions beginning on page 57.
In addition, borrowings by us and our affiliates do not
constitute a breach of any duty owned by the general partner to
our unitholders, including borrowings that have the purpose or
effect of:
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enabling our general partner or its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights; or |
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hastening the expiration of the subordination period. |
For example, in the event we have not generated sufficient cash
from our operations to pay the minimum quarterly distribution on
our common units and our subordinated units, our partnership
agreement permit us to borrow funds, which would enable us to
make this distribution on all outstanding units. Please read
Provisions of Our Partnership Agreement Related to Cash
Distributions Subordination Period.
Our partnership agreement provides that we and our subsidiaries
may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may not borrow funds from
us, our operating company, or its operating subsidiaries.
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Our general partner determines which costs incurred by
Duke Energy Field Services are reimbursable by us. |
We will reimburse our general partner and its affiliates for
costs incurred in managing and operating us, including costs
incurred in rendering corporate staff and support services to
us. The partnership agreement provides that our general partner
will determine the expenses that are allocable to us in good
faith.
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Our partnership agreement does not restrict our general
partner from causing us to pay it or its affiliates for any
services rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf. |
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither our partnership
agreement nor any of the other agreements, contracts or
arrangements between us, on the one hand, and our general
partner and its affiliates, on the other hand, that will be in
effect as of the closing of this offering will be the result of
arms-length negotiations. Similarly, agreements, contracts
or arrangements between us and our general partner and its
affiliates that are entered into following the closing of this
offering will not be required to be negotiated on an
arms-length basis, although, in some circumstances, our
general partner may determine that
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the conflicts committee of our general partner may make a
determination on our behalf with respect to one or more of these
types of situations.
Our general partner will determine, in good faith, the terms of
any of these transactions entered into after the sale of the
common units offered in this offering.
Our general partner and its affiliates will have no obligation
to permit us to use any facilities or assets of our general
partner or its affiliates, except as may be provided in
contracts entered into specifically dealing with that use. There
is no obligation of our general partner or its affiliates to
enter into any contracts of this kind.
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Our general partner intends to limit its liability
regarding our obligations. |
Our general partner intends to limit its liability under
contractual arrangements so that the other party has recourse
only to our assets, and not against our general partner or its
assets. The partnership agreement provides that any action taken
by our general partner to limit its liability is not a breach of
our general partners fiduciary duties, even if we could
have obtained more favorable terms without the limitation on
liability.
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Our general partner may exercise its right to call and
purchase common units if it and its affiliates own more than 80%
of the common units. |
Our general partner may exercise its right to call and purchase
common units as provided in the partnership agreement or assign
this right to one of its affiliates or to us. Our general
partner is not bound by fiduciary duty restrictions in
determining whether to exercise this right. As a result, a
common unitholder may have his common units purchased from him
at an undesirable time or price. Please read The
Partnership Agreement Limited Call Right
beginning on page 148.
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Common unitholders will have no right to enforce
obligations of our general partner and its affiliates under
agreements with us. |
Any agreements between us on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
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Our general partner decides whether to retain separate
counsel, accountants or others to perform services for
us. |
The attorneys, independent accountants and others who have
performed services for us regarding this offering have been
retained by our general partner. Attorneys, independent
accountants and others who perform services for us are selected
by our general partner or the conflicts committee and may
perform services for our general partner and its affiliates. We
may retain separate counsel for ourselves or the holders of
common units in the event of a conflict of interest between our
general partner and its affiliates, on the one hand, and us or
the holders of common units, on the other, depending on the
nature of the conflict. We do not intend to do so in most cases.
Our general partner may elect to cause us to issue
Class B units to it in connection with a resetting of the
target distribution levels related to our general partners
incentive distribution rights without the approval of the
conflicts committee of our general partner or our unitholders.
This may result in lower distributions to our common unitholders
in certain situations.
Our general partner has the right, at a time when there are no
subordinated units outstanding and it has received incentive
distributions at the highest level to which it is entitled (48%)
for each of the prior four consecutive fiscal quarters, to reset
the initial cash target distribution levels at higher levels
based on the distribution at the time of the exercise of the
reset election. Following a reset election by our general
partner, the minimum quarterly distribution amount will be reset
to an amount equal to the average cash distribution
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amount per common unit for the two fiscal quarters immediately
preceding the reset election (such amount is referred to as the
reset minimum quarterly distribution) and the target
distribution levels will be reset to correspondingly higher
levels based on percentage increases above the reset minimum
quarterly distribution amount. We anticipate that our general
partner would exercise this reset right in order to facilitate
acquisitions or internal growth projects that would not be
sufficiently accretive to cash distributions per common unit
without such conversion; however, it is possible that our
general partner could exercise this reset election at a time
when we are experiencing declines in our aggregate cash
distributions or at a time when our general partner expects that
we will experience declines in our aggregate cash distributions
in the foreseeable future. In such situations, our general
partner may be experiencing, or may be expected to experience,
declines in the cash distributions it receives related to its
incentive distribution rights and may therefore desire to be
issued our Class B units, which are entitled to specified
priorities with respect to our distributions and which therefore
may be more advantageous for the general partner to own in lieu
of the right to receive incentive distribution payments based on
target distribution levels that are less certain to be achieved
in the then current business environment. As a result, a reset
election may cause our common unitholders to experience dilution
in the amount of cash distributions that they would have
otherwise received had we not issued new Class B units to
our general partner in connection with resetting the target
distribution levels related to our general partner incentive
distribution rights. Please read Provisions of Our
Partnership Agreement Related to Cash Distributions
General Partner Interest and Incentive Distribution Rights
beginning on page 60.
Fiduciary Duties
Our general partner is accountable to us and our unitholders as
a fiduciary. Fiduciary duties owed to unitholders by our general
partner are prescribed by law and the partnership agreement. The
Delaware Revised Uniform Limited Partnership Act, which we refer
to in this prospectus as the Delaware Act, provides that
Delaware limited partnerships may, in their partnership
agreements, modify, restrict or expand the fiduciary duties
otherwise owed by a general partner to limited partners and the
partnership.
Our partnership agreement contains various provisions modifying
and restricting the fiduciary duties that might otherwise be
owed by our general partner. We have adopted these restrictions
to allow our general partner or its affiliates to engage in
transactions with us that would otherwise be prohibited by
state-law fiduciary duty standards and to take into account the
interests of other parties in addition to our interests when
resolving conflicts of interest. We believe this is appropriate
and necessary because our general partners board of
directors will have fiduciary duties to manage our general
partner in a manner beneficial to its owners, as well as to you.
Without these modifications, the general partners ability
to make decisions involving conflicts of interest would be
restricted. The modifications to the fiduciary standards enable
the general partner to take into consideration all parties
involved in the proposed action, so long as the resolution is
fair and reasonable to us. These modifications also enable our
general partner to attract and retain experienced and capable
directors. These modifications are detrimental to our common
unitholders because they restrict the remedies available to
unitholders for actions that, without those limitations, might
constitute breaches of fiduciary duty, as described below, and
permit our general partner to take into account the interests of
third parties in addition to our interests when resolving
conflicts of interest. The following is a summary of the
material restrictions of the fiduciary duties owed by our
general partner to the limited partners:
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State-law fiduciary duty standards |
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a
prudent person would act on his own behalf. The duty of loyalty,
in the absence of a provision in a partnership agreement
providing otherwise, would generally prohibit a general partner
of a Delaware limited partnership from taking any action or
engaging in any transaction where a conflict of interest is
present. |
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. In addition, the
statutory or case law of some jurisdictions may permit a limited
partner to institute legal action on behalf of himself and all
other similarly situated limited partners to recover damages
from a general partner for violations of its fiduciary duties to
the limited partners. |
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Partnership agreement modified standards |
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues about compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
individual capacity, as opposed to in its capacity as our
general partner, it may act without any fiduciary obligation to
us or the unitholders whatsoever. These standards reduce the
obligations to which our general partner would otherwise be held. |
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us, our
limited partners or assignees for errors of judgment or for any
acts or omissions unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that the general partner or its officers and
directors acted in bad faith or engaged in fraud or willful
misconduct. |
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Special provisions regarding affiliated transactions. Our
partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not
involving a vote of unitholders and that are not approved by the
conflicts committee of the board of directors of our general
partner must be: |
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on terms no less favorable to us than those
generally being provided to or available from unrelated third
parties; or |
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fair and reasonable to us, taking into
account the totality of the relationships between the parties
involved (including other transactions that may be particularly
favorable or advantageous to us). |
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If our general partner does not seek approval from the conflicts
committee and its board of directors determines that the
resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth
in the bullet points above, then it will be presumed that, in
making its decision, the board of directors, which may include
board members affected by the conflict of interest, acted in
good faith and in any proceeding brought by or on behalf of any
limited partner or the partnership, the person bringing or
prosecuting such proceeding will have the burden of overcoming
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presumption. These standards reduce the obligations to which our
general partner would otherwise be held. |
By purchasing our common units, each common unitholder
automatically agrees to be bound by the provisions in the
partnership agreement, including the provisions discussed above.
This is in accordance with the policy of the Delaware Act
favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a
limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against that
person.
We must indemnify our general partner and its officers,
directors, managers and certain other specified persons, to the
fullest extent permitted by law, against liabilities, costs and
expenses incurred by our general partner or these other persons.
We must provide this indemnification unless there has been a
final and non-appealable judgment by a court of competent
jurisdiction determining that these persons acted in bad faith
or engaged in fraud or willful misconduct. We must also provide
this indemnification for criminal proceedings unless our general
partner or these other persons acted with knowledge that their
conduct was unlawful. Thus, our general partner could be
indemnified for its negligent acts if it meets the requirements
set forth above. To the extent these provisions purport to
include indemnification for liabilities arising under the
Securities Act, in the opinion of the SEC, such indemnification
is contrary to public policy and, therefore, unenforceable.
Please read The Partnership Agreement
Indemnification beginning on page 149.
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DESCRIPTION OF THE COMMON UNITS
The Units
The common units and the subordinated units are separate classes
of limited partner interests in us. The holders of units are
entitled to participate in partnership distributions and
exercise the rights or privileges available to limited partners
under our partnership agreement. For a description of the
relative rights and preferences of holders of common units and
subordinated units in and to partnership distributions, please
read this section and Our Cash Distribution Policy and
Restrictions on Distributions beginning on page 43.
For a description of the rights and privileges of limited
partners under our partnership agreement, including voting
rights, please read The Partnership Agreement
beginning on page 139.
Transfer Agent and Registrar
Duties. American Stock Transfer & Trust
Company will serve as registrar and transfer agent for the
common units. We will pay all fees charged by the transfer agent
for transfers of common units except the following that must be
paid by unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges; |
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special charges for services requested by a common
unitholder; and |
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other similar fees or charges. |
There will be no charge to unitholders for disbursements of our
cash distributions. We will indemnify the transfer agent, its
agents and each of their stockholders, directors, officers and
employees against all claims and losses that may arise out of
acts performed or omitted for its activities in that capacity,
except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.
Resignation or Removal. The transfer agent may
resign, by notice to us, or be removed by us. The resignation or
removal of the transfer agent will become effective upon our
appointment of a successor transfer agent and registrar and its
acceptance of the appointment. If no successor has been
appointed and has accepted the appointment within 30 days
after notice of the resignation or removal, our general partner
may act as the transfer agent and registrar until a successor is
appointed.
Transfer of Common Units
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and
records. Each transferee:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement; |
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and |
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gives the consents and approvals contained in our partnership
agreement, such as the approval of all transactions and
agreements that we are entering into in connection with our
formation and this offering. |
A transferee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities and are transferable according to
the laws governing transfers of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and
the transfer agent may treat the record holder of the unit as
the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
138
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. The form of our partnership agreement is
included in this prospectus as Appendix A. We will provide
prospective investors with a copy of our partnership agreement
upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions beginning on page 57; |
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with regard to the fiduciary duties of our general partner,
please read Conflicts of Interest and Fiduciary
Duties beginning on page 130; |
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with regard to the transfer of common units, please read
Description of the Common Units Transfer of
Common Units beginning on page 138; and |
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with regard to allocations of taxable income and taxable loss,
please read Material Tax Consequences beginning on
page 153. |
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Organization and Duration
Our partnership was organized on August 5, 2005 and will
have a perpetual existence.
Purpose
Our purpose under the partnership agreement is limited to any
business activity that is approved by our general partner and
that lawfully may be conducted by a limited partnership
organized under Delaware law; provided, that our general partner
shall not cause us to engage, directly or indirectly, in any
business activity that the general partner determines would
cause us to be treated as an association taxable as a
corporation or otherwise taxable as an entity for federal income
tax purposes.
Although our general partner has the ability to cause us and our
subsidiaries to engage in activities other than the business of
gathering, compressing, treating, processing, transporting and
selling natural gas and the business of transporting and selling
NGLs, our general partner has no current plans to do so and may
decline to do so free of any fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners. Our general partner is authorized in general to
perform all acts it determines to be necessary or appropriate to
carry out our purposes and to conduct our business.
Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney to, among other things, execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to make consents and waivers under, our
partnership agreement.
Cash Distributions
Our partnership agreement specifies the manner in which we will
make cash distributions to holders of our common units and other
partnership securities as well as to our general partner in
respect of its general partner interest and its incentive
distribution rights. For a description of these cash
distribution provisions, please read Provisions of Our
Partnership Agreement Relating to Cash Distributions.
Capital Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability beginning on
page 141.
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Our general partner has the right, but not the obligation, to
contribute a proportionate amount of capital to us to maintain
its 2% general partner interest if we issue additional units.
Our general partners 2% interest, and the percentage of
our cash distributions to which it is entitled, will be
proportionately reduced if we issue additional units in the
future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner interest. Our general partner will be entitled to make a
capital contribution in order to maintain its 2% general partner
interest in the form of the contribution to us of common units
based on the current market value of the contributed common
units.
Voting Rights
The following is a summary of the unitholder vote required for
the matters specified below. Matters requiring the approval of a
unit majority require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and |
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after the subordination period, the approval of a majority of
the common units and Class B units, if any, voting as a
class. |
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In voting their common, Class B and subordinated units, our
general partner and its affiliates will have no fiduciary duty
or obligation whatsoever to us or the limited partners,
including any duty to act in good faith or in the best interests
of us or the limited partners.
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Issuance of additional units |
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No approval right. |
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Amendment of the partnership agreement |
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Certain amendments may be made by the general partner without
the approval of the unitholders. Other amendments generally
require the approval of a unit majority. Please read
Amendment of the Partnership Agreement
beginning on page 142. |
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Merger of our partnership or the sale of all or substantially
all of our assets |
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Unit majority in certain circumstances. Please read
Merger, Consolidation, Conversion, Sale or
Other Disposition of Assets beginning on page 144. |
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Dissolution of our partnership |
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Unit majority. Please read Termination and
Dissolution beginning on page 145. |
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Continuation of our business upon dissolution |
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Unit majority. Please read Termination and
Dissolution beginning on page 145. |
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Withdrawal of the general partner |
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Under most circumstances, the approval of a majority of the
common units, excluding common units held by our general partner
and its affiliates, is required for the withdrawal of our
general partner prior to December 31, 2015 in a manner that
would cause a dissolution of our partnership. Please read
Withdrawal or Removal of the General
Partner beginning on page 146. |
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Removal of the general partner |
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Not less than
662/3%
of the outstanding units, voting as a single class, including
units held by our general partner and its affiliates. Please
read Withdrawal or Removal of the General
Partner beginning on page 146. |
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Transfer of the general partner interest |
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Our general partner may transfer all, but not less than all, of
its general partner interest in us without a vote of our
unitholders to |
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an affiliate or another person in connection with its merger or
consolidation with or into, or sale of all or substantially all
of its assets, to such person. The approval of a majority of the
common units, excluding common units held by the general partner
and its affiliates, is required in other circumstances for a
transfer of the general partner interest to a third party prior
to December 31, 2015. See Transfer of
General Partner Units beginning on page 147. |
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Transfer of incentive distribution rights |
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Except for transfers to an affiliate or another person as part
of our general partners merger or consolidation, sale of
all or substantially all of its assets or the sale of all of the
ownership interests in such holder, the approval of a majority
of the common units, excluding common units held by the general
partner and its affiliates, is required in most circumstances
for a transfer of the incentive distribution rights to a third
party prior to December 31, 2015. Please read
Transfer of Incentive Distribution
Rights beginning on page 147. |
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Transfer of ownership interests in our general partner |
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No approval required at any time. Please read
Transfer of Ownership Interests in the
General Partner beginning on page 147. |
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Limited Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that he otherwise acts in conformity with the provisions of
the partnership agreement, his liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital he is obligated to contribute to us for his common
units plus his share of any undistributed profits and assets. If
it were determined, however, that the right, or exercise of the
right, by the limited partners as a group:
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to remove or replace the general partner; |
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to approve some amendments to the partnership agreement; or |
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to take other action under the partnership agreement; |
constituted participation in the control of our
business for the purposes of the Delaware Act, then the limited
partners could be held personally liable for our obligations
under the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact
business with us who reasonably believe that the limited partner
is a general partner. Neither the partnership agreement nor the
Delaware Act specifically provides for legal recourse against
the general partner if a limited partner were to lose limited
liability through any fault of the general partner. While this
does not mean that a limited partner could not seek legal
recourse, we know of no precedent for this type of a claim in
Delaware case law.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair
value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except
141
that such person is not obligated for liabilities unknown to him
at the time he became a limited partner and that could not be
ascertained from the partnership agreement.
Our subsidiaries conduct business in three states and we may
have subsidiaries that conduct business in other states in the
future. Maintenance of our limited liability as a limited
partner of the operating partnership may require compliance with
legal requirements in the jurisdictions in which the operating
partnership conducts business, including qualifying our
subsidiaries to do business there.
Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our
partnership interest in our operating partnership or otherwise,
it were determined that we were conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to remove or
replace the general partner, to approve some amendments to the
partnership agreement, or to take other action under the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of the unitholders.
It is possible that we will fund acquisitions through the
issuance of additional common units, subordinated units or other
partnership securities. Holders of any additional common units
we issue will be entitled to share equally with the
then-existing holders of common units in our distributions of
available cash. In addition, the issuance of additional common
units or other partnership securities may dilute the value of
the interests of the then-existing holders of common units in
our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance by our subsidiaries of equity securities,
which may effectively rank senior to the common units.
Upon issuance of additional partnership securities (other than
the issuance of partnership securities issued in connection with
a reset of the incentive distribution target levels relating to
our general partners incentive distribution rights or the
issuance of partnership securities upon conversion of
outstanding partnership securities), our general partner will be
entitled, but not required, to make additional capital
contributions to the extent necessary to maintain its 2% general
partner interest in us. Our general partners 2% interest
in us will be reduced if we issue additional units in the future
and our general partner does not contribute a proportionate
amount of capital to us to maintain its 2% general partner
interest. Moreover, our general partner will have the right,
which it may from time to time assign in whole or in part to any
of its affiliates, to purchase common units, subordinated units
or other partnership securities whenever, and on the same terms
that, we issue those securities to persons other than our
general partner and its affiliates, to the extent necessary to
maintain the percentage interest of the general partner and its
affiliates, including such interest represented by common units
and subordinated units, that existed immediately prior to each
issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership
securities.
Amendment of the Partnership Agreement
General. Amendments to our partnership agreement
may be proposed only by or with the consent of our general
partner. However, our general partner will have no duty or
obligation to propose any amendment and may decline to do so
free of any fiduciary duty or obligation whatsoever to us or the
limited partners,
142
including any duty to act in good faith or in the best interests
of us or the limited partners. In order to adopt a proposed
amendment, other than the amendments discussed below, our
general partner is required to seek written approval of the
holders of the number of units required to approve the amendment
or call a meeting of the limited partners to consider and vote
upon the proposed amendment. Except as described below, an
amendment must be approved by a unit majority.
Prohibited Amendments. No amendment may be made
that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or |
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option. |
The provision of our partnership agreement preventing the
amendments having the effects described in any of the clauses
above can be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single
class (including units owned by our general partner and its
affiliates). Upon completion of the offering, our general
partner and its affiliates will own approximately 48.6% of the
outstanding common and subordinated units.
No Unitholder Approval. Our general partner may
generally make amendments to our partnership agreement without
the approval of any limited partner or assignee to reflect:
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a change in our name, the location of our principal place of our
business, our registered agent or our registered office; |
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement; |
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a change that our general partner determines to be necessary or
appropriate to qualify or continue our qualification as a
limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor the operating partnership nor any
of its subsidiaries will be treated as an association taxable as
a corporation or otherwise taxed as an entity for federal income
tax purposes; |
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed; |
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities,
including any amendment that our general partner determines is
necessary or appropriate in connection with: |
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the adjustments of the minimum quarterly distribution, first
target distribution, second target distribution and third target
distribution in connection with the reset of our general
partners incentive distribution rights as described under
Provisions of Our Partnership Agreement Relating to Cash
Distributions General Partners Right to Reset
Incentive Distribution Levels; or |
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the implementation of the provisions relating to our general
partners right to reset its incentive distribution rights
in exchange for Class B units; and |
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any modification of the incentive distribution rights made in
connection with the issuance of additional partnership
securities or rights to acquire partnership securities, provided
that, any such modifications and related issuance of partnership
securities have received approval by a majority of the members
of the conflicts committee of our general partner; |
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone; |
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement; |
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement; |
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a change in our fiscal year or taxable year and related changes; |
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conversions into, mergers with or conveyances to another limited
liability entity that is newly formed and has no assets,
liabilities or operations at the time of the conversion, merger
or conveyance other than those it receives by way of the
conversion, merger or conveyance; or |
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any other amendments substantially similar to any of the matters
described in the clauses above. |
In addition, our general partner may make amendments to our
partnership agreement without the approval of any limited
partner if our general partner determines that those amendments:
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do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect; |
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are necessary or appropriate 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; |
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading; |
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of units under the
provisions of our partnership agreement; or |
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement. |
Opinion of Counsel and Unitholder Approval. Our
general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited
liability to the limited partners or result in our being treated
as an entity for federal income tax purposes in connection with
any of the amendments. No other amendments to our partnership
agreement will become effective without the approval of holders
of at least 90% of the outstanding units voting as a single
class unless we first obtain an opinion of counsel to the effect
that the amendment will not affect the limited liability under
applicable law of any of our limited partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take
any action is required to be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
Merger, Consolidation, Conversion, Sale or Other Disposition
of Assets
A merger, consolidation or conversion of us requires the prior
consent of our general partner. However, our general partner
will have no duty or obligation to consent to any merger,
consolidation or conversion and may decline to do so free of any
fiduciary duty or obligation whatsoever to us or the limited
partners, including any duty to act in good faith or in the best
interest of us or the limited partners.
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In addition, the partnership agreement generally prohibits our
general partner without the prior approval of the holders of a
unit majority, from causing us to, among other things, sell,
exchange or otherwise dispose of all or substantially all of our
assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other
combination, or approving on our behalf the sale, exchange or
other disposition of all or substantially all of the assets of
our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of our assets without that approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without that approval. Finally, our general partner
may consummate any merger without the prior approval of our
unitholders if we are the surviving entity in the transaction,
our general partner has received an opinion of counsel regarding
limited liability and tax matters, the transaction would not
result in a material amendment to the partnership agreement,
each of our units will be an identical unit of our partnership
following the transaction, and the partnership securities to be
issued do not exceed 20% of our outstanding partnership
securities immediately prior to the transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that conversion,
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity, our general partner
has received an opinion of counsel regarding limited liability
and tax matters, and the governing instruments of the new entity
provide the limited partners and the general partner with the
same rights and obligations as contained in the partnership
agreement. The unitholders are not entitled to dissenters
rights of appraisal under the partnership agreement or
applicable Delaware law in the event of a conversion, merger or
consolidation, a sale of substantially all of our assets or any
other similar transaction or event.
Termination and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority; |
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law; |
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the entry of a decree of judicial dissolution of our
partnership; or |
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the withdrawal or removal of our general partner or any other
event that results in its ceasing to be our general partner
other than by reason of a transfer of its general partner
interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor. |
Upon a dissolution under the last clause above, the holders of a
unit majority may also elect, within specific time limitations,
to continue our business on the same terms and conditions
described in our partnership agreement by appointing as a
successor general partner an entity approved by the holders of
units representing a unit majority, subject to our receipt of an
opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of
any limited partner; and |
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neither our partnership, our operating partnership nor any of
our other subsidiaries would be treated as an association
taxable as a corporation or otherwise be taxable as an entity
for federal income tax purposes upon the exercise of that right
to continue. |
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Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited
partnership, the liquidator authorized to wind up our affairs
will, acting with all of the powers of our general partner that
are necessary or appropriate to liquidate our assets and apply
the proceeds of the liquidation as described in Provisions
of Our Partnership Agreement Relating to Cash
Distributions Distributions of Cash Upon
Liquidation beginning
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on page 65. The liquidator may defer liquidation or
distribution of our assets for a reasonable period of time or
distribute assets to partners in kind if it determines that a
sale would be impractical or would cause undue loss to our
partners.
Withdrawal or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
December 31, 2015 without obtaining the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after December 31,
2015, our general partner may withdraw as general partner
without first obtaining approval of any unitholder by giving
90 days written notice, and that withdrawal will not
constitute a violation of our partnership agreement.
Notwithstanding the information above, our general partner may
withdraw without unitholder approval upon 90 days
notice to the limited partners if at least 50% of the
outstanding common units are held or controlled by one person
and its affiliates other than the general partner and its
affiliates. In addition, the partnership agreement permits our
general partner in some instances to sell or otherwise transfer
all of its general partner interest in us without the approval
of the unitholders. Please read Transfer of
General Partner Units beginning on page 147 and
Transfer of Incentive Distribution
Rights beginning on page 147.
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a unit majority, voting as separate classes, may select a
successor to that withdrawing general partner. If a successor is
not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, we will be
dissolved, wound up and liquidated, unless within a specified
period after that withdrawal, the holders of a unit majority
agree in writing to continue our business and to appoint a
successor general partner. Please read
Termination and Dissolution beginning on
page 145.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
662/3%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units and Class B units, if any, voting as a separate
class, and subordinated units, voting as a separate class. The
ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. At the closing of this offering,
our general partner and its affiliates will own 48.6% of the
outstanding common and subordinated units.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by the general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis; |
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and |
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of those interests at that time. |
In the event of removal of a general partner under circumstances
where cause exists or withdrawal of a general partner where that
withdrawal violates our partnership agreement, a successor
general partner will have the option to purchase the general
partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances
where a general partner withdraws or is removed by the limited
partners, the departing general
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partner will have the option to require the successor general
partner to purchase the general partner interest of the
departing general partner and its incentive distribution rights
for fair market value. In each case, this fair market value will
be determined by agreement between the departing general partner
and the successor general partner. If no agreement is reached,
an independent investment banking firm or other independent
expert selected by the departing general partner and the
successor general partner will determine the fair market value.
Or, if the departing general partner and the successor general
partner cannot agree upon an expert, then an expert chosen by
agreement of the experts selected by each of them will determine
the fair market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred for the
termination of any employees employed by the departing general
partner or its affiliates for our benefit.
Transfer of General Partner Units
Except for transfer by our general partner of all, but not less
than all, of its general partner units to:
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an affiliate of our general partner (other than an
individual); or |
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity, |
our general partner may not transfer all or any of its general
partner units to another person prior to December 31, 2015
without the approval of the holders of at least a majority of
the outstanding common units, excluding common units held by our
general partner and its affiliates. As a condition of this
transfer, the transferee must assume, among other things, the
rights and duties of our general partner, agree to be bound by
the provisions of our partnership agreement, and furnish an
opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at any time, transfer
units to one or more persons, without unitholder approval,
except that they may not transfer subordinated units to us.
Transfer of Ownership Interests in the General
Partner
At any time, Duke Energy Field Services and its affiliates may
sell or transfer all or part of their partnership interests in
our general partner, or their membership interest in DCP
Midstream GP, LLC, the general partner of our general partner,
to an affiliate or third party without the approval of our
unitholders.
Transfer of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest in the
holder or the sale of all or substantially all of its assets to,
that entity without the prior approval of the unitholders. Prior
to December 31, 2015, other transfers of incentive
distribution rights will require the affirmative vote of holders
of a majority of the outstanding common units, excluding common
units held by our general partner and its affiliates. On or
after December 31, 2015, the incentive distribution rights
will be freely transferable.
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Change of Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove DCP Midstream GP, LP as our general partner or otherwise
change our management. If any person or group other than our
general partner and its affiliates acquires beneficial ownership
of 20% or more of any class of units, that person or group loses
voting rights on all of its units. This loss of voting rights
does not apply to any person or group that acquires the units
from our general partner or its affiliates and any transferees
of that person or group approved by our general partner or to
any person or group who acquires the units with the prior
approval of the board of directors of our general partner.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by our general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis; |
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and |
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our general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests based
on the fair market value of those interests at that time. |
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Limited Call Right
If at any time our general partner and its affiliates own more
than 80% of the then-issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the limited
partner interests of the class held by unaffiliated persons as
of a record date to be selected by our general partner, on at
least 10 but not more than 60 days notice. The purchase
price in the event of this purchase is the greater of:
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the highest cash price paid by either of our general partner or
any of its affiliates for any limited partner interests of the
class purchased within the 90 days preceding the date on
which our general partner first mails notice of its election to
purchase those limited partner interests; and |
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the current market price as of the date three days before the
date the notice is mailed. |
As a result of our general partners right to purchase
outstanding limited partner interests, a holder of limited
partner interests may have his limited partner interests
purchased at a price that may be lower than market prices at
various times prior to such purchase or lower than a unitholder
may anticipate the market price to be in the future. The tax
consequences to a unitholder of the exercise of this call right
are the same as a sale by that unitholder of his common units in
the market. Please read Material Tax
Consequences Disposition of Common Units
beginning on page 160.
Meetings; Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, record holders
of units on the record date will be entitled to notice of, and
to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited.
Our general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by the unitholders may
be taken either at a meeting of the unitholders or without a
meeting if consents in writing describing the action so taken
are signed by holders of the number of units necessary to
authorize or take that action at a meeting. Meetings of the
unitholders may be called by our general partner or by
unitholders owning at least 20% of the outstanding
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units of the class for which a meeting is proposed. Unitholders
may vote either in person or by proxy at meetings. The holders
of a majority of the outstanding units of the class or classes
for which a meeting has been called represented in person or by
proxy will constitute a quorum unless any action by the
unitholders requires approval by holders of a greater percentage
of the units, in which case the quorum will be the greater
percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities
beginning on page 142. However, if at any time any person
or group, other than our general partner and its affiliates, or
a direct or subsequently approved transferee of our general
partner or its affiliates, acquires, in the aggregate,
beneficial ownership of 20% or more of any class of units then
outstanding, that person or group will lose voting rights on all
of its units and the units may not be voted on any matter and
will not be considered to be outstanding when sending notices of
a meeting of unitholders, calculating required votes,
determining the presence of a quorum or for other similar
purposes. Common units held in nominee or street name account
will be voted by the broker or other nominee in accordance with
the instruction of the beneficial owner unless the arrangement
between the beneficial owner and his nominee provides otherwise.
Except as our partnership agreement otherwise provides,
subordinated units will vote together with common units and
Class B units as a single class.
Any notice, demand, request, report or proxy material required
or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as Limited Partner
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and
records. Except as described under Limited
Liability beginning on page 141, the common units
will be fully paid, and unitholders will not be required to make
additional contributions.
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture
of any property that we have an interest in because of the
nationality, citizenship or other related status of any limited
partner, we may redeem the units held by the limited partner at
their current market price. In order to avoid any cancellation
or forfeiture, our general partner may require each limited
partner to furnish information about his nationality,
citizenship or related status. If a limited partner fails to
furnish information about his nationality, citizenship or other
related status within 30 days after a request for the
information or our general partner determines after receipt of
the information that the limited partner is not an eligible
citizen, the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee, is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in-kind upon our liquidation.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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our general partner; |
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any departing general partner; |
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any person who is or was an affiliate of a general partner or
any departing general partner; |
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any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points; |
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any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and |
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any person designated by our general partner. |
Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or lend funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Reimbursement of Expenses
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary,
bonus, incentive compensation and other amounts paid to persons
who perform services for us or on our behalf and expenses
allocated to our general partner by its affiliates. The general
partner is entitled to determine in good faith the expenses that
are allocable to us.
Books and Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and fiscal reporting purposes, our fiscal year is
the calendar year.
We will furnish or make available to record holders of common
units, within 120 days after the close of each fiscal year,
an annual report containing audited financial statements and a
report on those financial statements by our independent public
accountants. Except for our fourth quarter, we will also furnish
or make available summary financial information within
90 days after the close of each quarter.
We will furnish each record holder of a unit with information
reasonably required for tax reporting purposes within
90 days after the close of each calendar year. This
information is expected to be furnished in summary form so that
some complex calculations normally required of partners can be
avoided. Our ability to furnish this summary information to
unitholders will depend on the cooperation of unitholders in
supplying us with specific information. Every unitholder will
receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax
returns, regardless of whether he supplies us with information.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to his interest as a limited
partner, upon reasonable written demand stating the purpose of
such demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner; |
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a copy of our tax returns; |
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information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each partner became a partner; |
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copies of our partnership agreement, our certificate of limited
partnership, related amendments and powers of attorney under
which they have been executed; |
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information regarding the status of our business and financial
condition; and |
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any other information regarding our affairs as is just and
reasonable. |
Our general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information the
disclosure of which our general partner believes in good faith
is not in our best interests or that we are required by law or
by agreements with third parties to keep confidential.
Registration Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units, subordinated units or other partnership
securities proposed to be sold by our general partner or any of
its affiliates or their assignees if an exemption from the
registration requirements is not otherwise available. These
registration rights continue for two years following any
withdrawal or removal of DCP Midstream GP, LP as general
partner. We are obligated to pay all expenses incidental to the
registration, excluding underwriting discounts and a structuring
fee. Please read Units Eligible for Future Sale
beginning on page 152.
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered hereby, management of
our general partner and Duke Energy Field Services and its
affiliates will hold an aggregate of 1,357,143 common units and
7,142,857 subordinated units. All of the subordinated units will
convert into common units at the end of the subordination period
and some may convert earlier. The sale of these units could have
an adverse impact on the price of the common units or on any
trading market that may develop.
The common units sold in the offering will generally be freely
transferable without restriction or further registration under
the Securities Act, except that any common units owned by an
affiliate of ours may not be resold publicly except
in compliance with the registration requirements of the
Securities Act or under an exemption under Rule 144 or
otherwise. Rule 144 permits securities acquired by an
affiliate of the issuer to be sold into the market in an amount
that does not exceed, during any three-month period, the greater
of:
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1% of the total number of the securities outstanding; or |
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the average weekly reported trading volume of the common units
for the four calendar weeks prior to the sale. |
Sales under Rule 144 are also subject to specific manner of
sale provisions, holding period requirements, notice
requirements and the availability of current public information
about us. A person who is not deemed to have been an affiliate
of ours at any time during the three months preceding a sale,
and who has beneficially owned his common units for at least two
years, would be entitled to sell common units under
Rule 144 without regard to the public information
requirements, volume limitations, manner of sale provisions and
notice requirements of Rule 144.
The partnership agreement does not restrict our ability to issue
any partnership securities at any time. Any issuance of
additional common units or other equity securities would result
in a corresponding decrease in the proportionate ownership
interest in us represented by, and could adversely affect the
cash distributions to and market price of, common units then
outstanding. Please read The Partnership
Agreement Issuance of Additional Securities
beginning on page 142.
Under our partnership agreement, our general partner and its
affiliates have the right to cause us to register under the
Securities Act and state securities laws the offer and sale of
any common units, subordinated units or other partnership
securities that they hold. Subject to the terms and conditions
of our partnership agreement, these registration rights allow
our general partner and its affiliates or their assignees
holding any units or other partnership securities to require
registration of any of these units or other partnership
securities and to include them in a registration by us of other
units, including units offered by us or by any unitholder. Our
general partner will continue to have these registration rights
for two years following its withdrawal or removal as our general
partner. In connection with any registration of this kind, we
will indemnify each unitholder participating in the registration
and its officers, directors and controlling persons from and
against any liabilities under the Securities Act or any state
securities laws arising from the registration statement or
prospectus. We will bear all costs and expenses incidental to
any registration, excluding any underwriting discounts and a
structuring fee. Except as described below, our general partner
and its affiliates may sell their units or other partnership
interests in private transactions at any time, subject to
compliance with applicable laws.
Duke Energy Field Services, our partnership, our operating
company, our general partner and the directors and executive
officers of our general partner, have agreed not to sell any
common units they beneficially own for a period of 180 days
from the date of this prospectus. For a description of these
lock-up provisions, please read Underwriting
beginning on page 168.
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MATERIAL TAX CONSEQUENCES
This section is a discussion of the material tax considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, is the
opinion of Vinson & Elkins L.L.P., counsel to the general
partner and us, as to all material tax matters and all legal
conclusions insofar as it relates to matters of United States
federal income tax law and legal conclusions with respect to
those matters. This section is based upon current provisions of
the Internal Revenue Code, existing and proposed regulations and
current administrative rulings and court decisions, all of which
are subject to change. Later changes in these authorities may
cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to DCP Midstream Partners, LP and
our operating company.
The following discussion does not comment on all federal income
tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs) or mutual
funds. Accordingly, we urge each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins L.L.P.
and are, to the extent noted herein, based on the accuracy of
the representations made by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions of Vinson & Elkins L.L.P. Unlike a
ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made here
may not be sustained by a court if contested by the IRS. Any
contest of this sort with the IRS may materially and adversely
impact the market for the common units and the prices at which
common units trade. In addition, the costs of any contest with
the IRS, principally legal, accounting and related fees, will
result in a reduction in cash available for distribution to our
unitholders and our general partner and thus will be borne
indirectly by our unitholders and our general partner.
Furthermore, the tax treatment of us, or of an investment in us,
may be significantly modified by future legislative or
administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
For the reasons described below, Vinson & Elkins L.L.P. has
not rendered an opinion with respect to the following specific
federal income tax issues: (1) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please read
Tax Consequences of Unit
Ownership Treatment of Short Sales beginning
on page 158); (2) whether our monthly convention for
allocating taxable income and losses is permitted by existing
Treasury Regulations (please read
Disposition of Common Units
Allocations Between Transferors and Transferees beginning
on page 161); and (3) whether our method for
depreciating Section 743 adjustments is sustainable in
certain cases (please read Tax
Consequences of Unit Ownership Section 754
Election beginning on page 158).
Partnership Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception,
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exists with respect to publicly traded partnerships of which 90%
or more of the gross income for every taxable year consists of
qualifying income. Qualifying income includes income
and gains derived from the transportation, storage, processing
and marketing of crude oil, natural gas and products thereof.
Other types of qualifying income include interest (other than
from a financial business), dividends, gains from the sale of
real property and gains from the sale or other disposition of
capital assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 5% of
our current income is not qualifying income; however, this
estimate could change from time to time. Based upon and subject
to this estimate, the factual representations made by us and the
general partner and a review of the applicable legal
authorities, Vinson & Elkins L.L.P. is of the opinion that
at least 90% of our current gross income constitutes qualifying
income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status for federal income
tax purposes or whether our operations generate qualifying
income under Section 7704 of the Internal Revenue
Code. Instead, we will rely on the opinion of Vinson &
Elkins L.L.P. that, based upon the Internal Revenue Code, its
regulations, published revenue rulings and court decisions and
the representations described below, we will be classified as a
partnership and the operating company will be disregarded as an
entity separate from us for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has relied
on factual representations made by us and the general partner.
The representations made by us and our general partner upon
which Vinson & Elkins L.L.P. has relied are:
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Neither we nor the operating company will elect to be treated as
a corporation; and |
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For each taxable year, more than 90% of our gross income will be
income that Vinson & Elkins L.L.P. has opined or will opine
is qualifying income within the meaning of
Section 7704(d) of the Internal Revenue Code. |
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, we will be
treated as if we had transferred all of our assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in us. This contribution and liquidation should
be tax-free to unitholders and us so long as we, at that time,
do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for
federal income tax purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution
made to a unitholder would be treated as either taxable dividend
income, to the extent of our current or accumulated earnings and
profits, or, in the absence of earnings and profits, a
nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Vinson & Elkins
L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of DCP Midstream
Partners, LP will be treated as partners of DCP Midstream
Partners, LP for federal income tax purposes. Also, unitholders
whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units will be treated as partners of DCP Midstream Partners, LP
for federal income tax purposes.
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A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership Treatment of
Short Sales beginning on page 158.
Income, gain, deductions or losses would not be reportable by a
unitholder who is not a partner for federal income tax purposes,
and any cash distributions received by a unitholder who is not a
partner for federal income tax purposes would therefore appear
to be fully taxable as ordinary income. These holders are urged
to consult their own tax advisors with respect to their tax
consequences of holding common units in DCP Midstream Partners,
LP.
The references to unitholders in the discussion that
follows are to persons who are treated as partners in DCP
Midstream Partners, LP for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income. We will not pay
any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses and deductions without regard to whether
corresponding cash distributions are received by him.
Consequently, we may allocate income to a unitholder even if he
has not received a cash distribution. Each unitholder will be
required to include in income his allocable share of our income,
gains, losses and deductions for our taxable year ending with or
within his taxable year. Our taxable year ends on
December 31.
Treatment of Distributions. Distributions by us to
a unitholder generally will not be taxable to the unitholder for
federal income tax purposes, except to the extent the amount of
any such cash distribution exceeds his tax basis in his common
units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units beginning on page 160. Any reduction in a
unitholders share of our liabilities for which no partner,
including the general partner, bears the economic risk of loss,
known as nonrecourse liabilities, will be treated as
a distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of Losses
beginning on page 156.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture, and/or substantially appreciated
inventory items, both as defined in the Internal
Revenue Code, and collectively, Section 751
Assets. To that extent, he will be treated as having been
distributed his proportionate share of the Section 751
Assets and having exchanged those assets with us in return for
the non-pro rata portion of the actual distribution made to him.
This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholders tax basis for
the share of Section 751 Assets deemed relinquished in the
exchange.
Ratio of Taxable Income to Distributions. We
estimate that a purchaser of common units in this offering who
owns those common units from the date of closing of this
offering through the record date for distributions for the
period ending December 31, 2008, will be allocated an
amount of federal taxable income for that period that will be
30% or less of the cash distributed with respect to that period.
We anticipate that after the taxable year ending
December 31, 2008, the ratio of allocable taxable income to
cash distributions to the unitholders will increase. These
estimates are based upon the assumption that gross income from
operations will approximate the amount required to make the
minimum quarterly distribution on all units and other
assumptions with respect to capital expenditures, cash flow and
anticipated cash distributions. These estimates and assumptions
are subject to, among other things, numerous business, economic,
regulatory, competitive and political uncertainties beyond our
control. Further, the estimates are based on current tax law
155
and tax reporting positions that we will adopt and with which
the IRS could disagree. Accordingly, we cannot assure you that
these estimates will prove to be correct. The actual percentage
of distributions that will constitute taxable income could be
higher or lower, and any differences could be material and could
materially affect the value of the common units.
Basis of Common Units. A unitholders 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 unitholders share of our losses, by any
decreases in his share of our nonrecourse liabilities and by his
share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A
unitholder will have no share of our debt that is recourse to
the general partner, but will have a share, generally based on
his share of profits, of our nonrecourse liabilities. Please
read Disposition of Common Units
Recognition of Gain or Loss beginning on page 160.
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by five or fewer individuals or
some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that is less than his tax basis. A
unitholder must recapture losses deducted in previous years to
the extent that distributions cause his at risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable to the extent that his
tax basis or at risk amount, whichever is the limiting factor,
is subsequently increased. Upon the taxable disposition of a
unit, any gain recognized by a unitholder can be offset by
losses that were previously suspended by the at risk limitation
but may not be offset by losses suspended by the basis
limitation. Any excess loss above that gain previously suspended
by the at risk or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally corporate or partnership activities in which
the taxpayer does not materially participate, only to the extent
of the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly traded partnership. Consequently, any passive
losses we generate will only be available to offset our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other publicly
traded partnerships, or salary or active business income.
Passive losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive
activity loss rules are applied after other applicable
limitations on deductions, including the at risk rules and the
basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
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Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment; |
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our interest expense attributed to portfolio income; and |
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income. |
The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly traded
partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections. If we are required or
elect under applicable law to pay any federal, state, local or
foreign income tax on behalf of any unitholder or the general
partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as
a distribution of cash to the partner on whose behalf the
payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat
the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax
characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under
the partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual partner in
which event the partner would be required to file a claim in
order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In
general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among the general partner
and the unitholders in accordance with their percentage
interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated
units, or incentive distributions are made to the general
partner, gross income will be allocated to the recipients to the
extent of these distributions. If we have a net loss for the
entire year, that loss will be allocated first to the general
partner and the unitholders in accordance with their percentage
interests in us to the extent of their positive capital accounts
and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for the difference between the tax basis
and fair market value of property contributed to us by the
general partner and its affiliates, referred to in this
discussion as Contributed Property. The effect of
these allocations to a unitholder purchasing common units in
this offering will be essentially the same as if the tax basis
of our assets were equal to their fair market value at the time
of this offering. In addition, items of recapture income will be
allocated to the extent possible to the partner who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in such amount and manner as is needed to eliminate
the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given
157
effect for federal income tax purposes in determining a
partners share of an item of income, gain, loss or
deduction only if the allocation has substantial economic effect.
Vinson & Elkins L.L.P. is of the opinion that, with the
exception of the issues described in Tax
Consequences of Unit Ownership Section 754
Election beginning on page 158 and
Disposition of Common Units Allocations Between
Transferors and Transferees beginning on page 161,
allocations under our partnership agreement will be given effect
for federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction.
Treatment of Short Sales. A unitholder whose units
are loaned to a short seller to cover a short sale
of units may be considered as having disposed of those units. If
so, he would no longer be treated for tax purposes as a partner
with respect to those units during the period of the loan and
may recognize gain or loss from the disposition. As a result,
during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder; |
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any cash distributions received by the unitholder as to those
units would be fully taxable; and |
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all of these distributions would appear to be ordinary income. |
Vinson & Elkins L.L.P. has not rendered an opinion regarding
the treatment of a unitholder where common units are loaned to a
short seller to cover a short sale of common units; therefore,
unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller
are urged to modify any applicable brokerage account agreements
to prohibit their brokers from borrowing their units. The IRS
has announced that it is actively studying issues relating to
the tax treatment of short sales of partnership interests.
Please also read Disposition of Common
Units Recognition of Gain or Loss beginning on
page 160.
Alternative Minimum Tax. Each unitholder will be
required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. In general, the highest effective
United States federal income tax rate for individuals is
currently 35.0% and the maximum United States federal income tax
rate for net capital gains of an individual is currently 15.0%
if the asset disposed of was held for more than 12 months
at the time of disposition.
Section 754 Election. We will make the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. The election will generally permit us to adjust a common
unit purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not to
other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Treasury regulations under Section 743 of the Internal
Revenue Code require, if the remedial allocation method is
adopted (which we will adopt), a portion of the
Section 743(b) adjustment attributable to recovery property
to be depreciated over the remaining cost recovery period for
the Section 704(c) built-in gain. Under Treasury
Regulation Section 1.167(c)-1(a)(6), a Section 743(b)
adjustment attributable to property subject to depreciation
under Section 167 of the Internal Revenue Code, rather than
cost recovery deductions under Section 168, is generally
required to be depreciated using either the straight-line method
or the 150% declining balance method. Under our partnership
agreement, the general partner is authorized to take a position
to preserve the uniformity of units even if that position is not
consistent with these Treasury Regulations. Please read
Uniformity of Units beginning on
page 162.
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Although Vinson & Elkins L.L.P. is unable to opine as to the
validity of this approach because there is no controlling
authority on this issue, we intend to depreciate the portion of
a Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis
of the property, or treat that portion as non-amortizable to the
extent attributable to property the common basis of which is not
amortizable. This method is consistent with the regulations
under Section 743 of the Internal Revenue Code but is
arguably inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6), which is not
expected to directly apply to a material portion of our assets.
To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units beginning on
page 162.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally amortizable over a longer period of time or under a
less accelerated method than our tangible assets. We cannot
assure you that the determinations we make will not be
successfully challenged by the IRS and that the deductions
resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31
and who disposes of all of his units following the close of our
taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees beginning on page 161.
Initial Tax Basis, Depreciation and Amortization
Expense. The tax basis of our assets will be used for
purposes of computing depreciation and cost recovery deductions
and, ultimately, gain or loss on the disposition of these
assets. The federal income tax burden associated with the
difference between the fair market value of our assets and their
tax basis immediately prior to this offering will be borne by
the general partner. Please read Tax
Consequences of Unit Ownership Allocation of Income,
Gain, Loss and Deduction beginning on page 157.
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To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. We are not entitled to any amortization
deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the Internal
Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction beginning
on page 157 and Disposition of Common
Units Recognition of Gain or Loss beginning on
page 160.
The costs we incur in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and a structuring fee we incur will be
treated as syndication expenses.
Valuation and Tax Basis of Our Properties. The
federal income tax consequences of the ownership and disposition
of units will depend in part on our estimates of the relative
fair market values, and the initial tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be
recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received 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 at a maximum rate of 15%. However, a
portion of this gain or loss will be separately computed and
taxed as ordinary income or loss under Section 751 of the
Internal Revenue Code to the extent attributable to assets
giving rise to depreciation recapture or other unrealized
receivables or to inventory items we own. The
term unrealized receivables includes potential
recapture items, including depreciation recapture. Ordinary
income attributable to unrealized receivables, inventory items
and depreciation recapture may exceed net taxable gain realized
upon the sale of a unit and may be recognized even if there is a
net taxable loss realized on the sale of a unit. Thus, a
unitholder may recognize both ordinary income and a capital loss
upon a sale of units. Net capital losses may offset capital
gains and no more than $3,000 of ordinary income, in the case of
individuals, and may only be used to offset capital gains in the
case of corporations.
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The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling, a common
unitholder will be unable to select high or low basis common
units to sell as would be the case with corporate stock, but,
according to the regulations, may designate specific common
units sold for purposes of determining the holding period of
units transferred. A unitholder electing to use the actual
holding period of common units transferred must consistently use
that identification method for all subsequent sales or exchanges
of common units. A unitholder considering the purchase of
additional units or a sale of common units purchased in separate
transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the
regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale; |
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an offsetting notional principal contract; or |
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a futures or forward contract with respect to the partnership
interest or substantially identical property. |
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and Transferees.
In general, our taxable income and losses will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the unitholders in proportion to
the number of units owned by each of them as of the opening of
the applicable exchange on the first business day of the month,
which we refer to in this prospectus as the Allocation
Date. However, gain or loss realized on a sale or other
disposition of our assets other than in the ordinary course of
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations as there is no controlling authority on the
issue. Accordingly, Vinson & Elkins L.L.P. is unable to
opine on the validity of this method of allocating income and
deductions between unitholders although Vinson & Elkins
L.L.P. is of the opinion that this method is a reasonable
method. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of
the unitholders interest, our taxable income or losses
might be reallocated among the unitholders. We are authorized to
revise our method of allocation between unitholders, as well as
unitholders whose interests vary during a taxable year, to
conform to a method permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
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Notification Requirements. A purchaser of units
who purchases units from another unitholder is required to
notify us in writing of that purchase within 30 days after
the purchase. We are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may lead to the imposition of substantial penalties. However,
these reporting requirements do not apply to a sale by an
individual who is a citizen of the United States and who effects
the sale or exchange through a broker.
Constructive Termination. We will be considered to
have been terminated for tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital
and profits within a 12-month period. A constructive termination
results in the closing of our taxable year for all unitholders.
In the case of a unitholder reporting on a taxable year other
than a fiscal year ending December 31, the closing of our
taxable year may result in more than 12 months of our taxable
income or loss being includable in his taxable income for the
year of termination. We would be required to make new tax
elections after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination.
Uniformity of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6). Any
non-uniformity could have a negative impact on the value of the
units. Please read Tax Consequences of Unit
Ownership Section 754 Election beginning
on page 158.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6), which is not
expected to directly apply to a material portion of our assets.
Please read Tax Consequences of Unit
Ownership Section 754 Election beginning
on page 158 To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may adopt a depreciation and amortization expense position
under which all purchasers acquiring units in the same month
would receive depreciation and amortization expense deductions,
whether attributable to a common basis or Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our property. If this position is
adopted, it may result in lower annual depreciation and
amortization expense deductions than would otherwise be
allowable to some unitholders and risk the loss of depreciation
and amortization expense deductions not taken in the year that
these deductions are otherwise allowable. This position will not
be adopted if we determine that the loss of depreciation and
amortization expense deductions will have a material adverse
effect on the unitholders. If we choose not to utilize this
aggregate method, we may use any other reasonable depreciation
and amortization expense method to preserve the uniformity of
the intrinsic tax characteristics of any units that would not
have a material adverse effect on the unitholders. The IRS may
challenge any method of depreciating the Section 743(b)
adjustment described in this paragraph. If this challenge were
sustained, the uniformity of units might be affected, and the
gain from the sale of units might be increased without the
benefit of additional deductions. Please read
Disposition of Common Units Recognition of Gain or
Loss beginning on page 160.
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Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax
consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective tax rate from cash distributions made quarterly to
foreign unitholders. Each foreign unitholder must obtain a
taxpayer identification number from the IRS and submit that
number to our transfer agent on a Form W-8BEN or applicable
substitute form in order to obtain credit for these withholding
taxes. A change in applicable law may require us to change these
procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling a foreign unitholder who sells or otherwise disposes
of a unit generally will be subject to federal income tax on
gain realized on the sale or disposition of units. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative Matters
Information Returns and Audit Procedures. We
intend to furnish to each unitholder, within 90 days after
the close of each calendar year, specific tax information,
including a Schedule K-1, which describes his share of our
income, gain, loss and deduction for our preceding taxable year.
In preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders share of income, gain, loss and
deduction. We cannot assure you that those positions will in all
cases yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Vinson & Elkins
L.L.P. can assure prospective unitholders that the IRS will not
successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
163
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names DCP Midstream GP, LP
as our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that authority to the Tax Matters Partner. The Tax
Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on
his federal
income tax return that is not consistent with the treatment of
the item on our return. Intentional or negligent disregard of
this consistency requirement may subject a unitholder to
substantial penalties.
Nominee Reporting. Persons who hold an interest in
us as a nominee for another person are required to furnish to us:
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(a) |
the name, address and taxpayer identification number of the
beneficial owner and the nominee; |
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(b) |
whether the beneficial owner is: |
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1. |
a person that is not a United States person; |
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2. |
a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing; or |
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3. |
a tax-exempt entity; |
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(c) |
the amount and description of units held, acquired or
transferred for the beneficial owner; and |
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(d) |
specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from
sales. |
Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per failure, up
to a maximum of $100,000 per calendar year, is imposed by the
Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of
the units with the information furnished to us.
Accuracy-Related and Assessable Penalties. An
additional tax equal to 20% of the amount of any portion of an
underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or
regulations, substantial understatements of income tax and
substantial valuation misstatements, is imposed by the Internal
Revenue Code. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a
reasonable cause for that portion and that the taxpayer acted in
good faith regarding that portion.
A substantial understatement of income tax in any taxable year
exists if the amount of the understatement exceeds the greater
of 10% of the tax required to be shown on the return for the
taxable year
164
or $5,000 ($10,000 for most corporations). The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
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(1) |
for which there is, or was, substantial authority; or |
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(2) |
as to which there is a reasonable basis and the pertinent facts
of that position are disclosed on the return. |
More stringent rules, including additional penalties and
extended statutes of limitations, may apply as a result of our
participation in listed transactions or
reportable transactions with a significant tax avoidance
purpose. While we do not anticipate participating in such
transactions, if any item of income, gain, loss or deduction
included in the distributive shares of unitholders might result
in that kind of an understatement of income relating
to such a transaction, we must disclose the pertinent facts on
our return. In addition, we will make a reasonable effort to
furnish sufficient information for unitholders to make adequate
disclosure on their returns and to take other actions as may be
appropriate to permit unitholders to avoid liability for
penalties.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 200% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. No penalty is
imposed unless the portion of the underpayment attributable to a
substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400%
or more than the correct valuation, the penalty imposed
increases to 40%.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or do business in the States of
Louisiana, Texas and Arkansas and each impose a personal income
tax on individuals as well as an income tax on corporations and
other entities. Texas imposes a franchise tax (which is based in
part on net income) on corporations and limited liability
companies. We may also own property or do business in other
jurisdictions in the future. Although you may not be required to
file a return and pay taxes in some jurisdictions because your
income from that jurisdiction falls below the filing and payment
requirement, you will be required to file income tax returns and
to pay income taxes in many of these jurisdictions in which we
do business or own property and may be subject to penalties for
failure to comply with those requirements. In some
jurisdictions, tax losses may not produce a tax benefit in the
year incurred and may not be available to offset income in
subsequent taxable years. Some of the jurisdictions may require
us, or we may elect, to withhold a percentage of income from
amounts to be distributed to a unitholder who is not a resident
of the jurisdiction. Withholding, the amount of which may be
greater or less than a particular unitholders income tax
liability to the jurisdiction, generally does not relieve a
nonresident unitholder from the obligation to file an income tax
return. Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections beginning
on page 157. Based on current law and our estimate of our
future operations, the general partner anticipates that any
amounts required to be withheld will not be material.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as United States federal tax
returns, that may be required of him. Vinson & Elkins L.L.P.
has not rendered an opinion on the state, local or foreign tax
consequences of an investment in us.
165
SELLING UNITHOLDER
If the underwriters exercise all or any portion of their option
to purchase additional common units, we will issue up to
1,350,000 additional common units, and we will redeem an
equal number of units from a subsidiary of Duke Energy Field
Services, who may be deemed to be a selling unitholder in this
offering. The redemption price per common unit will be equal to
the price per common unit (net of underwriting discounts and a
structuring fee) sold to the underwriters upon exercise of their
option.
The following table sets forth information concerning the
ownership of common and subordinated units by a subsidiary of
Duke Energy Field Services. The numbers in the table are
presented assuming:
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the underwriters option to purchase additional units is
not exercised; and |
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the underwriters exercise their option to purchase additional
units in full. |
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Units Owned Immediately | |
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After Exercise of | |
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Units Owned | |
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Underwriters Option and | |
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Immediately After | |
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Related Unit Redemption | |
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This Offering | |
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Assuming | |
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Assuming | |
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Underwriters | |
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Underwriters | |
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Option is | |
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Option is | |
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Exercised | |
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Name of Selling Unitholder |
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Not Exercised | |
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Percent(1) | |
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in Full | |
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Percent(1) | |
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DCP LP Holdings, LP
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Common units
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1,357,143 |
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7.6% |
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7,143 |
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* |
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Subordinated units
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7,142,857 |
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40.0% |
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7,142,857 |
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40.0 |
% |
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* |
Less than 1%. |
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(1) |
Percentage of total units outstanding, including common units,
subordinated units and general partner units. |
166
INVESTMENT IN DCP MIDSTREAM PARTNERS, LP BY EMPLOYEE BENEFIT
PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and restrictions imposed by
Section 4975 of the Internal Revenue Code. For these
purposes the term employee benefit plan includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other
things, consideration should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA; |
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whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and |
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return. Please read Material Tax
Consequences Tax-Exempt Organizations and Other
Investors beginning on page 163. |
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The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit employee benefit plans, and also IRAs that
are not considered part of an employee benefit plan, from
engaging in specified transactions involving plan
assets with parties that are parties in
interest under ERISA or disqualified persons
under the Internal Revenue Code with respect to the plan.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary of an employee benefit
plan should consider whether the plan will, by investing in us,
be deemed to own an undivided interest in our assets, with the
result that our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction
rules, as well as the prohibited transaction rules of the
Internal Revenue Code.
The Department of Labor regulations provide guidance with
respect to whether the assets of an entity in which employee
benefit plans acquire equity interests would be deemed
plan assets under some circumstances. Under these
regulations, an entitys assets would not be considered to
be plan assets if, among other things:
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the equity interests acquired by employee benefit plans are
publicly offered securities i.e., the equity
interests are widely held by 100 or more investors independent
of the issuer and each other, freely transferable and registered
under some provisions of the federal securities laws; |
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(b) |
the entity is an operating company,
i.e., it is primarily engaged in the production or sale of a
product or service other than the investment of capital either
directly or through a majority-owned subsidiary or subsidiaries;
or |
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(c) |
there is no significant investment by benefit plan investors,
which is defined to mean that less than 25% of the value of each
class of equity interest is held by the employee benefit plans
referred to above, IRAs and other employee benefit plans not
subject to ERISA, including governmental plans. |
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) above.
Plan fiduciaries contemplating a purchase of common units should
consult with their own counsel regarding the consequences under
ERISA and the Internal Revenue Code in light of the serious
penalties imposed on persons who engage in prohibited
transactions or other violations.
167
UNDERWRITING
Lehman Brothers Inc. and Citigroup Global Markets Inc. are
acting as representatives of the underwriters and joint
book-running managers. Under the terms of an underwriting
agreement, a form of which is filed as an exhibit to the
registration statement relating to this prospectus, each of the
underwriters named below has severally agreed to purchase from
us the respective number of common units opposite its name below.
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Number of | |
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Common Units | |
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Lehman Brothers Inc.
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Citigroup Global Markets Inc.
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UBS Securities LLC
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Wachovia Capital Markets, LLC
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A.G. Edwards & Sons, Inc.
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KeyBanc Capital Markets, a division of McDonald
Investments Inc.
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Total
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9,000,000 |
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The underwriting agreement provides that the underwriters
obligation to purchase the common units depends on the
satisfaction of the conditions contained in the underwriting
agreement including:
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the obligation to purchase all of the common units offered
hereby if any of the common units are purchased; |
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the representations and warranties made by us to the
underwriters are true; |
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there has been no material change in the condition of us or in
the financial markets; and |
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we deliver customary closing documents to the underwriters. |
Commissions and Expenses
The following table summarizes the underwriting discounts and a
structuring fee we will pay to the underwriters in connection
with this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase additional common units. The underwriting fee is the
difference between the initial price to the public and the
amount the underwriters pay to us for the common units.
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No Exercise | |
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Full Exercise | |
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Per unit
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$ |
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$ |
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Total
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$ |
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$ |
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The representatives of the underwriters have advised us that the
underwriters propose to offer the common units directly to the
public at the public offering price on the cover of this
prospectus and to selected dealers, which may include the
underwriters, at such offering price less a selling concession
not in excess of
$ per
common unit. The underwriters may allow, and the selected
dealers may re-allow, a discount from the concession not in
excess of
$ per
common unit to other dealers. After the offering, the
representatives may change the offering price and other selling
terms.
In addition, we will pay Lehman Brothers Inc. and Citigroup
Global Markets Inc. a structuring fee of
$ for
evaluation, analysis and structuring of our partnership.
The expenses of the offering that are payable by us are
estimated to be approximately $4.7 million (exclusive of
underwriting discounts and the structuring fee). The
underwriters have agreed to reimburse us for a portion of these
expenses in an amount of up to 0.25% of the gross proceeds of
this offering (including any exercise of the underwriters
option to purchase additional common units).
In no event will the maximum amount of compensation to be paid
to NASD members in connection with this offering exceed 10% of
the gross proceeds (plus 0.5% for bona fide, accountable due
diligence expenses).
168
Option to Purchase Additional Common Units
We have granted the underwriters an option exercisable for
30 days after the date of this prospectus to purchase, from
time to time, in whole or in part, up to an aggregate of
1,350,000 additional common units at the public offering price
less underwriting discounts and a structuring fee. This option
may be exercised if the underwriters sell more than 9,000,000
common units in connection with this offering. To the extent
that this option is exercised, each underwriter will be
obligated, subject to certain conditions, to purchase its pro
rata portion of these additional common units based on the
underwriters percentage underwriting commitment in the
offering as indicated in the table at the beginning of this
Underwriting Section. We will use proceeds from borrowings under
our credit facility to redeem from a subsidiary of Duke Energy
Field Services a number of common units equal to the number of
common units issued upon exercise of the option, if any, at a
price per common unit equal to the proceeds per common unit
before expenses but after underwriting discounts and a
structuring fee.
Lock-Up Agreements
We, our subsidiaries, our general partner and its affiliates,
including the directors and executive officers of the general
partner, have agreed, without the prior written consent of the
representatives, not to, directly or indirectly, offer, pledge,
announce the intention to sell, sell, contract to sell, sell an
option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of any common units or any
securities that may be converted into or exchanged for any
common units, enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences
of ownership of the common units, file or cause to be filed a
registration statement with respect to the registration of any
common units or securities convertible, exercisable or
exchangeable into common units or any other of our securities or
publicly disclose the intention to do any of the foregoing for a
period of 180 days from the date of this prospectus other than
permitted transfers.
The 180-day restricted period described in the preceding
paragraph will be extended if:
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during the last 17 days of the 180-day restricted period we
issue an earnings release or announce material news or a
material event; or |
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prior to the expiration of the 180-day restricted period, we
announce that we will release earnings results during the 16-day
period beginning on the last day of the 180-day period, |
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day period beginning on the issuance of the earnings release
or the announcement of the material news or material event.
The representatives, in their sole discretion, may release the
common units subject to these restrictions in whole or part at
anytime with or without notice. When determining whether or not
to release common units from these restrictions, the primary
factors that the representatives will consider include the
requesting unitholders reasons for requesting the release,
the number of common units for which the release is being
requested and the prevailing economic and equity market
conditions at the time of the request.
Offering Price Determination
Prior to this offering, there has been no public market for our
common units. The initial public offering price will be
negotiated between the representatives and us. In determining
the initial public offering price of our common units, the
representatives will consider:
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the history and prospects for the industry in which we compete; |
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our financial information; |
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the ability of our management and our business potential and
earning prospects; |
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the prevailing securities markets at the time of this offering;
and |
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the recent market prices of, and the demand for, publicly traded
common units of generally comparable master limited partnerships. |
169
Indemnification
We, our general partner, DCP Midstream GP, LLC and Duke Energy
Field Services (or their successors) have agreed to indemnify
the underwriters against certain liabilities, including
liabilities under the Securities Act and liabilities incurred in
connection with the directed unit program referred to below, and
to contribute to payments that the underwriters may be required
to make for these liabilities.
Directed Unit Program
At our request, the underwriters have reserved up to 10% of the
common units for sale at the initial public offering price to
persons who are our directors, officers or employees and certain
other persons. The number of common units available for sale to
the general public will be reduced by the number of directed
common units purchased by participants in the program. Any
directed common units not purchased will be offered by the
underwriters to the general public on the same basis as all
other common units offered. The directed unit program materials
will include a lock-up agreement requiring each purchaser in the
directed unit program to agree that for a period of
180 days from the date of the final prospectus, such
purchaser will not, without prior written consent from the
representatives, dispose of or hedge any shares of common units
purchased in the directed unit program. The purchasers in the
directed unit program will be subject to substantially the same
form of lock-up agreement as our officers, directors and
unitholders described above. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, in connection with the
sales of the directed common units.
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common units, in
accordance with Regulation M under the Securities Exchange
Act of 1934.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum. |
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A short position involves a sale by the underwriters of the
common units in excess of the number of common units the
underwriters are obligated to purchase in the offering, which
creates the syndicate short position. This short position may be
either a covered short position or a naked short position. In a
covered short position, the number of common units involved in
the sales made by the underwriters in excess of the number of
common units they are obligated to purchase is not greater than
the number of common units that they may purchase by exercising
their option to purchase additional common units. In a naked
short position, the number of common units involved is greater
than the number of common units in their option to purchase
additional common units. The underwriters may close out any
short position by either exercising their option to purchase
additional common units and/or purchasing common units in the
open market. In determining the source of common units to close
out the short position, the underwriters will consider, among
other things, the price of common units available for purchase
in the open market as compared to the price at which they may
purchase common units through their option to purchase
additional common units. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the common units in the
open market after pricing that could adversely affect investors
who purchase in the offering. |
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Syndicate covering transactions involve purchases of the common
units in the open market after the distribution has been
completed in order to cover syndicate short positions. |
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common units
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. |
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common units or preventing or retarding
a decline in the market price of the common units. As a result,
the price of the common units may be higher than the price
170
that might otherwise exist in the open market. These
transactions may be effected on The New York Stock Exchange or
otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the common units. In addition, neither we nor any of the
underwriters make any representation that the representatives
will engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
Electronic Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of common units for sale to online brokerage
account holders. Any such allocation for online distributions
will be made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed
by us or any underwriter or selling group member in its capacity
as underwriter or selling group member and should not be relied
upon by investors.
New York Stock Exchange
The common units have been approved for listing on the New York
Stock Exchange under the symbol DPM.
Discretionary Sales
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts that exceed 5% of the
total number of common units offered by them.
Stamp Taxes
If you purchase common units offered in this prospectus, you may
be required to pay stamp taxes and other charges under the laws
and practices of the country of purchase, in addition to the
offering price listed on the cover page of this prospectus.
Relationships
The underwriters may in the future perform investment banking
and advisory services for us from time to time for which they
may receive customary fees and expenses. The underwriters may
also, from time to time, engage in other transactions with or
perform services for us in the ordinary course of their
business. In addition, some of the underwriters and their
affiliates have performed, and may in the future perform,
various financial advisory, investment banking and other banking
services in the ordinary course of business with Duke Energy
Field Services and its affiliates for which they received or
will receive customary compensation.
NASD Conduct Rules
Because the National Association of Securities Dealers, Inc., or
NASD, views the common units offered hereby as interests in a
direct participation program, the offering is being made in
compliance with Rule 2810 of the NASDs Conduct Rules.
Investor suitability with respect to the common units should be
judged similarly to the suitability with respect to other
securities that are listed for trading on a national securities
exchange.
171
VALIDITY OF THE COMMON UNITS
The validity of the common units will be passed upon for us by
Vinson & Elkins L.L.P., Houston, Texas. Certain legal
matters in connection with the common units offered hereby will
be passed upon for the underwriters by Baker Botts L.L.P.,
Houston, Texas.
EXPERTS
The financial statements of DCP Midstream Partners Predecessor
as of December 31, 2003 and 2004 and September 30,
2005 and for each of the three years in the period ended
December 31, 2004 and for the nine months ended
September 30, 2005 included in this prospectus and the
related financial statement schedule included elsewhere in the
registration statement have been audited by Deloitte &
Touche LLP, an independent registered public accounting
firm, as stated in their report appearing herein and elsewhere
in the registration statement (which report expresses an
unqualified opinion and includes an explanatory paragraph
relating to the preparation of the financial statements of DCP
Midstream Partners Predecessor from the separate records
maintained by Duke Energy Field Services, LLC) and are included
in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of DCP Midstream Partners, LP as of
September 9, 2005 and the balance sheet of DCP Midstream
GP, LP as of September 9, 2005 included in this prospectus
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or
the SEC, a registration statement on Form S-l regarding the
common units. This prospectus does not contain all of the
information found in the registration statement. For further
information regarding us and the common units offered by this
prospectus, you may desire to review the full registration
statement, including its exhibits and schedules, filed under the
Securities Act. The registration statement of which this
prospectus forms a part, including its exhibits and schedules,
may be inspected and copied at the public reference room
maintained by the SEC at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Copies of the materials
may also be obtained from the SEC at prescribed rates by writing
to the public reference room maintained by the SEC at
100 F Street, N.E., Room 1580, Washington, D.C.
20549. You may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site on the Internet at http://www.sec.gov. Our
registration statement, of which this prospectus constitutes a
part, can be downloaded from the SECs web site.
We intend to furnish our unitholders annual reports containing
our audited financial statements and furnish or make available
quarterly reports containing our unaudited interim financial
information for the first three fiscal quarters of each of our
fiscal years.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain
forward-looking statements. These statements can be identified
by the use of forward-looking terminology including
may, believe, expect,
anticipate, estimate,
continue, or other similar words. These statements
discuss future expectations, contain projections of results of
operations or of financial condition, or state other
forward-looking information. These forward-looking
statements involve risks and uncertainties. When considering
these forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus.
The risk factors and other factors noted throughout this
prospectus could cause our actual results to differ materially
from those contained in any forward-looking statement.
172
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
DCP MIDSTREAM PARTNERS, LP UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
F-3 |
|
|
|
|
|
F-4 |
|
|
|
|
|
F-5 |
|
|
|
|
|
F-6 |
|
|
DCP MIDSTREAM PARTNERS PREDECESSOR COMBINED FINANCIAL
STATEMENTS:
|
|
|
|
|
|
|
|
|
F-9 |
|
|
|
|
|
F-10 |
|
|
|
|
|
F-11 |
|
|
|
|
|
F-13 |
|
|
|
|
|
F-14 |
|
|
|
|
|
F-15 |
|
|
DCP MIDSTREAM PARTNERS, LP FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
|
F-31 |
|
|
|
|
|
F-32 |
|
|
|
|
|
F-33 |
|
|
DCP MIDSTREAM GP, LP FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
|
F-34 |
|
|
|
|
|
F-35 |
|
|
|
|
|
F-36 |
|
F-1
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction
The unaudited pro forma combined financial statements of DCP
Midstream Partners, LP as of September 30, 2005, for the
year ended December 31, 2004 and for the nine months ended
September 30, 2005 are based upon the historical combined
financial position and results of operations of the DCP
Midstream Partners Predecessor. DCP Midstream Partners, LP (the
Partnership) will own and operate the businesses of
the DCP Midstream Partners Predecessor effective with the
closing of the offering. This contribution will be recorded at
historical cost as it is considered to be a reorganization of
entities under common control. Unless the context otherwise
requires, references herein to the Partnership include the
Partnership and its operating company. The unaudited pro forma
combined financial statements for the Partnership have been
derived from the historical combined financial statements of the
DCP Midstream Partners Predecessor set forth elsewhere in this
Prospectus and are qualified in their entirety by reference to
such historical combined financial statements and related notes
contained therein. The pro forma financial statements have been
prepared on the basis that the Partnership will be treated as a
partnership for federal income tax purposes. The unaudited pro
forma financial statements should be read in conjunction with
the notes accompanying such unaudited pro forma combined
financial statements and with the historical combined financial
statements and related notes set forth elsewhere in this
Prospectus.
The unaudited pro forma balance sheet and the pro forma
statements of operations were derived by adjusting the
historical combined financial statements of DCP Midstream
Partners Predecessor. The adjustments are based upon currently
available information and certain estimates and assumptions;
therefore, actual adjustments will differ from the pro forma
adjustments. However, management believes that the assumptions
provide a reasonable basis for presenting the significant
effects of the transactions as contemplated and that the pro
forma adjustments give appropriate effect to those assumptions
and are properly applied in the unaudited pro forma combined
financial statements.
The unaudited pro forma combined financial statements are not
necessarily indicative of the results that actually would have
occurred if the Partnership had assumed the operations of the
DCP Midstream Partners Predecessor on the dates indicated or
which would be obtained in the future.
F-2
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 2005
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP Midstream | |
|
|
|
|
|
|
Partners | |
|
|
|
|
|
|
Predecessor | |
|
|
|
Partnership | |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
|
|
|
$ |
180.0 |
(a) |
|
$ |
94.6 |
|
|
|
|
|
|
|
|
(11.7 |
)(b) |
|
|
|
|
|
|
|
|
|
|
|
(4.3 |
)(c) |
|
|
|
|
|
|
|
|
|
|
|
110.0 |
(d) |
|
|
|
|
|
|
|
|
|
|
|
61.0 |
(e) |
|
|
|
|
|
|
|
|
|
|
|
(61.0 |
)(f) |
|
|
|
|
|
|
|
|
|
|
|
(0.4 |
)(g) |
|
|
|
|
|
|
|
|
|
|
|
(179.0 |
)(h) |
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of
$0.2 million
|
|
|
93.5 |
|
|
|
(93.5 |
)(i) |
|
|
|
|
|
|
Affiliates
|
|
|
1.1 |
|
|
|
(1.1 |
)(i) |
|
|
|
|
|
|
Imbalances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on non-trading derivative and hedging
transactions affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
94.6 |
|
|
|
|
|
|
|
94.6 |
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
61.0 |
(f) |
|
|
61.0 |
|
Property, plant and equipment, net
|
|
|
168.8 |
|
|
|
|
|
|
|
168.8 |
|
Intangible assets, net and deferred charges
|
|
|
2.2 |
|
|
|
0.4 |
(g) |
|
|
2.6 |
|
Equity method investment
|
|
|
6.3 |
|
|
|
(0.6 |
) (i) |
|
|
5.7 |
|
Unrealized gains on non-trading derivative and hedging
transactions affiliate
|
|
|
6.5 |
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
278.4 |
|
|
$ |
60.8 |
|
|
$ |
339.2 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL/NET PARENT EQUITY |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
49.8 |
|
|
$ |
|
|
|
$ |
49.8 |
|
|
|
Affiliates
|
|
|
2.0 |
|
|
|
|
|
|
|
2.0 |
|
|
|
Imbalances
|
|
|
2.1 |
|
|
|
|
|
|
|
2.1 |
|
|
Unrealized losses on non-trading derivative and hedging
transactions affiliate
|
|
|
3.6 |
|
|
|
|
|
|
|
3.6 |
|
|
Other
|
|
|
3.9 |
|
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
61.4 |
|
|
|
|
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
110.0 |
(d) |
|
|
171.0 |
|
|
|
|
|
|
|
|
61.0 |
(e) |
|
|
|
|
Unrealized losses on non-trading derivative and hedging
transactions affiliate
|
|
|
2.5 |
|
|
|
|
|
|
|
2.5 |
|
Other long-term liabilities
|
|
|
0.3 |
|
|
|
|
|
|
|
0.3 |
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
Net parent investment
|
|
|
213.8 |
|
|
|
(95.2 |
)(i) |
|
|
|
|
|
|
|
|
|
|
|
(179.0 |
)(h) |
|
|
|
|
|
|
|
|
|
|
|
60.4 |
(j) |
|
|
|
|
Common unitholders public
|
|
|
|
|
|
|
180.0 |
(a) |
|
|
164.0 |
|
|
|
|
|
|
|
|
(11.7 |
)(b) |
|
|
|
|
|
|
|
|
|
|
|
(4.3 |
)(c) |
|
|
|
|
Common unitholders sponsor
|
|
|
|
|
|
|
(9.3 |
)(j) |
|
|
(9.3 |
) |
Subordinated unitholders sponsor
|
|
|
|
|
|
|
(48.7 |
)(j) |
|
|
(48.7 |
) |
General partner interest
|
|
|
|
|
|
|
(2.4 |
)(j) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net parent equity
|
|
$ |
278.4 |
|
|
$ |
60.8 |
|
|
$ |
339.2 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined financial
statements.
F-3
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2004
($ in millions, except unit and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP Midstream | |
|
|
|
|
|
|
Partners | |
|
|
|
|
|
|
Predecessor | |
|
|
|
Partnership | |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
412.7 |
|
|
$ |
(156.2 |
)(k) |
|
$ |
256.5 |
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
|
77.0 |
|
|
|
|
|
|
|
77.0 |
|
|
Transportation and processing services
|
|
|
9.5 |
|
|
|
|
|
|
|
9.5 |
|
|
Transportation and processing services to affiliates
|
|
|
10.4 |
|
|
|
3.5 |
(k) |
|
|
13.9 |
|
|
Losses from non-trading derivative activity affiliate
|
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
509.5 |
|
|
|
(152.7 |
) |
|
|
356.8 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs
|
|
|
404.1 |
|
|
|
(152.9 |
)(k) |
|
|
251.2 |
|
|
Purchases of natural gas and NGLs from affiliates
|
|
|
48.5 |
|
|
|
|
|
|
|
48.5 |
|
|
Operating and maintenance expense
|
|
|
13.6 |
|
|
|
|
|
|
|
13.6 |
|
|
Depreciation and amortization expense
|
|
|
12.6 |
|
|
|
|
|
|
|
12.6 |
|
|
General and administrative expense affiliate
|
|
|
6.5 |
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
485.3 |
|
|
|
(152.9 |
) |
|
|
332.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
24.2 |
|
|
|
0.2 |
|
|
|
24.4 |
|
Earnings from equity method investment
|
|
|
0.6 |
|
|
|
(0.1 |
)(m) |
|
|
0.5 |
|
Impairment of equity method investment
|
|
|
(4.4 |
) |
|
|
0.4 |
(m) |
|
|
(4.0 |
) |
Interest expense, net
|
|
|
|
|
|
|
(3.1 |
)(l) |
|
|
(3.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
20.4 |
|
|
$ |
(2.6 |
) |
|
$ |
17.8 |
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in net income
|
|
|
|
|
|
|
|
|
|
$ |
17.4 |
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partners unit
|
|
|
|
|
|
|
|
|
|
$ |
0.99 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partners units
outstanding
|
|
|
|
|
|
|
|
|
|
|
17,500,000 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined financial
statements.
F-4
DCP MIDSTREAM PARTNERS, LP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2005
($ in millions, except unit and per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCP Midstream | |
|
|
|
|
|
|
Partners | |
|
|
|
|
|
|
Predecessor | |
|
|
|
Partnership | |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
441.1 |
|
|
$ |
(143.2 |
)(k) |
|
$ |
297.9 |
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
|
53.1 |
|
|
|
|
|
|
|
53.1 |
|
|
Transportation and processing services
|
|
|
8.4 |
|
|
|
|
|
|
|
8.4 |
|
|
Transportation and processing services to affiliates
|
|
|
8.3 |
|
|
|
2.7 |
(k) |
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
510.9 |
|
|
|
(140.5 |
) |
|
|
370.4 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs
|
|
|
410.6 |
|
|
|
(140.5 |
)(k) |
|
|
270.1 |
|
|
Purchases of natural gas and NGLs from affiliates
|
|
|
53.8 |
|
|
|
|
|
|
|
53.8 |
|
|
Operating and maintenance expense
|
|
|
11.5 |
|
|
|
|
|
|
|
11.5 |
|
|
Depreciation and amortization expense
|
|
|
8.8 |
|
|
|
|
|
|
|
8.8 |
|
|
General and administrative expense affiliate
|
|
|
8.2 |
|
|
|
|
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
492.9 |
|
|
|
(140.5 |
) |
|
|
352.4 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18.0 |
|
|
|
|
|
|
|
18.0 |
|
Earnings from equity method investment
|
|
|
0.4 |
|
|
|
|
(m) |
|
|
0.4 |
|
Interest expense, net
|
|
|
|
|
|
|
(3.5 |
)(l) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
18.4 |
|
|
$ |
(3.5 |
) |
|
$ |
14.9 |
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net income
|
|
|
|
|
|
|
|
|
|
$ |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in net income
|
|
|
|
|
|
|
|
|
|
$ |
14.6 |
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partners unit
|
|
|
|
|
|
|
|
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partners units
outstanding
|
|
|
|
|
|
|
|
|
|
|
17,500,000 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined financial
statements.
F-5
DCP MIDSTREAM PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation, the
Offering and Other Transactions
The historical financial information is derived from the
historical combined financial statements of DCP Midstream
Partners Predecessor. The pro forma adjustments have been
prepared as if the transactions to be effected at the closing of
this offering had taken place on September 30, 2005, in the
case of the pro forma balance sheet, or as of January 1,
2004, in the case of the pro forma statement of operations for
the year ended December 31, 2004 and for the nine months
ended September 30, 2005.
The pro forma financial statements reflect the following
transactions:
|
|
|
|
|
the issuance by DCP Midstream Partners, LP of common units to
the public; |
|
|
|
the payment of estimated underwriting commissions and other
offering expenses; |
|
|
|
|
the net proceeds received from borrowings under up to a new
$400 million credit facility consisting of up to a
$175 million term loan facility and up to a
$250 million revolving credit facility; |
|
|
|
|
the distribution to Duke Energy Field Services of a portion of
the net proceeds from this offering and from borrowings under
the new credit facility; |
|
|
|
|
the retention by Duke Energy Field Services of DCP Midstream
Partners Predecessors accounts receivable and a 5%
interest in the Black Lake Pipe Line Company; and |
|
|
|
|
the execution of a transportation agreement related to the
Seabreeze pipeline between DCP Midstream Partners, LP and Duke
Energy Field Services. |
Upon completion of this offering, DCP Midstream Partners, LP
anticipates incurring an incremental general and administrative
expense of approximately $8.4 million per year, some of
which will be allocated to DCP Midstream Partners, LP by Duke
Energy Field Services, as a result of being a publicly traded
limited partnership, including compensation and benefit expenses
of our executive management personnel, costs associated with
annual and quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, investor
relations activities, registrar and transfer agent fees,
incremental director and officer liability insurance costs and
director compensation. The unaudited pro forma combined
financial statements do not reflect this anticipated incremental
general and administrative expense.
2. Pro Forma Adjustments and
Assumptions
|
|
|
|
(a) |
Reflects the proceeds to DCP Midstream Partners, LP of
$180.0 million from the issuance and sale of
9.0 million common units at an initial public offering
price of $20.00 per unit. |
|
|
|
|
(b) |
Reflects the payment of estimated underwriting commissions of
$11.7 million, which will be allocated to the public common
units. |
|
|
|
|
(c) |
Reflects the payment of $4.3 million for the estimated
costs associated with the offering, which will be allocated to
the public common units. |
|
|
|
|
(d) |
Reflects $110.0 million of borrowings under the new
revolving credit facility. |
|
|
|
|
(e) |
Reflects $61.0 million of borrowings under the new term
loan facility. |
|
|
|
|
(f) |
Reflects the purchase of United States Treasury and other
qualifying securities using a portion of the proceeds from the
offering. These are pledged as collateral for the borrowings
under the term loan portion of our credit facility. |
|
|
|
|
(g) |
Reflects estimated deferred issuance costs associated with the
new $400 million credit facility. |
|
|
(h) |
Reflects the distribution to Duke Energy Field Services of a
portion of the net proceeds from the offering and borrowings
under the new $400 million credit facility. |
F-6
DCP MIDSTREAM PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
(i) |
Reflects the retention by Duke Energy Field Services of DCP
Midstream Partners Predecessors accounts receivable in the
amount of $94.6 million and a 5% interest in the Black Lake
Pipe Line Company with a carrying amount of $0.6 million. |
|
|
|
|
(j) |
Reflects the conversion of the adjusted net parent investment of
DCP Midstream Partners Predecessor of $(60.4) million from
net parent investment to common and subordinated limited partner
equity of DCP Midstream Partners, LP and the general
partners interest in DCP Midstream Partners, LP. The
conversion is allocated as follows: |
|
|
|
|
$(9.3) million for
1,357,143 common units |
|
|
|
|
$(48.7) million for
7,142,857 subordinated units |
|
|
|
|
$(2.4) million for
357,143 general partner units |
|
|
|
|
|
|
After the conversion, the equity amounts of the common and
subordinated unitholders are 58% and 40%, respectively, of total
equity, with the remaining 2% equity representing the general
partner interest. |
|
|
(k) |
Reflects the terms of a new agreement between Duke Energy Field
Services and DCP Midstream Partners, LP in which Duke Energy
Field Services will purchase the NGLs that were historically
purchased by DCP Midstream Partners Predecessor and transported
on the Seabreeze pipeline, and Duke Energy Field Services will
pay DCP Midstream Partners, LP to transport the NGLs on the
Seabreeze pipeline pursuant to a fee-based rate that will be
applied to the volumes transported. This fee-based contractual
arrangement will result in approximately the same operating
income that would be realized when DCP Midstream Partners
Predecessor was the purchaser and seller of the NGLs. |
|
|
|
(l) |
Reflects on a net basis the interest expense related to the
borrowings described in (d) and (e) above and the
interest income related to the long-term investments described
in (f) above. The interest expense is based on an average
interest rate of 2.4% and 3.8% for the year ended
December 31, 2004 and the nine months ended September 2005
which reflects the LIBOR interest rates during those periods. An
increase in interest rates of 1% would have increased net
interest expense by $1.1 million for 2004 and
$0.8 million for the nine months ended September 2005. |
|
|
|
|
(m) |
Reflects the retention by Duke Energy Field Services of a 5%
interest in the Black Lake Pipe Line Company. |
|
3. Pro Forma Net Income Per
Unit
Pro forma net income per unit is determined by dividing the pro
forma net income that would have been allocated to the common
and subordinated unitholders, which is 98% of the pro forma net
income, by the number of common and subordinated units expected
to be outstanding at the closing of the offering. For purposes
of this calculation, the number of common and subordinated units
assumed to be outstanding was 17,500,000. All units were assumed
to have been outstanding since January 1, 2004. Basic and
diluted pro forma net income per unit are equivalent as there
are no dilutive units at the date of closing of the initial
public offering of the common units of DCP Midstream Partners,
LP. Pursuant to the partnership agreement, to the extent that
the quarterly distributions exceed certain targets, the general
partner is entitled to receive certain incentive distributions
that will result in more net income proportionately being
allocated to the general partner than to the holders of common
and subordinated units. The pro forma net income per unit
calculations assume that no incentive distributions were made to
the general partner because no such distribution would have been
paid based upon the pro forma available cash from operating
surplus for the periods.
F-7
DCP MIDSTREAM PARTNERS, LP
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS (Continued)
Staff Accounting Bulletin 1:B:3 requires that certain
distributions to owners prior to or coincident with an initial
public offering be considered as distributions in contemplation
of that offering. Upon completion of this offering, DCP
Midstream Partners intends to distribute approximately
$179.0 million in cash to affiliates of Duke Energy Field
Services. This distribution will be paid with
(i) $110.0 million of borrowings under the new
revolving credit facility; (ii) $61.0 million of
borrowings under the new term loan facility and
(iii) $8.0 million from the proceeds of the issuance
and sale of common units. Assuming additional common units were
issued to give effect to this distribution, pro forma net income
per limited partners unit would have been $0.97 and $0.82
for the year ended December 31, 2004 and the nine-months
ended September 30, 2005, respectively.
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Duke Energy Field Services, LLC
We have audited the accompanying combined balance sheets of DCP
Midstream Partners Predecessor (the Company) as of
December 31, 2003 and 2004 and September 30, 2005, and
the related combined statements of operations, comprehensive
income, changes in net parent equity, and cash flows for each of
the three years in the period ended December 31, 2004 and
for the nine months ended September 30, 2005. Our audits
also included the financial statement schedule listed in
Item 16. These financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the combined financial
position of DCP Midstream Partners Predecessor at
December 31, 2003 and 2004 and September 30, 2005, and
the combined results of its operations and its cash flows for
each of the three years in the period ended December 31,
2004 and for the nine months ended September 30, 2005, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
The accompanying combined financial statements have been
prepared from the separate records maintained by Duke Energy
Field Services, LLC and may not necessarily be indicative of the
conditions that would have existed or the results of operations
if the Company had been operated as an unaffiliated entity.
Portions of certain expenses represent allocations made from,
and are applicable to, Duke Energy Field Services, LLC as a
whole.
/s/ Deloitte & Touche LLP
Denver, Colorado
November 17, 2005
F-9
DCP MIDSTREAM PARTNERS PREDECESSOR
COMBINED BALANCE SHEETS
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
September 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net of allowance for doubtful accounts of
$0.2 million, $0.1 million and $0.2 million,
respectively
|
|
$ |
39.4 |
|
|
$ |
59.0 |
|
|
$ |
93.5 |
|
|
|
Affiliates
|
|
|
5.8 |
|
|
|
1.9 |
|
|
|
1.1 |
|
|
|
Imbalances
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
Unrealized gains on non-trading derivative and hedging
transactions affiliate
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
45.7 |
|
|
|
61.1 |
|
|
|
94.6 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
181.9 |
|
|
|
172.0 |
|
|
|
168.8 |
|
Intangible asset, net
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
2.2 |
|
Equity method investment
|
|
|
9.6 |
|
|
|
5.8 |
|
|
|
6.3 |
|
Unrealized gains on non-trading derivative and hedging
transactions affiliate
|
|
|
|
|
|
|
|
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
239.5 |
|
|
$ |
241.1 |
|
|
$ |
278.4 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET PARENT EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
|
|
$ |
34.2 |
|
|
$ |
35.2 |
|
|
$ |
49.8 |
|
|
|
Affiliates
|
|
|
0.4 |
|
|
|
3.2 |
|
|
|
2.0 |
|
|
|
Imbalances
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
2.1 |
|
|
Unrealized losses on non-trading derivative and hedging
transactions affiliate
|
|
|
|
|
|
|
0.1 |
|
|
|
3.6 |
|
|
Other
|
|
|
2.8 |
|
|
|
2.7 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
38.3 |
|
|
|
42.6 |
|
|
|
61.4 |
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on non-trading derivative and hedging
transactions affiliate
|
|
|
|
|
|
|
|
|
|
|
2.5 |
|
Other long-term liabilities
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.3 |
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net parent equity
|
|
|
201.1 |
|
|
|
198.4 |
|
|
|
214.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net parent equity
|
|
$ |
239.5 |
|
|
$ |
241.1 |
|
|
$ |
278.4 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-10
DCP MIDSTREAM PARTNERS PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
122.9 |
|
|
$ |
319.3 |
|
|
$ |
412.7 |
|
|
$ |
294.4 |
|
|
$ |
441.1 |
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
|
160.3 |
|
|
|
134.7 |
|
|
|
77.0 |
|
|
|
60.0 |
|
|
|
53.1 |
|
|
Transportation and processing services
|
|
|
7.3 |
|
|
|
9.5 |
|
|
|
9.5 |
|
|
|
6.8 |
|
|
|
8.4 |
|
|
Transportation and processing services to affiliates
|
|
|
7.0 |
|
|
|
9.1 |
|
|
|
10.4 |
|
|
|
8.2 |
|
|
|
8.3 |
|
|
(Losses) and gains from non-trading derivative
activity affiliate
|
|
|
(0.3 |
) |
|
|
2.5 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
297.2 |
|
|
|
475.1 |
|
|
|
509.5 |
|
|
|
369.3 |
|
|
|
510.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs
|
|
|
169.8 |
|
|
|
309.3 |
|
|
|
404.1 |
|
|
|
287.6 |
|
|
|
410.6 |
|
|
Purchases of natural gas and NGLs from affiliates
|
|
|
87.0 |
|
|
|
121.3 |
|
|
|
48.5 |
|
|
|
39.9 |
|
|
|
53.8 |
|
|
Operating and maintenance expense
|
|
|
14.0 |
|
|
|
15.0 |
|
|
|
13.6 |
|
|
|
9.7 |
|
|
|
11.5 |
|
|
Depreciation and amortization expense
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
12.6 |
|
|
|
9.4 |
|
|
|
8.8 |
|
|
General and administrative expense affiliate
|
|
|
6.1 |
|
|
|
7.1 |
|
|
|
6.5 |
|
|
|
4.8 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
289.2 |
|
|
|
465.5 |
|
|
|
485.3 |
|
|
|
351.4 |
|
|
|
492.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8.0 |
|
|
|
9.6 |
|
|
|
24.2 |
|
|
|
17.9 |
|
|
|
18.0 |
|
Earnings from equity method investment
|
|
|
0.5 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Impairment of equity method investment
|
|
|
|
|
|
|
|
|
|
|
(4.4 |
) |
|
|
(4.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-11
DCP MIDSTREAM PARTNERS PREDECESSOR
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2002, 2003 and 2004 and
Nine Months Ended September 30, 2004
(unaudited) and 2005
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Years Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
Net income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-12
DCP MIDSTREAM PARTNERS PREDECESSOR
COMBINED STATEMENTS OF CHANGES IN NET PARENT EQUITY
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
Other | |
|
|
|
|
|
|
Comprehensive | |
|
Net Parent | |
|
Net Parent | |
|
|
Income | |
|
Investment | |
|
Equity | |
|
|
| |
|
| |
|
| |
Balance, January 1, 2002
|
|
$ |
|
|
|
$ |
211.1 |
|
|
$ |
211.1 |
|
Net change in parent advances
|
|
|
|
|
|
|
1.1 |
|
|
|
1.1 |
|
Net income
|
|
|
|
|
|
|
8.5 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
|
|
|
|
220.7 |
|
|
|
220.7 |
|
Net change in parent advances
|
|
|
|
|
|
|
(29.6 |
) |
|
|
(29.6 |
) |
Net income
|
|
|
|
|
|
|
10.0 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
|
|
|
|
|
201.1 |
|
|
|
201.1 |
|
Net change in parent advances
|
|
|
|
|
|
|
(23.1 |
) |
|
|
(23.1 |
) |
Net income
|
|
|
|
|
|
|
20.4 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
|
|
|
|
|
198.4 |
|
|
|
198.4 |
|
Net change in parent advances
|
|
|
|
|
|
|
(3.0 |
) |
|
|
(3.0 |
) |
Other comprehensive income
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
Net income
|
|
|
|
|
|
|
18.4 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2005
|
|
$ |
0.4 |
|
|
$ |
213.8 |
|
|
$ |
214.2 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-13
DCP MIDSTREAM PARTNERS PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
(unaudited) | |
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
8.5 |
|
|
$ |
10.0 |
|
|
$ |
20.4 |
|
|
$ |
13.9 |
|
|
$ |
18.4 |
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense and impairment charge
|
|
|
12.3 |
|
|
|
12.8 |
|
|
|
17.0 |
|
|
|
13.8 |
|
|
|
8.8 |
|
|
Other, net
|
|
|
|
|
|
|
0.2 |
|
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
Change in operating assets and liabilities which provided
(used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(10.9 |
) |
|
|
(2.1 |
) |
|
|
(15.7 |
) |
|
|
2.6 |
|
|
|
(33.7 |
) |
|
Net unrealized (gains) losses on non-trading derivative and
hedging transactions
|
|
|
|
|
|
|
(0.5 |
) |
|
|
0.6 |
|
|
|
0.3 |
|
|
|
(0.1 |
) |
|
Accounts payable
|
|
|
10.8 |
|
|
|
9.2 |
|
|
|
3.8 |
|
|
|
(4.8 |
) |
|
|
14.1 |
|
|
Other
|
|
|
0.6 |
|
|
|
1.2 |
|
|
|
0.1 |
|
|
|
0.9 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
21.3 |
|
|
|
30.8 |
|
|
|
25.6 |
|
|
|
26.3 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(22.7 |
) |
|
|
(2.7 |
) |
|
|
(3.1 |
) |
|
|
(0.7 |
) |
|
|
(5.3 |
) |
|
Proceeds from sales of assets
|
|
|
0.3 |
|
|
|
1.5 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(22.4 |
) |
|
|
(1.2 |
) |
|
|
(2.5 |
) |
|
|
(0.3 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in parent advances
|
|
|
1.1 |
|
|
|
(29.6 |
) |
|
|
(23.1 |
) |
|
|
(26.0 |
) |
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1.1 |
|
|
|
(29.6 |
) |
|
|
(23.1 |
) |
|
|
(26.0 |
) |
|
|
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-14
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2003 and 2004 and
Nine Months Ended September 30, 2004 (unaudited) and
2005
1. Description of Business and
Basis of Presentation
DCP Midstream Partners Predecessor is engaged in the business of
gathering, compressing, treating, processing, transporting and
selling natural gas and the business of transporting and selling
natural gas liquids, or NGLs.
The accompanying combined financial statements and related notes
of DCP Midstream Partners Predecessor present the financial
position, results of operations and cash flows and changes in
net parent equity of (1) Duke Energy Field Services,
LLCs (Duke Energy Field Services or
Parent) North Louisiana system assets
(Minden, Ada, and PELICO)
held directly and indirectly by Duke Energy Field Services;
(2) Duke Energy Field Services NGL transportation
pipeline (Seabreeze) held by Duke Energy NGL
Services, LP; and (3) Duke Energy Field Services 50%
equity method investment in Black Lake Pipe Line Company
(Black Lake) held by Duke Energy NGL Services, LP.
Duke Energy NGL Services, LP is a wholly owned subsidiary of
Duke Energy Field Services. Duke Energy Field Services is owned
50% by Duke Energy Corporation (Duke Energy) and 50%
by ConocoPhillips. Prior to July 2005, Duke Energy owned 69.7%
and ConocoPhillips owned 30.3% of Duke Energy Field Services.
These combined financial statements are prepared in connection
with the proposed initial public offering of limited partner
units in DCP Midstream Partners, LP (the
Partnership), which was formed in August 2005 and
which will own the operations defined above previously conducted
by DCP Midstream Partners Predecessor, except for a 5% interest
in the Black Lake Pipe Line Company that will be retained by
Duke Energy Field Services. Subsequent to the initial public
offering of the Partnership, Duke Energy Field Services will
direct the business operations of the Partnership through Duke
Energy Field Services ownership and control of the
Partnerships general partner. The Partnership is not
expected to have any employees. Duke Energy Field Services and
its affiliates employees will be responsible for
conducting the Partnerships business and operating its
assets.
The combined financial statements include the accounts of DCP
Midstream Partners Predecessor and have been prepared in
accordance with accounting principles generally accepted in the
United States. All significant intercompany balances and
transactions within DCP Midstream Partners Predecessor have been
eliminated. The combined financial statements of DCP Midstream
Partners Predecessor have been prepared from the separate
records maintained by Duke Energy Field Services and may not
necessarily be indicative of the conditions that would have
existed or the results of operations if DCP Midstream Partners
Predecessor had been operated as an unaffiliated entity. Because
a direct ownership relationship did not exist among all the
various entities comprising DCP Midstream Partners Predecessor,
Duke Energy Field Services net investment in DCP Midstream
Partners Predecessor is shown as net parent equity in lieu of
owners equity in the combined financial statements.
Transactions between DCP Midstream Partners Predecessor and
other Duke Energy Field Services operations have been identified
in the combined statements as transactions between affiliates
(see Note 4). In the opinion of management, all adjustments
have been reflected that are necessary for a fair presentation
of the combined financial statements.
The combined statements of operations and cash flows for the
nine months ended September 30, 2004 are unaudited. These
unaudited interim combined financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. In the opinion of management, the
unaudited interim combined financial statements have been
prepared on the same basis as the audited combined financial
statements and include all adjustments necessary to present
fairly the financial position and results of operations for the
respective interim periods. Interim financial results are not
necessarily indicative of the results to be expected for an
annual period.
F-15
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
2. Summary of Significant
Accounting Policies
Use of Estimates Conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
notes. Although these estimates are based on managements
best available knowledge of current and expected future events,
actual results could be different from those estimates.
Accounting for Risk Management and Hedging Activities and
Financial Instruments Each derivative not
qualifying for the normal purchases and normal sales exception
under SFAS No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities as amended, is recorded on a gross basis in
the Combined Balance Sheets at its fair value as Unrealized
gains or Unrealized losses on non-trading derivative and hedging
transactions. Derivative assets and liabilities remain
classified in our Combined Balance Sheets as Unrealized gains or
Unrealized losses on non-trading derivative and hedging
transactions at fair value until the contractual settlement
period occurs.
All derivative activity reflected in the combined financial
statements was transacted by Duke Energy Field Services and its
subsidiaries and allocated to DCP Midstream Partners
Predecessor. Management designates each energy commodity
derivative as either trading or non-trading. Certain non-trading
derivatives are further designated as either a hedge of a
forecasted transaction or future cash flow (cash flow hedge), a
hedge of a recognized asset, liability or firm commitment (fair
value hedge), or normal purchases or normal sales, while certain
non-trading derivatives, which are related to asset-based
activity, are designated as non-trading derivative activity. For
the periods presented, DCP Midstream Partners Predecessor did
not have any trading activity, however, DCP Midstream Partners
Predecessor does have cash flow and fair value hedge activity,
normal purchases and normal sales activity, and non-trading
derivative activity included in these combined financial
statements. For each derivative, the accounting method and
presentation of gains and losses or revenue and expense in the
Combined Statements of Operations are as follows:
|
|
|
|
|
|
|
Classification of Contract |
|
Accounting Method | |
|
Presentation of Gains & Losses or Revenue & Expense |
|
|
| |
|
|
Non-Trading Derivative Activity
|
|
|
Mark-to-market (a) |
|
|
Net basis in Gains and losses from non-trading derivative
activity |
Cash Flow Hedge
|
|
|
Hedge method (b) |
|
|
Gross basis in the same income statement category as the related
hedged item |
Fair Value Hedge
|
|
|
Hedge method (b) |
|
|
Gross basis in the same income statement category as the related
hedged item |
Normal Purchases or Normal Sales
|
|
|
Accrual method (c) |
|
|
Gross basis upon settlement in the corresponding income
statement category based on purchase or sale |
|
|
(a) |
Mark-to-market An accounting method whereby the
change in the fair value of the asset or liability is recognized
in the results of operations in Gains and losses from
non-trading derivative activity during the current period. |
|
|
(b) |
Hedge method An accounting method whereby the
effective portion of the change in the fair value of the asset
or liability is recorded as a balance sheet adjustment and there
is no recognition in the results of operations for the effective
portion until the service is provided or the associated delivery
period occurs. |
|
|
(c) |
Accrual method An accounting method whereby there is
no recognition in the results of operations for changes in fair
value of a contract until the service is provided or the
associated delivery period occurs. |
Cash Flow and Fair Value Hedges For
derivatives designated as a cash flow hedge or a fair value
hedge, management prepares formal documentation of the hedge in
accordance with SFAS 133. In addition, management formally
assesses, both at the inception of the hedge and on an ongoing
basis, whether the hedge contract is highly effective in
offsetting changes in cash flows or fair values of hedged items.
All
F-16
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
components of each derivative gain or loss are included in the
assessment of hedge effectiveness, unless otherwise noted.
The fair value of a derivative designated as a cash flow hedge
is recorded for balance sheet purposes as Unrealized gains or
Unrealized losses on non-trading derivative and hedging
transactions. The effective portion of the change in fair value
of a derivative designated as a cash flow hedge is recorded in
net parent equity as accumulated other comprehensive income
(AOCI) and the ineffective portion is recorded in
the Combined Statement of Operations. During the period in which
the hedged transaction occurs, amounts in AOCI associated with
the hedged transaction are reclassified to the Combined
Statements of Operations in the same accounts as the item being
hedged. Hedge accounting is discontinued prospectively when it
is determined that the derivative no longer qualifies as an
effective hedge, or when it is no longer probable that the
hedged transaction will occur. When hedge accounting is
discontinued because the derivative no longer qualifies as an
effective hedge, the derivative is subject to the mark-to-market
accounting method prospectively. The derivative continues to be
carried on the Combined Balance Sheets at its fair value;
however, subsequent changes in its fair value are recognized in
current period earnings. Gains and losses related to
discontinued hedges that were previously accumulated in AOCI
will remain in AOCI until the hedged transaction occurs, unless
it is no longer probable that the hedged transaction will occur,
in which case, the gains and losses that were previously
deferred in AOCI will be immediately recognized in current
period earnings.
The fair value of a derivative designated as a fair value hedge
is recorded for balance sheet purposes as Unrealized gains or
Unrealized losses on non-trading derivative and hedging
transactions. DCP Midstream Partners Predecessor recognizes the
gain or loss on the derivative instrument, as well as the
offsetting loss or gain on the hedged item in earnings in the
current period. All derivatives designated and accounted for as
fair value hedges are classified in the same category as the
item being hedged in the results of operations.
Valuation When available, quoted market
prices or prices obtained through external sources are used to
verify a contracts fair value. For contracts with a
delivery location or duration for which quoted market prices are
not available, fair value is determined based on pricing models
developed primarily from historical and expected correlations
with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the
transaction as well as the potential impact of liquidating open
positions in an orderly manner over a reasonable time period
under current conditions. Changes in market prices and
management estimates directly affect the estimated fair value of
these contracts. Accordingly, it is reasonably possible that
such estimates may change in the near term.
Intangible Asset Intangible asset
consists of a commodity contract. The commodity contract is
amortized on a straight-line basis over the period of expected
future benefit of approximately 25 years (see Note 6).
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets (see Note 5). The
costs of maintenance and repairs, which are not significant
improvements, are expensed when incurred. Expenditures to extend
the useful lives of the assets are capitalized.
DCP Midstream Partners Predecessor has adopted SFAS No. 143
(SFAS 143), Accounting for Asset
Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development
and/or normal use of the asset. SFAS 143 requires that the
fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred, if a
reasonable estimate of fair value can be made. The fair value of
the liability is added to the carrying amount of the associated
F-17
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
asset. This additional carrying amount is then depreciated over
the life of the asset. The liability increases due to the
passage of time based on the time value of money until the
obligation is settled.
Impairment of Long-Lived Assets
Management periodically evaluates whether the carrying value of
long-lived assets has been impaired when circumstances indicate
the carrying value of those assets may not be recoverable. This
evaluation is based on undiscounted cash flow projections. The
carrying amount is not recoverable if it exceeds the
undiscounted sum of cash flows expected to result from the use
and eventual disposition of the asset. Management considers
various factors when determining if these assets should be
evaluated for impairment, including but not limited to:
|
|
|
|
|
significant adverse change in legal factors or in the business
climate; |
|
|
|
a current-period operating or cash flow loss combined with a
history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the
use of a long-lived asset; |
|
|
|
an accumulation of costs significantly in excess of the amount
originally expected for the acquisition or construction of a
long-lived asset; |
|
|
|
significant adverse changes in the extent or manner in which an
asset is used or in its physical condition; |
|
|
|
a significant change in the market value of an asset; or |
|
|
|
a current expectation that, more likely than not, an asset will
be sold or otherwise disposed of before the end of its estimated
useful life. |
If the carrying value is not recoverable, the impairment loss is
measured as the excess of the assets carrying value over
its fair value. Management assesses the fair value of long-lived
assets using commonly accepted techniques, and may use more than
one method, including, but not limited to, recent third party
comparable sales, internally developed discounted cash flow
analysis and analysis from outside advisors. Significant changes
in market conditions resulting from events such as the condition
of an asset or a change in managements intent to utilize
the asset would generally require management to reassess the
cash flows related to the long-lived assets.
Equity Method Investment DCP Midstream
Partners Predecessor accounts for investments in 20% to 50%
owned affiliates, and investments in less than 20% owned
affiliates where DCP Midstream Partners Predecessor has the
ability to exercise significant influence, under the equity
method.
Impairment of Equity Method Investment
DCP Midstream Partners Predecessor evaluates its equity method
investment for impairment when events or changes in
circumstances indicate, in managements judgment, that the
carrying value of such investment may have experienced an
other-than-temporary decline in value. When evidence of loss in
value has occurred, management compares the estimated fair value
of the investment to the carrying value of the investment to
determine whether an impairment has occurred. Management
assesses the fair value of its equity method investment using
commonly accepted techniques, and may use more than one method,
including, but not limited to, recent third party comparable
sales, internally developed discounted cash flow analysis and
analysis from outside advisors. If the estimated fair value is
less than the carrying value and management considers the
decline in value to be other than temporary, the excess of the
carrying value over the estimated fair value is recognized in
the financial statements as an impairment.
F-18
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Revenue Recognition DCP Midstream
Partners Predecessors primary types of sales and service
activities reported as operating revenue include:
|
|
|
|
|
sales of natural gas, NGLs and condensate; |
|
|
|
natural gas gathering, processing and transportation, from which
DCP Midstream Partners Predecessor generates revenues primarily
through the compression, gathering, treating, processing and
transportation of natural gas; and |
|
|
|
NGL transportation from which we generate revenues from
transportation fees. |
Revenues associated with sales of natural gas, NGLs and
condensate are recognized when title passes to the customer,
which is when the risk of ownership passes to the purchaser and
physical delivery occurs. Revenues associated with
transportation and processing fees are recognized when the
service is provided.
For gathering and processing services, DCP Midstream Partners
Predecessor either receives fees or commodities from natural gas
producers depending on the type of contract. Commodities
received are in turn sold and recognized as revenue in
accordance with the criteria outlined above. Under the
percentage-of-proceeds contract type, DCP Midstream Partners
Predecessor is paid for its services by keeping a percentage of
the NGLs produced and a percentage of the residue gas resulting
from processing the natural gas. Under the percentage-of-index
contract type, DCP Midstream Partners Predecessor purchases
wellhead natural gas and sells processed natural gas and NGLs to
third parties.
DCP Midstream Partners Predecessor recognizes revenues for
non-trading derivative activity net in the Combined Statements
of Operations as Gains and losses from non-trading derivative
activity, in accordance with EITF Issue No. 02-03,
Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities. These
activities include mark-to-market gains and losses on energy
contracts and the financial or physical settlement of energy
contracts. DCP Midstream Partners Predecessor generally
reports revenues under the percentage-of-proceeds,
percentage-of-index and fee-based contracts gross in the
Combined Statements of Operations, in accordance with EITF Issue
No. 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent. Except for fee-based
agreements, DCP Midstream Partners Predecessor acts as the
principal in these transactions, takes title to the product, and
incurs the risks and rewards of ownership.
Significant Customer DCP Midstream
Partners Predecessor had one customer, a third party, that
accounted for 12%, 26% and 31% of total operating revenues for
the years ended December 31, 2002, 2003 and 2004,
respectively, and 30% and 30% of total operating revenues for
the nine months ended September 30, 2004 (unaudited) and
2005, respectively. Revenues from this customer are reported in
the NGL Logistics Segment. DCP Midstream Partners Predecessor
also had significant transactions with affiliates (see Note 4).
Environmental Expenditures
Environmental expenditures are expensed or capitalized as
appropriate, depending upon the future economic benefit.
Expenditures that relate to an existing condition caused by past
operations and that do not generate current or future revenue
are expensed. Liabilities for these expenditures are recorded on
an undiscounted basis when environmental assessments and/or
clean-ups are probable and the costs can be reasonably
estimated. Environmental liabilities as of December 31,
2003 and 2004 were insignificant. Environmental liabilities as
of September 30, 2005 were approximately $0.1 million,
recorded as other long-term liabilities.
Gas and NGL Imbalance Accounting
Quantities of natural gas or NGLs over-delivered or
under-delivered related to imbalance agreements with customers,
producers or pipelines are recorded monthly as other receivables
or other payables using then current market prices or the
weighted average prices of natural gas or NGLs at the plant or
system. These balances are settled with deliveries of natural
gas or NGLs or with cash.
F-19
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
3. Impairment of Equity Method
Investment
In the third quarter of 2004, DCP Midstream Partners Predecessor
recognized an other-than-temporary impairment of its investment
in Black Lake totaling $4.4 million as Impairment of equity
method investment, included in the Combined Statements of
Operations. This investment was written down to fair value which
was determined based on managements best estimates of
discounted future cash flow models. The charge associated with
this impairment is recorded in the NGL Logistics segment.
4. Agreements and Transactions
with Affiliates
Duke Energy Field Services
The employees supporting DCP Midstream Partners Predecessor
operations are employees of Duke Energy Field Services. Duke
Energy Field Services provides centralized corporate functions
on behalf of DCP Midstream Partners Predecessor, including
legal, accounting, treasury, insurance administration and claims
processing, risk management, health, safety and environmental,
information technology, human resources, credit, payroll,
internal audit, taxes and engineering. Duke Energy Field
Services records the accrued liabilities and prepaid expenses
for most general and administrative expenses in its financial
statements, including liabilities related to payroll, short and
long-term incentive plans, employee retirement and medical
plans, paid time off, audit, tax, insurance and other service
fees. DCP Midstream Partners Predecessors share of those
costs has been allocated based on DCP Midstream Partners
Predecessors proportionate net investment (consisting of
Property, plant and equipment, net, Equity method investment,
and Intangible assets, net) compared to Duke Energy Field
Services net investment. DCP Midstream Partners
Predecessors share of these costs is reflected in General
and administrative expense affiliate in the
accompanying Combined Statements of Operations. In
managements estimation, the allocation methodologies used
are reasonable and result in an allocation to DCP Midstream
Partners Predecessor of its costs of doing business borne by
Duke Energy Field Services.
DCP Midstream Partners Predecessor participates in Duke Energy
Field Services cash management program; hence, DCP
Midstream Partners Predecessor includes no cash balances on the
Combined Balance Sheets. All cash activity performed by Duke
Energy Field Services on behalf of DCP Midstream Partners
Predecessor, including collection of receivables, payment of
payables, and the settlement of sales and purchases transactions
between DCP Midstream Partners Predecessor and Duke Energy Field
Services have been recorded as parent advances and included in
Net parent investment.
All derivative activity reflected in the combined financial
statements was transacted by Duke Energy Field Services and its
subsidiaries and allocated to DCP Midstream Partners
Predecessor. As such, all amounts classified in the Combined
Balance Sheets as Unrealized gains or losses on non-trading
derivative and hedging transactions and in the Combined
Statements of Operations as Gains and losses from non-trading
derivative activity, are affiliate related.
DCP Midstream Partners Predecessor sells a portion of its
residue gas and NGLs to and purchases raw natural gas and NGLs
from Duke Energy Field Services and its affiliates. Management
anticipates continuing to purchase and sell these commodities to
Duke Energy Field Services in the ordinary course of business.
Duke Energy Field Services was a significant customer during the
years ended December 31, 2003 and 2004 and during the nine
months ended September 30, 2004 (unaudited) and 2005.
Duke Energy
DCP Midstream Partners Predecessor charges transportation fees,
sells a portion of its residue gas to, and purchases raw natural
gas from, Duke Energy and its affiliates. Management anticipates
continuing to purchase and sell these commodities to Duke Energy
and its affiliates in the ordinary course of business. Duke
Energy was a significant customer during the years ended
December 31, 2002 and 2003.
F-20
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
ConocoPhillips
DCP Midstream Partners Predecessor charges transportation fees
and sells a portion of its residue gas and NGLs to and purchases
raw natural gas from ConocoPhillips and its affiliates. DCP
Midstream Partners Predecessor has a fee-based contractual
relationship with ConocoPhillips pursuant to which
ConocoPhillips has dedicated all of its natural gas production
within an area of mutual interest to the assets in our Natural
Gas Services Segment. Management anticipates continuing to
purchase and sell these commodities to ConocoPhillips and its
affiliates in the ordinary course of business. In addition,
DCP Midstream Partners Predecessor may be reimbursed by
ConocoPhillips for certain capital projects where the work is
performed by DCP Midstream Partners Predecessor.
DCP Midstream Partners Predecessor received
$0.7 million, $0.5 million and $0.3 million of
capital reimbursements during the years ended December 31,
2002, 2003 and 2004, respectively, and $0.3 million
(unaudited) and $0.2 million during the nine months ended
September 30, 2004 and 2005, respectively.
The following table summarizes the transactions with Duke Energy
Field Services, Duke Energy and ConocoPhillips as described
above (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended | |
|
For the Nine Months | |
|
|
December 31, | |
|
Ended September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
Duke Energy Field Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
16.8 |
|
|
$ |
50.0 |
|
|
$ |
63.0 |
|
|
$ |
45.9 |
|
|
$ |
46.4 |
|
|
Purchases of natural gas and NGLs
|
|
$ |
27.8 |
|
|
$ |
87.8 |
|
|
$ |
26.7 |
|
|
$ |
26.7 |
|
|
$ |
30.8 |
|
|
General and administrative expense
|
|
$ |
6.1 |
|
|
$ |
7.1 |
|
|
$ |
6.5 |
|
|
$ |
4.8 |
|
|
$ |
8.2 |
|
Duke Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
143.5 |
|
|
$ |
81.1 |
|
|
$ |
10.3 |
|
|
$ |
10.3 |
|
|
$ |
|
|
|
Transportation and processing services
|
|
$ |
1.1 |
|
|
$ |
0.7 |
|
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
|
Purchases of natural gas and NGLs
|
|
$ |
|
|
|
$ |
1.6 |
|
|
$ |
3.4 |
|
|
$ |
3.4 |
|
|
$ |
10.1 |
|
ConocoPhillips:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$ |
|
|
|
$ |
3.6 |
|
|
$ |
3.7 |
|
|
$ |
3.8 |
|
|
$ |
6.7 |
|
|
Transportation and processing services
|
|
$ |
5.9 |
|
|
$ |
8.4 |
|
|
$ |
9.9 |
|
|
$ |
7.7 |
|
|
$ |
7.9 |
|
|
Purchases of natural gas and NGLs
|
|
$ |
59.2 |
|
|
$ |
31.9 |
|
|
$ |
18.4 |
|
|
$ |
9.8 |
|
|
$ |
12.9 |
|
DCP Midstream Partners Predecessor had Accounts receivable and
Accounts payable with affiliates as follows (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
September 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Duke Energy Field Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
0.6 |
|
|
$ |
0.7 |
|
|
$ |
|
|
Duke Energy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
3.8 |
|
|
$ |
|
|
|
$ |
|
|
|
Accounts payable
|
|
$ |
0.4 |
|
|
$ |
|
|
|
$ |
|
|
ConocoPhillips:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$ |
1.4 |
|
|
$ |
1.2 |
|
|
$ |
1.1 |
|
|
Accounts payable
|
|
$ |
|
|
|
$ |
3.2 |
|
|
$ |
2.0 |
|
F-21
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
5. |
Property, Plant and Equipment |
A summary of property, plant and equipment by classification is
as follows (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
Depreciable | |
|
| |
|
September 30, | |
|
|
Life | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Gathering systems
|
|
|
15 30 years |
|
|
$ |
91.2 |
|
|
$ |
92.9 |
|
|
$ |
95.9 |
|
Processing plants
|
|
|
25 30 years |
|
|
|
53.9 |
|
|
|
53.7 |
|
|
|
53.4 |
|
Transportation
|
|
|
25 30 years |
|
|
|
126.9 |
|
|
|
127.2 |
|
|
|
127.2 |
|
General plant
|
|
|
3 5 years |
|
|
|
2.7 |
|
|
|
2.7 |
|
|
|
2.5 |
|
Construction work in progress
|
|
|
|
|
|
|
2.4 |
|
|
|
3.1 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
277.1 |
|
|
|
279.6 |
|
|
|
285.0 |
|
Accumulated depreciation
|
|
|
|
|
|
|
(95.2 |
) |
|
|
(107.6 |
) |
|
|
(116.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
$ |
181.9 |
|
|
$ |
172.0 |
|
|
$ |
168.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $12.2 million, $12.7 million,
$12.5 million for the years ended December 31, 2002,
2003 and 2004, respectively, and $9.3 million and
$8.7 million for the nine months ended September 30,
2004 (unaudited) and 2005, respectively.
Asset Retirement Obligations DCP
Midstream Partners Predecessors asset retirement
obligations relate primarily to the retirement of various
gathering pipelines and processing facilities, obligations
related to right-of-way easement agreements and contractual
leases for land use. SFAS 143 was effective for fiscal
years beginning after June 15, 2002, and was adopted by DCP
Midstream Partners Predecessor on January 1, 2003. At
January 1, 2003, the implementation of SFAS 143
resulted in a net increase in total assets of $0.1 million,
consisting of an increase in net property, plant and equipment.
Long-term liabilities increased by $0.1 million, which
represents the establishment of an asset retirement obligation
liability. A cumulative-effect of a change in accounting
principle adjustment, which was not significant, was recorded on
January 1, 2003 as a reduction in earnings. On an unaudited
pro forma basis, net income for the year ended December 31,
2002 would not have been materially different if SFAS 143
had been adopted. Accretion expense for the years ended
December 31, 2003 and 2004 and for the nine months ended
September 30, 2004 (unaudited) was not material. Accretion
expense for the nine months ended September 30, 2005 was
$0.1 million.
The asset retirement obligation is adjusted each quarter for any
liabilities incurred or settled during the period, accretion
expense and any revisions made to the estimated cash flows. The
asset retirement obligation, included in other long-term
liabilities in the Combined Balance Sheets, for the years ended
December 31, 2003 and 2004 was $0.1 million at the end
of each period. During the nine months ended September 30,
2005, DCP Midstream Partners Predecessor incurred
liabilities of $0.1 million. The asset retirement
obligation at September 30, 2005 was $0.2 million.
Intangible asset consists of a commodity contract. The gross
carrying amount and accumulated amortization for the commodity
contract is as follows (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
September 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Intangible asset
|
|
$ |
2.5 |
|
|
$ |
2.5 |
|
|
$ |
2.5 |
|
Accumulated amortization
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Intangible asset, net
|
|
$ |
2.3 |
|
|
$ |
2.2 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
F-22
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
For each of the years ended December 31, 2002, 2003 and
2004, and for the nine months ended September 30, 2004
(unaudited) and 2005, DCP Midstream Partners Predecessor
recorded amortization expense associated with the commodity
contract of $0.1 million. As of December 31, 2004, the
remaining amortization period for this contract was 22.3 years.
As of September 30, 2005, the remaining amortization period
for this contract is 21.6 years.
Estimated future amortization for this contract is as follows
(millions):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
September 30, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
2005
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
2006
|
|
|
0.1 |
|
|
|
0.1 |
|
2007
|
|
|
0.1 |
|
|
|
0.1 |
|
2008
|
|
|
0.1 |
|
|
|
0.1 |
|
2009
|
|
|
0.1 |
|
|
|
0.1 |
|
Thereafter
|
|
|
1.7 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
2.2 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
7. |
Equity Method Investment |
DCP Midstream Partners Predecessor has an investment in the
following business accounted for using the equity method,
included in the NGL Logistics Segment (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
|
|
| |
|
September 30, | |
|
|
Ownership | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Black Lake Pipe Line Company
|
|
|
50.0 |
% |
|
$ |
9.6 |
|
|
$ |
5.8 |
|
|
$ |
6.3 |
|
Black Lake Pipe Line Company owns a 317 mile NGL pipeline,
with a throughput capacity of approximately 40 MBbtu/d. The
pipeline receives NGLs from a number of gas plants in Louisiana
and Texas. There was a deficit between the carrying amount of
the investment and the underlying equity of Black Lake Pipe Line
Company of $3.9 million and $8.1 million at
December 31, 2003 and 2004, respectively, and
$7.8 million at September 30, 2005 which is associated
with, and is being accreted over the life of, the underlying
long-lived assets of Black Lake Pipe Line Company.
Earnings from equity method investment amounted to the following
(millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
Black Lake Pipe Line Company
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
|
$ |
0.6 |
|
|
$ |
0.4 |
|
|
$ |
0.4 |
|
Distributions received were $0.6 million during each of the
years ended December 31, 2004 and 2003. DCP Midstream
Partners Predecessor did not receive any distributions during
the year ended December 31, 2004 or during the nine months
ended September 30, 2004 (unaudited) or 2005.
F-23
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
The following summarizes financial information of Black Lake
Pipe Line Company (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(unaudited) | |
|
|
Income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
3.5 |
|
|
$ |
3.2 |
|
|
$ |
3.2 |
|
|
$ |
2.4 |
|
|
$ |
2.5 |
|
|
Operating expenses
|
|
$ |
2.9 |
|
|
$ |
2.9 |
|
|
$ |
2.4 |
|
|
$ |
1.8 |
|
|
$ |
2.2 |
|
|
Net income
|
|
$ |
0.6 |
|
|
$ |
0.3 |
|
|
$ |
0.8 |
|
|
$ |
0.6 |
|
|
$ |
0.3 |
|
Balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
$ |
3.1 |
|
|
$ |
4.3 |
|
|
|
|
|
|
$ |
5.2 |
|
|
Noncurrent assets
|
|
|
|
|
|
|
18.6 |
|
|
|
18.0 |
|
|
|
|
|
|
|
17.5 |
|
|
Current liabilities
|
|
|
|
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
$ |
21.3 |
|
|
$ |
22.1 |
|
|
|
|
|
|
$ |
22.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. |
Risk Management and Hedging Activities, Credit Risk and
Financial Instruments |
Commodity price risk DCP Midstream
Partners Predecessors principal operations of gathering,
processing, and transportation of natural gas, and the
accompanying operations of transportation and marketing of NGLs
create commodity price risk due to market fluctuations in
commodity prices, primarily with respect to the prices of NGLs,
natural gas and crude oil. As an owner and operator of natural
gas processing and other midstream assets, DCP Midstream
Partners Predecessor has an inherent exposure to market
variables and commodity price risk. The amount and type of price
risk is dependent on the underlying natural gas contracts
entered into to purchase and process raw natural gas. Risk is
also dependent on the types and mechanisms for sales of natural
gas and NGLs and related products produced, processed,
transported or stored.
Credit risk DCP Midstream Partners
Predecessors principal customers in the Natural Gas
Services segment are large, natural gas marketing services and
industrial end-users. In the NGL Logistics segment,
DCP Midstream Partners Predecessors principal
customers include petrochemical and refining companies.
Substantially all of DCP Midstream Partners
Predecessors natural gas and NGL sales are made at
market-based prices. This concentration of credit risk may
affect DCP Midstream Partners Predecessors overall
credit risk in that these customers may be similarly affected by
changes in economic, regulatory or other factors. Where exposed
to credit risk, management analyzes the counterparties
financial condition prior to entering into an agreement,
establishes credit limits and monitors the appropriateness of
these limits on an ongoing basis. Duke Energy Field
Services corporate credit policy prescribes the use of
master collateral agreements to mitigate credit exposure.
Collateral agreements provide for a counterparty to post cash or
letters of credit for exposure in excess of the established
threshold. The threshold amount represents an open credit limit,
determined in accordance with Duke Energy Field Services
credit policy. The collateral agreements also provide that the
inability to post collateral is sufficient cause to terminate a
contract and liquidate all positions. In addition,
DCP Midstream Partners Predecessors standard natural
gas and NGL sales contracts contain adequate assurance
provisions which allow DCP Midstream Partners Predecessor
to suspend deliveries, cancel agreements or continue deliveries
to the buyer after the buyer provides security for payment in a
form satisfactory to DCP Midstream Partners Predecessor.
Commodity cash flow hedges In September 2005,
DCP Midstream Partners Predecessor executed a series of
derivative financial instruments which have been designated as a
cash flow hedge of the price risk associated with its forecasted
sales of natural gas, NGLs and condensate. As a result of those
transactions, DCP Midstream Partners Predecessor has hedged
approximately 80% of its expected natural gas and NGL commodity
price risk relating to its percentage of proceeds gathering and
processing contracts and condensate commodity price risk
relating to condensate recovered from gathering operations
through 2010.
F-24
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
DCP Midstream Partners Predecessor may, from time to time, use
cash flow hedges, as specifically defined by SFAS 133, to
reduce the potential negative impact that commodity price
changes could have on its earnings, and its ability to
adequately plan for cash needed for debt service, distributions
and capital expenditures.
DCP Midstream Partners Predecessor used natural gas and crude
oil swaps to hedge the impact of market fluctuations in the
price of NGLs, natural gas and condensate. For the nine-months
ended September 30, 2005, no ineffectiveness was recorded.
For the nine months ended September 30, 2005, no derivative
gains or losses were reclassified from AOCI to current period
earnings due to the cumulative changes in the fair value of
these hedge instruments. No derivative gains or losses were
reclassified from AOCI to current period earnings as a result of
the discontinuance of cash flow hedges related to certain
forecasted transactions that are not probable of occurring. All
components of each derivatives gain or loss are included
in the assessment of hedge effectiveness, unless otherwise noted.
Gains and losses on derivative contracts that are reclassified
from AOCI to current period earnings are included in the line
item in which the hedged item is recorded. As of
September 30, 2005, there were $6.5 million of
deferred gains and $6.1 million of deferred losses related
to commodity cash flow derivative contracts in AOCI. As of
September 30, 2005, $3.6 million of deferred net
losses on derivative instruments in AOCI are expected to be
reclassified into earnings during the next 12 months as the
hedged transactions occur; however, due to the volatility of the
commodities markets, the corresponding value in AOCI is subject
to change prior to its reclassification into earnings. The
Company is hedging its exposure to the variability of future
cash flows through 2010.
Commodity fair value hedges
DCP Midstream Partners Predecessor uses fair value hedges
to hedge exposure to changes in the fair value of an asset or a
liability (or an identified portion thereof) that is
attributable to fixed price risk. DCP Midstream Partners
Predecessor may hedge producer price locks (fixed price gas
purchases) and market locks (fixed price gas sales) to reduce
its exposure to fixed price risk via swapping the fixed price
risk for a floating price position (New York Mercantile Exchange
or index-based).
For the years ended December 31, 2002, 2003 and 2004, and
for the nine months ended September 30, 2004 (unaudited)
and 2005 the gains or losses representing the ineffective
portion of DCP Midstream Partners Predecessors fair
value hedges were not material. All components of each
derivatives gain or loss are included in the assessment of
hedge effectiveness, unless otherwise noted. At
December 31, 2003 and 2004 and September 30, 2005,
there were no firm commitments that no longer qualified as fair
value hedge items and therefore, DCP Midstream Partners
Predecessor did not recognize an associated gain or loss.
Commodity Non-Trading Derivative Activity The
marketing of energy related products and services exposes
DCP Midstream Partners Predecessor to the fluctuations in
the market values of exchanged instruments. DCP Midstream
Partners Predecessors marketing program is designed to
realize margins related to fluctuations in commodity prices and
basis differentials. Duke Energy Field Services manages
DCP Midstream Partners Predecessors marketing
portfolios with strict policies which limit exposure to market
risk and require daily reporting to management of potential
financial exposure. These policies include statistical risk
tolerance limits using historical price movements to calculate
daily earnings at risk measurement.
|
|
9. |
Estimated Fair Value of Financial Instruments |
The fair value of accounts receivable and accounts payable are
not materially different from their carrying amounts because of
the short term nature of these instruments.
The fair value of the non-trading derivative and hedging
transactions is recorded on the combined balance sheets. The
fair value is determined by multiplying the difference between
the quoted termination prices for commodity contract prices by
the quantities under contract.
F-25
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
10. |
Commitments and Contingent Liabilities |
Litigation DCP Midstream Partners
Predecessor is not a party to any legal proceedings but is a
party to various administrative and regulatory proceedings that
have arisen in the ordinary course of DCP Midstream
Partners Predecessors business. Management currently
believes that the ultimate resolution of the foregoing matters,
taken as a whole, and after consideration of amounts accrued,
insurance coverage or other indemnification arrangements, will
not have a material adverse effect upon DCP Midstream
Partners Predecessors future financial position,
operations and cash flows.
Insurance Duke Energy Field Services carries
insurance coverage which includes the assets and operations of
DCP Midstream Partners Predecessor, with an affiliate of
Duke Energy, that management believes is consistent with
companies engaged in similar commercial operations with similar
type properties. Duke Energy Field Services insurance
coverage includes (1) commercial general public liability
insurance for liabilities arising to third parties for bodily
injury and property damage resulting from Duke Energy Field
Services operations; (2) workers compensation
liability coverage to required statutory limits;
(3) automobile liability insurance for all owned, non-owned
and hired vehicles covering liabilities to third parties for
bodily injury and property damage, and (4) property
insurance covering the replacement value of all real and
personal property damage, including damages arising from boiler
and machinery breakdowns, earthquake, flood damage and business
interruption/extra expense. All coverages are subject to certain
deductibles, terms and conditions common for companies with
similar types of operations.
Duke Energy Field Services also maintains excess liability
insurance coverage above the established primary limits for
commercial general liability and automobile liability insurance.
Limits, terms, conditions and deductibles are comparable to
those carried by other energy companies of similar size. The
cost of general insurance coverages continued to fluctuate over
the past year reflecting the changing conditions of the
insurance markets.
A portion of the insurance costs described above are allocated
by Duke Energy Field Services to DCP Midstream Partners
Predecessor through the allocation methodology described in
Note 4.
Environmental The operation of pipelines,
plants and other facilities for gathering, transporting,
processing, treating, or storing natural gas, NGLs and other
products is subject to stringent and complex laws and
regulations pertaining to health, safety and the environment. As
an owner or operator of these facilities, DCP Midstream Partners
Predecessor must comply with United States laws and regulations
at the federal, state and local levels that relate to air and
water quality, hazardous and solid waste management and
disposal, and other environmental matters. The cost of planning,
designing, constructing and operating pipelines, plants, and
other facilities must incorporate compliance with environmental
laws and regulations and safety standards. Failure to comply
with these laws and regulations may trigger a variety of
administrative, civil and potentially criminal enforcement
measures, including citizen suits, which can include the
assessment of monetary penalties, the imposition of remedial
requirements, and the issuance of injunctions or restrictions on
operation. Management believes that, based on currently known
information, compliance with these laws and regulations will not
have a material adverse effect on DCP Midstream Partners
Predecessors combined results of operations, financial
position or cash flows.
Indemnification Subsequent to the initial
public offering of the Partnership, Duke Energy Field Services
will indemnify the Partnership for three years after the closing
of this offering against certain potential environmental claims,
losses and expenses associated with the operation of the assets
and occurring before the closing date of this offering. Duke
Energy Field Services maximum liability for this
indemnification obligation will not exceed $15.0 million
and Duke Energy Field Services will not have any obligation
under this indemnification until the Partnerships
aggregate losses exceed $250,000. Duke Energy Field Services
will have no indemnification obligations with respect to
environmental claims made as a result of additions to or
modifications of environmental laws promulgated after the
closing date of this offering. The
F-26
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Partnership has agreed to indemnify Duke Energy Field Services
against environmental liabilities related to the
Partnerships assets to the extent Duke Energy Field
Services is not required to indemnify the Partnership.
Other Commitments and Contingencies DCP
Midstream Partners Predecessor utilizes assets under operating
leases in several areas of operation. Combined rental expense,
including leases with no continuing commitment, amounted to
$1.0 million, $1.0 million and $1.4 million for
the years ended December 31, 2002, 2003 and 2004,
respectively, and $1.0 million for the nine months ended
September 30, 2004 (unaudited) and 2005. Rental expense for
leases with escalation clauses is recognized on a straight line
basis over the initial lease term.
DCP Midstream Partners Predecessors operations are located
in the United States and are organized into two reporting
segments: (1) Natural Gas Services; and (2) NGL
Logistics.
Natural Gas Services The Natural Gas
Services segment consists of the North Louisiana system assets,
an integrated gas gathering, compression, treating, processing,
and transportation system located in northern Louisiana and
southern Arkansas that includes the Minden and Ada natural gas
processing plants and gathering systems and the PELICO
intrastate natural gas gathering and transportation pipeline.
NGL Logistics The NGL Logistics
segment consists of the Seabreeze NGL transportation pipeline
located along the Gulf Coast area of southeastern Texas and a
50% interest in the Black Lake FERC-regulated interstate NGL
pipeline located in northern Louisiana and southeastern Texas.
An affiliate of BP owns the remaining interest and is the
operator of Black Lake.
These segments are monitored separately by management for
performance against its internal forecast and are consistent
with internal financial reporting. These segments have been
identified based on the differing products and services,
regulatory environment and the expertise required for these
operations. Gross margin is a performance measure utilized by
management to monitor the business of each segment. The
accounting policies for the segments are the same as those
described in Note 2.
The following tables set forth DCP Midstream Partners
Predecessors segment information.
Year ended December 31, 2002 (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas | |
|
NGL | |
|
|
|
|
|
|
Services | |
|
Logistics | |
|
Other(b) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total operating revenues
|
|
$ |
259.4 |
|
|
$ |
37.8 |
|
|
$ |
|
|
|
$ |
297.2 |
|
Gross margin (a)
|
|
$ |
39.1 |
|
|
$ |
1.3 |
|
|
$ |
|
|
|
$ |
40.4 |
|
Operating and maintenance expense
|
|
|
13.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
14.0 |
|
Depreciation and amortization expense
|
|
|
11.8 |
|
|
|
0.5 |
|
|
|
|
|
|
|
12.3 |
|
General and administrative expense affiliate
|
|
|
|
|
|
|
|
|
|
|
6.1 |
|
|
|
6.1 |
|
Earnings from equity method investment
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13.6 |
|
|
$ |
1.0 |
|
|
$ |
(6.1 |
) |
|
$ |
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
12.7 |
|
|
$ |
10.0 |
|
|
$ |
|
|
|
$ |
22.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Year ended December 31, 2003 (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas | |
|
NGL | |
|
|
|
|
|
|
Services | |
|
Logistics | |
|
Other(b) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total operating revenues
|
|
$ |
343.7 |
|
|
$ |
131.4 |
|
|
$ |
|
|
|
$ |
475.1 |
|
Gross margin (a)
|
|
$ |
42.2 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
44.5 |
|
Operating and maintenance expense
|
|
|
14.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
15.0 |
|
Depreciation and amortization expense
|
|
|
11.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
12.8 |
|
General and administrative expense affiliate
|
|
|
|
|
|
|
|
|
|
|
7.1 |
|
|
|
7.1 |
|
Earnings from equity method investment
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15.6 |
|
|
$ |
1.5 |
|
|
$ |
(7.1 |
) |
|
$ |
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
2.4 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas | |
|
NGL | |
|
|
|
|
|
|
Services | |
|
Logistics | |
|
Other(b) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total operating revenues
|
|
$ |
353.3 |
|
|
$ |
156.2 |
|
|
$ |
|
|
|
$ |
509.5 |
|
Gross margin (a)
|
|
$ |
53.6 |
|
|
$ |
3.3 |
|
|
$ |
|
|
|
$ |
56.9 |
|
Operating and maintenance expense
|
|
|
13.4 |
|
|
|
0.2 |
|
|
|
|
|
|
|
13.6 |
|
Depreciation and amortization expense
|
|
|
11.7 |
|
|
|
0.9 |
|
|
|
|
|
|
|
12.6 |
|
General and administrative expense affiliate
|
|
|
|
|
|
|
|
|
|
|
6.5 |
|
|
|
6.5 |
|
Earnings from equity method investment, net of impairment
|
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
28.5 |
|
|
$ |
(1.6 |
) |
|
$ |
(6.5 |
) |
|
$ |
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
2.8 |
|
|
$ |
0.3 |
|
|
$ |
|
|
|
$ |
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2004 (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas | |
|
NGL | |
|
|
|
|
|
|
Services | |
|
Logistics | |
|
Other(b) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(unaudited) | |
Total operating revenues
|
|
$ |
258.9 |
|
|
$ |
110.4 |
|
|
$ |
|
|
|
$ |
369.3 |
|
Gross margin (a)
|
|
$ |
39.3 |
|
|
$ |
2.5 |
|
|
$ |
|
|
|
$ |
41.8 |
|
Operating and maintenance expense
|
|
|
9.5 |
|
|
|
0.2 |
|
|
|
|
|
|
|
9.7 |
|
Depreciation and amortization expense
|
|
|
8.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
9.4 |
|
General and administrative expense affiliate
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
|
4.8 |
|
Earnings from equity method investment, net of impairment
|
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
21.1 |
|
|
$ |
(2.4 |
) |
|
$ |
(4.8 |
) |
|
$ |
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
0.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Nine months ended September 30, 2005 (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas | |
|
NGL | |
|
|
|
|
|
|
Services | |
|
Logistics | |
|
Other(b) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Total operating revenues
|
|
$ |
367.7 |
|
|
$ |
143.2 |
|
|
$ |
|
|
|
$ |
510.9 |
|
Gross margin (a)
|
|
$ |
43.8 |
|
|
$ |
2.7 |
|
|
$ |
|
|
|
$ |
46.5 |
|
Operating and maintenance expense
|
|
|
11.3 |
|
|
|
0.2 |
|
|
|
|
|
|
|
11.5 |
|
Depreciation and amortization expense
|
|
|
8.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
8.8 |
|
General and administrative expense affiliate
|
|
|
|
|
|
|
|
|
|
|
8.2 |
|
|
|
8.2 |
|
Earnings from equity method investment
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
24.2 |
|
|
$ |
2.4 |
|
|
$ |
(8.2 |
) |
|
$ |
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
5.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth DCP Midstream Partners
Predecessors total assets segment information (millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
|
|
|
| |
|
September 30, | |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Segment Long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Services
|
|
$ |
164.3 |
|
|
$ |
154.9 |
|
|
$ |
158.9 |
|
|
NGL Logistics
|
|
|
29.5 |
|
|
|
25.1 |
|
|
|
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term assets
|
|
|
193.8 |
|
|
|
180.0 |
|
|
|
183.8 |
|
Current assets
|
|
|
45.7 |
|
|
|
61.1 |
|
|
|
94.6 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
239.5 |
|
|
$ |
241.1 |
|
|
$ |
278.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gross margin consists of Total operating revenues less Purchases
of natural gas and NGLs. Gross margin is viewed as a
non-Generally Accepted Accounting Principles (GAAP)
measure under the rules of the Securities and Exchange
Commission (SEC), but is included as a supplemental
disclosure because it is a primary performance measure used by
management as it represents the results of product sales versus
product purchases. As an indicator of DCP Midstream Partners
Predecessors operating performance, Gross margin should
not be considered an alternative to, or more meaningful than,
Net income or cash flow as determined in accordance with GAAP.
DCP Midstream Partners Predecessors Gross margin may not
be comparable to a similarly titled measure of another company
because other entities may not calculate gross margin in the
same manner. |
|
(b) |
|
Other consists of General and administrative expense allocations
from Duke Energy Field Services. |
|
|
12. |
New Accounting Standards |
SFAS No. 154 (SFAS 154),
Accounting Changes and Error Corrections. In
June 2005, the FASB issued SFAS 154, a replacement of
APB Opinion No. 20, Accounting Changes
and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements. Among other
changes, SFAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior
period financial statements presented on the new accounting
principle, unless it is impracticable to do so. SFAS 154
also provides that (1) a change in method of depreciating
or amortizing a long-lived nonfinancial asset be accounted for
as a change in estimate (prospectively) that was effected by a
change in accounting principle, and (2) correction of
errors in previously issued financial statements should be
termed a restatement. The new standard is effective for
accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this
standard is permitted for accounting changes and correction of
errors made in fiscal years beginning after June 1, 2005.
The impact of SFAS 154 will depend on the nature and extent
of any changes in accounting principles after the effective
date, but DCP Midstream Partners
F-29
DCP MIDSTREAM PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL
STATEMENTS (Continued)
Predecessor does not currently expect SFAS 154 to have a
material impact on its combined results of operations, cash
flows or financial position.
Financial Accounting Standards Board Interpretation
No. 47 (FIN 47), Accounting for
Conditional Asset Retirement Obligations. In March
2005, the FASB issued FIN 47, which clarifies the
accounting for conditional asset retirement obligations as used
in SFAS No. 143 (SFAS 143).
Accounting for Asset Retirement Obligations.
A conditional asset retirement obligation is an unconditional
legal obligation to perform an asset retirement activity in
which the timing and (or) method of settlement are conditional
on a future event that may or may not be within the control of
the entity. Therefore, an entity is required to recognize a
liability for the fair value of a conditional asset retirement
obligation under SFAS 143 if the fair value of the
liability can be reasonably estimated. FIN 47 permits, but
does not require, restatement of interim financial information.
The provisions of FIN 47 are effective for reporting
periods ending after December 15, 2005. DCP Midstream
Partners Predecessor does not currently expect FIN 47 to
have a material impact on its combined results of operations,
cash flows or financial position.
SFAS No. 153 (SFAS 153),
Exchanges of Nonmonetary Assetsan amendment of APB
Opinion No. 29. In December of 2004, the FASB
issued SFAS 153, which amends APB Opinion No. 29
(APB 29) by eliminating the exception to the
fair-value principle for exchanges of similar productive assets,
which were accounted for under APB 29 based on the book
value of the asset surrendered with no gain or loss recognition.
SFAS 153 also eliminates APB 29s concept of
culmination of an earnings process. The amendment requires that
an exchange of nonmonetary assets be accounted for at fair value
if the exchange has commercial substance and fair value is
determinable within reasonable limits. Commercial substance is
assessed by comparing the entitys expected cash flows
immediately before and after the exchange. If the difference is
significant, the transaction is considered to have commercial
substance and should be recognized at fair value. SFAS 153
is effective for nonmonetary transactions occurring in fiscal
periods beginning after June 15, 2005. The adoption of
SFAS 153 did not have a material impact on its combined
results of operations, cash flows or financial position.
SFAS No. 123 (Revised 2004) (SFAS 123R),
Share-Based Payment. In December of 2004, the
FASB issued SFAS 123R, which replaces SFAS 123 and
supercedes APB Opinion No. 25 (APB 25).
SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, for public entities,
to be recognized in the financial statements based on their fair
values beginning with the first interim or annual period after
June 15, 2005. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. DCP Midstream Partners
Predecessor does not currently expect SFAS 123R to have a
material impact on its combined results of operations, cash
flows, or financial position.
F-30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of DCP Midstream Partners, LP
We have audited the accompanying balance sheet of DCP Midstream
Partners, LP (the Partnership) as of
September 9, 2005. This financial statement is the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Partnership is not required
to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of the Partnership at
September 9, 2005, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Denver, Colorado
September 15, 2005
F-31
DCP MIDSTREAM PARTNERS, LP
BALANCE SHEET
September 9, 2005
|
|
|
|
|
|
|
ASSETS |
Current assets:
|
|
|
|
|
|
Cash
|
|
$ |
2,000 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
2,000 |
|
|
|
|
|
PARTNERS EQUITY |
|
Limited partners equity
|
|
|
1,960 |
|
|
General partners equity
|
|
|
40 |
|
|
|
|
|
|
|
Total partners equity
|
|
$ |
2,000 |
|
|
|
|
|
See accompanying note to balance sheet.
F-32
DCP MIDSTREAM PARTNERS, LP
NOTE TO BALANCE SHEET
DCP Midstream Partners, LP (the Partnership) is a
Delaware limited partnership formed in August 2005, to
acquire the assets of DCP Midstream Partners Predecessor
including a 45% equity method investment in Black Lake Pipe Line
Company. In order to simplify Partnerships obligations
under the laws of selected jurisdictions in which Partnership
will conduct business, Partnerships activities will be
conducted through a wholly-owned operating partnership.
Partnership intends to offer 9,000,000 common units,
representing limited partner interests, pursuant to a public
offering and to concurrently issue 1,357,143 common units
and 7,142,857 subordinated units, representing additional
limited partner interests, to subsidiaries of Duke Energy Field
Services, LLC, as well as an aggregate 2% general partner
interest in Partnership and its operating partnership on a
consolidated basis to DCP Midstream GP, LP.
DCP Midstream GP, LP, as general partner, contributed $40
and Duke Energy Field Services, as the organizational limited
partner, contributed $1,960 to the Partnership on
September 9, 2005. There have been no other transactions
involving the Partnership as of September 9, 2005.
F-33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Owners of DCP Midstream GP, LP
We have audited the accompanying balance sheet of DCP Midstream
GP, LP (the Company) as of September 9, 2005.
This financial statement is the responsibility of the
Companys management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of the Company at
September 9, 2005, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Denver, Colorado
September 15, 2005
F-34
DCP MIDSTREAM GP, LP
BALANCE SHEET
September 9, 2005
|
|
|
|
|
|
|
ASSETS |
Current assets:
|
|
|
|
|
|
Cash
|
|
$ |
960 |
|
|
Investment in DCP Midstream Partners, LP
|
|
|
40 |
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,000 |
|
|
|
|
|
OWNERS EQUITY |
|
Owners equity
|
|
|
1,000 |
|
|
|
|
|
|
|
Total owners equity
|
|
$ |
1,000 |
|
|
|
|
|
See accompanying note to balance sheet.
F-35
DCP MIDSTREAM GP, LP
NOTE TO BALANCE SHEET
DCP Midstream GP, LP (General Partner) is a
Delaware company formed in August 2005, to become the general
partner of DCP Midstream Partners, LP
(Partnership). The General Partner is an indirect
wholly-owned subsidiary of Duke Energy Field Services, LLC. The
General Partner owns a 2% general partner interest in the
Partnership.
On September 9, 2005, Duke Energy Field Services, LLC and
its subsidiaries contributed $1,000 to DCP Midstream GP, LP
in exchange for a 100% ownership interest.
The General Partner has invested $40 in the Partnership. There
have been no other transactions involving the General Partner as
of September 9, 2005.
F-36
APPENDIX A
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
DCP MIDSTREAM PARTNERS, LP
TABLE OF CONTENTS
ARTICLE I
Definitions
|
|
|
|
|
|
|
|
|
|
|
Page | |
|
|
|
|
| |
Section 1.1
|
|
Definitions |
|
|
A-1 |
|
Section 1.2
|
|
Construction |
|
|
A-15 |
|
|
ARTICLE II
Organization |
Section 2.1
|
|
Formation |
|
|
A-15 |
|
Section 2.2
|
|
Name |
|
|
A-15 |
|
Section 2.3
|
|
Registered Office; Registered Agent; Principal Office; Other
Offices |
|
|
A-16 |
|
Section 2.4
|
|
Purpose and Business |
|
|
A-16 |
|
Section 2.5
|
|
Powers |
|
|
A-16 |
|
Section 2.6
|
|
Power of Attorney |
|
|
A-16 |
|
Section 2.7
|
|
Term |
|
|
A-17 |
|
Section 2.8
|
|
Title to Partnership Assets |
|
|
A-17 |
|
|
ARTICLE III
Rights of Limited Partners |
Section 3.1
|
|
Limitation of Liability |
|
|
A-18 |
|
Section 3.2
|
|
Management of Business |
|
|
A-18 |
|
Section 3.3
|
|
Outside Activities of the Limited Partners |
|
|
A-18 |
|
Section 3.4
|
|
Rights of Limited Partners |
|
|
A-18 |
|
|
ARTICLE IV
Certificates; Record Holders; Transfer of
Partnership Interests; Redemption of
Partnership Interests |
Section 4.1
|
|
Certificates |
|
|
A-19 |
|
Section 4.2
|
|
Mutilated, Destroyed, Lost or Stolen Certificates |
|
|
A-19 |
|
Section 4.3
|
|
Record Holders |
|
|
A-20 |
|
Section 4.4
|
|
Transfer Generally |
|
|
A-20 |
|
Section 4.5
|
|
Registration and Transfer of Limited Partner Interests |
|
|
A-21 |
|
Section 4.6
|
|
Transfer of the General Partners General Partner Interest |
|
|
A-21 |
|
Section 4.7
|
|
Transfer of Incentive Distribution Rights |
|
|
A-22 |
|
Section 4.8
|
|
Restrictions on Transfers |
|
|
A-22 |
|
Section 4.9
|
|
Citizenship Certificates; Non-citizen Assignees |
|
|
A-23 |
|
Section 4.10
|
|
Redemption of Partnership Interests of Non-citizen Assignees |
|
|
A-24 |
|
|
ARTICLE V
Capital Contributions and Issuance of Partnership Interests |
Section 5.1
|
|
Organizational Contributions |
|
|
A-25 |
|
Section 5.2
|
|
Contributions by the General Partner and its Affiliates |
|
|
A-25 |
|
Section 5.3
|
|
Contributions by Initial Limited Partners |
|
|
A-25 |
|
Section 5.4
|
|
Interest and Withdrawal |
|
|
A-26 |
|
Section 5.5
|
|
Capital Accounts |
|
|
A-26 |
|
Section 5.6
|
|
Issuances of Additional Partnership Securities |
|
|
A-28 |
|
Section 5.7
|
|
Conversion of Subordinated Units |
|
|
A-29 |
|
A-i
|
|
|
|
|
|
|
|
|
|
|
Page | |
|
|
|
|
| |
Section 5.8
|
|
Limited Preemptive Right |
|
|
A-30 |
|
Section 5.9
|
|
Splits and Combinations |
|
|
A-30 |
|
Section 5.10
|
|
Fully Paid and Non-Assessable Nature of Limited Partner Interests |
|
|
A-31 |
|
Section 5.11
|
|
Issuance of Class B Units in Connection with Reset of
Incentive Distribution Rights |
|
|
A-31 |
|
|
ARTICLE VI
Allocations and Distributions |
Section 6.1
|
|
Allocations for Capital Account Purposes |
|
|
A-32 |
|
Section 6.2
|
|
Allocations for Tax Purposes |
|
|
A-38 |
|
Section 6.3
|
|
Requirement and Characterization of Distributions; Distributions
to Record Holders |
|
|
A-40 |
|
Section 6.4
|
|
Distributions of Available Cash from Operating Surplus |
|
|
A-40 |
|
Section 6.5
|
|
Distributions of Available Cash from Capital Surplus |
|
|
A-42 |
|
Section 6.6
|
|
Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels |
|
|
A-42 |
|
Section 6.7
|
|
Special Provisions Relating to the Holders of Subordinated Units
and Class B Units |
|
|
A-42 |
|
Section 6.8
|
|
Special Provisions Relating to the Holders of Incentive
Distribution Rights |
|
|
A-43 |
|
Section 6.9
|
|
Entity-Level Taxation |
|
|
A-44 |
|
|
ARTICLE VII
Management and Operation of Business |
Section 7.1
|
|
Management |
|
|
A-44 |
|
Section 7.2
|
|
Certificate of Limited Partnership |
|
|
A-46 |
|
Section 7.3
|
|
Restrictions on the General Partners Authority |
|
|
A-46 |
|
Section 7.4
|
|
Reimbursement of the General Partner |
|
|
A-46 |
|
Section 7.5
|
|
Outside Activities |
|
|
A-47 |
|
Section 7.6
|
|
Loans from the General Partner; Loans or Contributions from the
Partnership or Group Members |
|
|
A-48 |
|
Section 7.7
|
|
Indemnification |
|
|
A-48 |
|
Section 7.8
|
|
Liability of Indemnitees |
|
|
A-49 |
|
Section 7.9
|
|
Resolution of Conflicts of Interest; Standards of Conduct and
Modification of Duties |
|
|
A-50 |
|
Section 7.10
|
|
Other Matters Concerning the General Partner |
|
|
A-51 |
|
Section 7.11
|
|
Purchase or Sale of Partnership Securities |
|
|
A-52 |
|
Section 7.12
|
|
Registration Rights of the General Partner and its Affiliates |
|
|
A-52 |
|
Section 7.13
|
|
Reliance by Third Parties |
|
|
A-54 |
|
|
ARTICLE VIII
Books, Records, Accounting and Reports |
Section 8.1
|
|
Records and Accounting |
|
|
A-55 |
|
Section 8.2
|
|
Fiscal Year |
|
|
A-55 |
|
Section 8.3
|
|
Reports |
|
|
A-55 |
|
|
ARTICLE IX
Tax Matters |
Section 9.1
|
|
Tax Returns and Information |
|
|
A-56 |
|
Section 9.2
|
|
Tax Elections |
|
|
A-56 |
|
Section 9.3
|
|
Tax Controversies |
|
|
A-56 |
|
Section 9.4
|
|
Withholding |
|
|
A-56 |
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page | |
|
|
|
|
| |
|
ARTICLE X
Admission of Partners |
Section 10.1
|
|
Admission of Limited Partners |
|
|
A-56 |
|
Section 10.2
|
|
Admission of Successor General Partner |
|
|
A-57 |
|
Section 10.3
|
|
Amendment of Agreement and Certificate of Limited Partnership |
|
|
A-57 |
|
|
ARTICLE XI
Withdrawal or Removal of Partners |
Section 11.1
|
|
Withdrawal of the General Partner |
|
|
A-58 |
|
Section 11.2
|
|
Removal of the General Partner |
|
|
A-59 |
|
Section 11.3
|
|
Interest of Departing General Partner and Successor General
Partner |
|
|
A-59 |
|
Section 11.4
|
|
Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages |
|
|
A-60 |
|
Section 11.5
|
|
Withdrawal of Limited Partners |
|
|
A-61 |
|
|
ARTICLE XII
Dissolution and Liquidation |
Section 12.1
|
|
Dissolution |
|
|
A-61 |
|
Section 12.2
|
|
Continuation of the Business of the Partnership After Dissolution |
|
|
A-61 |
|
Section 12.3
|
|
Liquidator |
|
|
A-62 |
|
Section 12.4
|
|
Liquidation |
|
|
A-62 |
|
Section 12.5
|
|
Cancellation of Certificate of Limited Partnership |
|
|
A-63 |
|
Section 12.6
|
|
Return of Contributions |
|
|
A-63 |
|
Section 12.7
|
|
Waiver of Partition |
|
|
A-63 |
|
Section 12.8
|
|
Capital Account Restoration |
|
|
A-63 |
|
|
ARTICLE XIII
Amendment of Partnership Agreement; Meetings; Record Date |
Section 13.1
|
|
Amendments to be Adopted Solely by the General Partner |
|
|
A-63 |
|
Section 13.2
|
|
Amendment Procedures |
|
|
A-64 |
|
Section 13.3
|
|
Amendment Requirements |
|
|
A-65 |
|
Section 13.4
|
|
Special Meetings |
|
|
A-65 |
|
Section 13.5
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Notice of a Meeting |
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Section 13.6
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Record Date |
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Section 13.7
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Adjournment |
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Section 13.8
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Waiver of Notice; Approval of Meeting; Approval of Minutes |
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Section 13.9
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Quorum and Voting |
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Section 13.10
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Conduct of a Meeting |
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Section 13.11
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Action Without a Meeting |
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Section 13.12
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Right to Vote and Related Matters |
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ARTICLE XIV
Merger, Consolidation or Conversion |
Section 14.1
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Authority |
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Section 14.2
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Procedure for Merger, Consolidation or Conversion |
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Section 14.3
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Approval by Limited Partners |
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Section 14.4
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Certificate of Merger |
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Section 14.5
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Effect of Merger, Consolidation or Conversion |
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ARTICLE XV
Right to Acquire Limited Partner Interests |
Section 15.1
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Right to Acquire Limited Partner Interests |
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ARTICLE XVI
General Provisions |
Section 16.1
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Addresses and Notices |
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Section 16.2
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Further Action |
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Section 16.3
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Binding Effect |
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Section 16.4
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Integration |
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Section 16.5
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Creditors |
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Section 16.6
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Waiver |
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Section 16.7
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Third-Party Beneficiaries |
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Section 16.8
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Counterparts |
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Section 16.9
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Applicable Law |
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Section 16.10
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Invalidity of Provisions |
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Section 16.11
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Consent of Partners |
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Section 16.12
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Facsimile Signatures |
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A-iv
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
DCP MIDSTREAM PARTNERS, LP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF DCP MIDSTREAM PARTNERS, LP dated as
of ,
2005, is entered into by and between DCP Midstream GP, LP, a
Delaware limited partnership, as the General Partner, and Duke
Energy Field Services, LLC, a Delaware limited liability
company, as the Organizational Limited Partner, together with
any other Persons who become Partners in the Partnership or
parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the
terms used in this Agreement.
Acquisition means any transaction in which
any Group Member acquires (through an asset acquisition, merger,
stock acquisition or other form of investment) control over all
or a portion of the assets, properties or business of another
Person for the purpose of increasing 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 Book Basis means the portion of
any remaining Carrying Value of an Adjusted Property that is
attributable to positive adjustments made to such Carrying Value
as a result of Book-Up Events. For purposes of determining the
extent that Carrying Value constitutes Additional Book Basis:
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(a) Any negative adjustment made to the Carrying Value of
an Adjusted Property as a result of either a Book-Down Event or
a Book-Up Event shall first be deemed to offset or decrease that
portion of the Carrying Value of such Adjusted Property that is
attributable to any prior positive adjustments made thereto
pursuant to a Book-Up Event or Book-Down Event. |
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(b) If Carrying Value that constitutes Additional Book
Basis is reduced as a result of a Book-Down Event and the
Carrying Value of other property is increased as a result of
such Book-Down Event, an allocable portion of any such increase
in Carrying Value shall be treated as Additional Book Basis;
provided,that the amount treated as Additional Book Basis
pursuant hereto as a result of such Book-Down Event shall not
exceed the amount by which the Aggregate Remaining Net Positive
Adjustments after such Book-Down Event exceeds the remaining
Additional Book Basis attributable to all of the
Partnerships Adjusted Property after such Book-Down Event
(determined without regard to the application of this
clause (b) to such Book-Down Event). |
Additional Book Basis Derivative Items means
any Book Basis Derivative Items that are computed with reference
to Additional Book Basis. To the extent that the Additional Book
Basis attributable to all of the Partnerships Adjusted
Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning
of such period (the Excess Additional Book
Basis), the Additional Book Basis Derivative Items
for such period shall be reduced by the amount that bears the
same ratio to the amount of Additional Book Basis Derivative
Items determined without regard to this sentence as the Excess
Additional Book Basis bears to the Additional Book Basis as of
the beginning of such period.
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
A-1
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 Partners Capital Account that are
reasonably expected to occur during (or prior to) the year in
which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback
pursuant to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing
definition of Adjusted Capital Account is intended to comply
with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith. The Adjusted Capital
Account of a Partner in respect of a General Partner Unit,
a Common Unit, a Subordinated Unit, a Class B Unit or an
Incentive Distribution Right or any other
Partnership Interest shall be the amount that such Adjusted
Capital Account would be if such General Partner Unit, Common
Unit, Subordinated Unit, Class B Unit, Incentive
Distribution Right or other Partnership Interest were the
only interest in the Partnership held by such Partner from and
after the date on which such General Partner Unit, Common Unit,
Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
Adjusted Operating Surplus means, with
respect to any period, Operating Surplus generated with respect
to such period (a) less any net decrease in cash reserves
for Operating Expenditures with respect to such period not
relating to an Operating Expenditure made with respect to such
period, and (b) plus (i) any net decrease made in
subsequent periods in cash reserves for Operating Expenditures
initially established with respect to such period and
(ii) any net increase in cash reserves for Operating
Expenditures with respect to such period required by any debt
instrument for the repayment of principal, interest or premium.
Adjusted Operating Surplus does not include that portion of
Operating Surplus included in clause (a)(i) of the
definition of Operating Surplus.
Adjusted Property means any property the
Carrying Value of which has been adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
Affiliate means, with respect to any Person,
any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common
control with, the Person in question; provided that, for the
avoidance of doubt, the term Affiliate includes any
Person that, directly or indirectly, is the beneficial owner of
25% or more of the equity interests in DEFS or has the right to
appoint 25% or more of the members of the board of directors of
DEFS. As used herein, the term control means the
possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or
otherwise.
Aggregate Remaining Net Positive Adjustments
means, as of the end of any taxable period, the sum of the
Remaining Net Positive Adjustments of all the Partners.
Agreed Allocation means any allocation, other
than a Required Allocation, of an item of income, gain, loss or
deduction pursuant to the provisions of Section 6.1,
including 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. The General Partner shall use such method as it
determines to be appropriate to allocate the aggregate Agreed
Value of Contributed Properties contributed to the Partnership
in a single or integrated transaction among each separate
property on a basis proportional to the fair market value of
each Contributed Property.
Agreement means this First Amended and
Restated Agreement of Limited Partnership of DCP Midstream
Partners, LP, as it may be amended, supplemented or restated
from time to time.
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.
A-2
Available Cash means, with respect to any
Quarter ending prior to the Liquidation Date:
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(a) the sum of (i) all cash and cash equivalents of
the Partnership Group on hand at the end of such Quarter, and
(ii) if the General Partner so determines, all or any
portion of any additional cash and cash equivalents of the
Partnership Group on hand on the date of determination of
Available Cash with respect to such Quarter, less |
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(b) the amount of any cash reserves established by the
General Partner to (i) provide for the proper conduct of
the business of the Partnership Group (including reserves for
future capital expenditures and for anticipated future credit
needs of the Partnership Group) subsequent to such Quarter,
(ii) comply with applicable law or any loan agreement,
security agreement, mortgage, debt instrument or other agreement
or obligation to which any Group Member is a party or by which
it is bound or its assets are subject or (iii) provide
funds for distributions under Section 6.4 or 6.5 in respect
of any one or more of the next four Quarters; provided,
however, that the General Partner may not establish cash
reserves pursuant to (iii) above if the effect of such
reserves would be that the Partnership is unable to distribute
the Minimum Quarterly Distribution on all Common Units, plus any
Cumulative Common Unit Arrearage on all Common Units, with
respect to such Quarter; and, provided further, that
disbursements made by a Group Member or cash reserves
established, increased or reduced after the end of such Quarter
but on or before the date of determination of Available Cash
with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the General Partner so
determines. |
Notwithstanding the foregoing, Available Cash
with respect to the Quarter in which the Liquidation Date occurs
and any subsequent Quarter shall equal zero.
Board of Directors means, with respect to the
Board of Directors of the General Partner, its board of
directors or managers, as applicable, if a corporation or
limited liability company, or if a limited partnership, the
board of directors or board of managers of the general partner
of the General Partner.
Book Basis Derivative Items means any item of
income, deduction, gain or loss included in the determination of
Net Income or Net Loss that is computed with reference to the
Carrying Value of an Adjusted Property (e.g., depreciation,
depletion, or gain or loss with respect to an Adjusted Property).
Book-Down Event means an event that triggers
a negative adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Book-Tax Disparity means with respect to any
item of Contributed Property or Adjusted Property, as of the
date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of
such date. A Partners share of the Partnerships
Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between
such Partners Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of
such Partners Capital Account computed as if it had been
maintained strictly in accordance with federal income tax
accounting principles.
Book-Up Event means an event that triggers a
positive adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Business Day means Monday through Friday of
each week, except that a legal holiday recognized as such by the
government of the United States of America or the State of
Colorado shall not be regarded as a Business Day.
Capital Account means the capital account
maintained for a Partner pursuant to Section 5.5. The
Capital Account of a Partner in respect of a
General Partner Unit, a Common Unit, a Subordinated Unit, a
Class B Unit, an Incentive Distribution Right or any
Partnership Interest shall be the amount that such Capital
Account would be if such General Partner Unit, Common Unit,
Subordinated Unit, Class B Unit, Incentive Distribution
Right or other Partnership Interest were the only interest
in the Partnership held by such Partner from and after the date
on which such General Partner Unit, Common Unit, Subordinated
Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
A-3
Capital Contribution means any cash, cash
equivalents or the Net Agreed Value of Contributed Property that
a Partner contributes to the Partnership.
Capital Improvement means any
(a) addition or improvement to the capital assets owned by
any Group Member, (b) acquisition of existing, or the
construction of new, capital assets (including, without
limitation, gathering lines, treating facilities, processing
plants, fractionation facilities, pipelines, terminals, docks,
truck racks, tankage and other storage, distribution or
transportation facilities and related or similar midstream
assets) or (c) capital contributions by a Group Member to a
Person in which a Group Member has an equity interest to fund
such Group Members pro rata share of the cost of the
acquisition of existing, or the construction of new, capital
assets (including, without limitation, gathering lines, treating
facilities, processing plants, fractionation facilities,
pipelines, terminals, docks, truck racks, tankage and other
storage, distribution or transportation facilities and related
or similar midstream assets) by such Person, in each case if
such addition, improvement, acquisition or construction is made
to increase the operating capacity, or revenues of the
Partnership Group, in the case of clauses (a) and (b), or
such Person, in the case of clause (c), from the operating
capacity, or revenues of the Partnership Group or such Person,
as the case may be, 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
Capital Accounts in respect of such Contributed Property, and
(b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with
Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as
deemed appropriate by the General Partner.
Cause means a court of competent jurisdiction
has entered a final, non-appealable judgment finding the General
Partner liable for actual fraud or willful misconduct in its
capacity as a general partner of the Partnership.
Certificate means (a) a certificate
(i) substantially in the form of Exhibit A to this
Agreement, (ii) issued in global form in accordance with
the rules and regulations of the Depositary or (iii) in
such other form as may be adopted by the General Partner, issued
by the Partnership evidencing ownership of one or more Common
Units or (b) a certificate, in such form as may be adopted
by the General Partner, issued by the Partnership evidencing
ownership of one or more other Partnership Securities.
Certificate of Limited Partnership means the
Certificate of Limited Partnership of the Partnership filed with
the Secretary of State of the State of Delaware as referenced in
Section 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 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 (as used in Section 7.12(d)) has
the meaning assigned to such term in Section 7.12(d).
Class B Units means a Partnership
Security representing a factional part of the
Partnership Interests of all Limited Partners, and having
the rights and obligations specified with respect to
Class B Units in this Agreement.
Closing Date means the first date on which
Common Units are sold by the Partnership to the Underwriters
pursuant to the provisions of the Underwriting Agreement.
Closing Price has the meaning assigned to
such term in Section 15.1(a).
Code means the Internal Revenue Code of 1986,
as amended and in effect from time to time. Any reference herein
to a specific section or sections of the Code shall be deemed to
include a reference to any corresponding provision of any
successor law.
A-4
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 Common Units in this
Agreement. The term Common Unit does not include a
Subordinated Unit or Class B Unit prior to its conversion
into a Common Unit pursuant to the terms hereof.
Common Unit Arrearage means, with respect to
any Common Unit, whenever issued, as to any Quarter within the
Subordination Period, the excess, if any, of (a) the
Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available
Cash distributed with respect to a Common Unit in respect of
such Quarter pursuant to Section 6.4(a)(i).
Conflicts Committee means a committee of the
Board of Directors of the General Partner composed entirely of
two or more directors, each of whom (a) is not a security
holder, officer or employee of the General Partner, (b) is
not an officer, director or employee of any Affiliate of the
General Partner (c) is not a holder of any ownership
interest in the Partnership Group other than Common Units and
(d) meets the independence standards required of directors
who serve on an audit committee of a board of directors
established by the Securities Exchange Act and the rules and
regulations of the Commission thereunder and by the National
Securities Exchange on which the Common Units are listed or
admitted to trading.
Contributed Property means each property or
other asset, in such form as may be permitted by the Delaware
Act, but excluding cash, contributed to the Partnership. Once
the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer
constitute a Contributed Property, but shall be deemed an
Adjusted Property.
Contribution Agreement means that certain
Contribution and Conveyance Agreement, dated as of the Closing
Date, among the General Partner, the Partnership, the Operating
Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or
referenced thereunder, as such may be amended, supplemented or
restated from time to time.
Converted Common Units has the meaning
assigned to such term in Section 6.1(d)(x)(B).
Credit Agreement means the Credit Agreement,
dated as of December , 2005,
among the OLP, the MLP, the subsidiaries of the MLP, Wachovia
Bank, National Association, as administrative agent for the
lenders named therein.
Cumulative Common Unit Arrearage means, with
respect to any Common Unit, whenever issued, and as of the end
of any Quarter, the excess, if any, of (a) the sum
resulting from adding together the Common Unit Arrearage as to
an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such
Quarter over (b) the sum of any distributions theretofore
made pursuant to Section 6.4(a)(ii) and the second sentence
of Section 6.5 with respect to an Initial Common Unit
(including any distributions to be made in respect of the last
of such Quarters).
Curative Allocation means any allocation of
an item of income, gain, deduction, loss or credit pursuant to
the provisions of Section 6.1(d)(xi).
Current Market Price has the meaning assigned
to such term in Section 15.1(a).
DEFS means Duke Energy Field Services, LLC, a
Delaware limited liability company.
Delaware Act means the Delaware Revised
Uniform Limited Partnership Act, 6 Del C.
Section 17-101, et seq., as amended, supplemented or
restated from time to time, and any successor to such statute.
Departing General 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 Section 11.2.
Depositary means, with respect to any Units
issued in global form, The Depository Trust Company and its
successors and permitted assigns.
A-5
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 the General
Partner determines does not or would not subject such Group
Member to a significant risk of cancellation or forfeiture of
any of its properties or any interest therein.
Estimated Incremental Quarterly Tax Amount
has the meaning assigned to such term in Section 6.9.
Event of Withdrawal has the meaning assigned
to such term in Section 11.1(a).
Expansion Capital Expenditures means cash
expenditures for Acquisitions or Capital Improvements, and shall
not include Maintenance Capital Expenditures.
Final Subordinated Units has the meaning
assigned to such term in Section 6.1(d)(x).
First Liquidation Target Amount has the
meaning assigned to such term in Section 6.1(c)(i)(D).
First Target Distribution means $0.4025 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on December 31, 2005, it means
the product of $0.4025 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the
denominator is 92), subject to adjustment in accordance with
Sections 5.11, 6.6 and 6.9.
Fully Diluted Basis means, when calculating
the number of Outstanding Units for any period, a basis that
includes, in addition to the Outstanding Units, all Partnership
Securities and options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units
that are senior to or pari passu with the Subordinated Units,
(b) whose conversion, exercise or exchange price is less
than the Current Market Price on the date of such calculation,
(c) that may be converted into or exercised or exchanged
for such Units prior to or during the Quarter immediately
following the end of the period for which the calculation is
being made without the satisfaction of any contingency beyond
the control of the holder other than the payment of
consideration and the compliance with administrative mechanics
applicable to such conversion, exercise or exchange and
(d) that were not converted into or exercised or exchanged
for such Units during the period for which the calculation is
being made; provided, however, that for purposes of
determining the number of Outstanding Units on a Fully Diluted
Basis when calculating whether the Subordination Period has
ended or Subordinated Units are entitled to convert into Common
Units pursuant to Section 5.7, such Partnership Securities,
options, rights, warrants and appreciation rights shall be
deemed to have been Outstanding Units only for the four Quarters
that comprise the last four Quarters of the measurement period;
provided, further, that if consideration will be paid to
any Group Member in connection with such conversion, exercise or
exchange, the number of Units to be included in such calculation
shall be that number equal to the difference between
(i) the number of Units issuable upon such conversion,
exercise or exchange and (ii) the number of Units that such
consideration would purchase at the Current Market Price.
General Partner means DCP Midstream
GP, LP, a Delaware limited partnership, and its successors
and permitted assigns that are admitted to the Partnership as
general partner of the Partnership, in its capacity as general
partner of the Partnership (except as the context otherwise
requires).
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 is evidenced by General
Partner Units, 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.
General Partner Unit means a fractional part
of the General Partner Interest having the rights and
obligations specified with respect to the General Partner
Interest. A General Partner Unit is not a Unit.
Group means a Person that with or through any
of its Affiliates or Associates has any contract, arrangement,
understanding or relationship 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
A-6
made to 10 or more Persons), exercising investment power or
disposing of any Partnership Interests with any other
Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly,
Partnership Interests.
Group Member means a member of the
Partnership Group.
Group Member Agreement means the partnership
agreement of any Group Member, other than the Partnership, that
is a limited or general partnership, the limited liability
company agreement of any Group Member that is a limited
liability company, the certificate of incorporation and bylaws
or similar organizational documents of any Group Member that is
a corporation, the joint venture agreement or similar governing
document of any Group Member that is a joint venture and the
governing or organizational or similar documents of any other
Group Member that is a Person other than a limited or general
partnership, limited liability company, corporation or joint
venture, as such may be amended, supplemented or restated from
time to time.
Holder as used in Section 7.12, has the
meaning assigned to such term in Section 7.12(a).
Incentive Distribution Right means a
non-voting Limited Partner Interest issued to the General
Partner in connection with the transfer of all of its interests
in DCP Assets Holdings, LP to the Partnership pursuant to the
Contribution Agreement, which Limited Partner Interest will
confer upon the holder thereof only the rights and obligations
specifically provided in this Agreement with respect to
Incentive Distribution Rights (and no other rights otherwise
available to or other obligations of a holder of a Partnership
Interest). Notwithstanding anything in this Agreement to the
contrary, the holder of an Incentive Distribution Right shall
not be entitled to vote such Incentive Distribution Right on any
Partnership matter except as may otherwise be required by law.
Incentive Distributions means any amount of
cash distributed to the holders of the Incentive Distribution
Rights pursuant to Sections 6.4(a)(v), (vi) and
(vii) and 6.4(b)(iii), (iv) and (v).
Indemnified Persons has the meaning assigned
to such term in Section 7.12(d).
Indemnitee means (a) the General
Partner, (b) any Departing General Partner, (c) any
Person who is or was an Affiliate of the General Partner or any
Departing General Partner, (d) any Person who is or was a
member, partner, director, officer, fiduciary or trustee of any
Group Member, the General Partner or any Departing General
Partner or any Affiliate of any Group Member, the General
Partner or any Departing General Partner, (e) any Person
who is or was serving at the request of the General Partner or
any Departing General Partner or any Affiliate of the General
Partner or any Departing General Partner as an officer,
director, member, partner, 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, and (f) any Person the
General Partner designates as an Indemnitee for
purposes of this Agreement.
Initial Common Units means the Common Units
sold in the Initial Offering.
Initial Limited Partner means DEFS LP
Holdings, LP (with respect to the Common Units, Subordinated
Units and Incentive Distribution Rights received by them
pursuant to Section 5.2) and the Underwriters upon the
issuance by the Partnership of Common Units as described in
Section 5.3 in connection with the Initial Offering.
Initial Offering means the initial offering
and sale of Common Units to the public, as described in the
Registration Statement.
Initial Unit Price means (a) with
respect to the Common Units, the initial public offering price
per Common Unit at which the Underwriters offered the Common
Units to the public for sale as set forth on the cover page of
the prospectus included as part of the Registration Statement
and first issued at or after the time the Registration Statement
first became effective or (b) with respect to any other
class or series of Units, the price per Unit at which such class
or series of Units is initially sold by the Partnership, as
determined by the General Partner, in each case adjusted as the
General Partner determines to be appropriate to give effect to
any distribution, subdivision or combination of Units.
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Interim Capital Transactions means the
following transactions if they occur prior to the Liquidation
Date: (a) borrowings, refinancings or refundings of
indebtedness (other than for items purchased on open account in
the ordinary course of business) by any Group Member and sales
of debt securities of any Group Member; (b) sales of equity
interests of any Group Member (including the Common Units sold
to the Underwriters pursuant to the exercise of the
Over-Allotment Option); (c) sales or other voluntary or
involuntary dispositions of any assets of any Group Member other
than (i) sales or other dispositions of inventory, accounts
receivable and other assets in the ordinary course of business,
and (ii) sales or other dispositions of assets as part of
normal retirements or replacements; (d) the termination of
interest rate swap agreements; (e) capital contributions;
or (f) corporate reorganizations or restructurings.
Issue Price means the price at which a Unit
is purchased from the Partnership, net of any sales commission
or underwriting discount charged to the Partnership.
Limited Partner means, unless the context
otherwise requires, the Organizational Limited Partner prior to
its withdrawal from the Partnership, each Initial Limited
Partner, each additional Person that becomes a Limited Partner
pursuant to the terms of this Agreement and any Departing
General Partner upon the change of its status from General
Partner to Limited Partner pursuant to Section 11.3, in
each case, in such Persons capacity as limited partner of
the Partnership; provided, however, that when the term
Limited Partner is used herein in the context of any
vote or other approval, including Articles XIII and XIV,
such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right (solely with respect to its
Incentive Distribution Rights and not with respect to any other
Limited Partner Interest held by such Person) except as may
otherwise be required by law.
Limited Partner Interest means the ownership
interest of a Limited Partner or Assignee in the Partnership,
which may be evidenced by Common Units, Class B Units,
Subordinated Units, Incentive Distribution Rights or other
Partnership Securities or a combination thereof or interest
therein, and includes any and all benefits to which such Limited
Partner is entitled as provided in this Agreement, together with
all obligations of such Limited Partner to comply with the terms
and provisions of this Agreement; provided, however, that
when the term Limited Partner Interest is used
herein in the context of any vote or other approval, including
Articles XIII and XIV, such term shall not, solely for such
purpose, include any Incentive Distribution Right except as may
otherwise be required by law.
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 continue the business of the Partnership
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 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Maintenance Capital Expenditures means cash
expenditures (including expenditures for the addition or
improvement to the capital assets owned by any Group Member or
for the acquisition of existing, or the construction of new,
capital assets) if such expenditures are made to maintain,
including over the long term, the operating capacity or revenues
of the Partnership Group.
Merger Agreement has the meaning assigned to
such term in Section 14.1.
Minimum Quarterly Distribution means $0.35
per Unit per Quarter (or with respect to the period commencing
on the Closing Date and ending on December 31, 2005, it
means the product of $0.35 multiplied by a fraction of which the
numerator is the number of days in such period and of which the
denominator is 92), subject to adjustment in accordance with
Sections 6.6 and 6.9.
National Securities Exchange means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
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Net Agreed Value means, (a) in the case
of any Contributed Property, the Agreed Value of such property
reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed, (b) in the case of any property distributed to
a Partner by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such
Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case,
as determined under Section 752 of the Code. and
(c) in the case of a contribution of Common Units by the
General Partner and the Partnership as a Capital Contribution
pursuant to Section 5.2(b), an amount per Common Unit
contributed equal to the Initial Unit Price per Common Unit as
of the date of the contribution.
Net Income means, for any taxable year, the
excess, if any, of the Partnerships 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 Partnerships items of loss and
deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially
allocated under Section 6.1(d); provided, that the
determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if
Section 6.1(d)(xii) were not in this Agreement.
Net Loss means, for any taxable year, the
excess, if any, of the Partnerships 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 Partnerships items of income
and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under
Section 6.1(d); provided, that the determination of
the items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii)
were not in this Agreement.
Net Positive Adjustments means, with respect
to any Partner, the excess, if any, of the total positive
adjustments over the total negative adjustments made to the
Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.
Net Termination Gain means, for any taxable
year, the sum, if positive, of all items of income, gain, loss
or deduction recognized by the Partnership after the Liquidation
Date. The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 5.5(b)
and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
Net Termination Loss means, for any taxable
year, the sum, if negative, of all items of income, gain, loss
or deduction recognized by the Partnership after the Liquidation
Date. The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
Non-citizen Assignee means a Person whom the
General Partner has determined does not constitute an Eligible
Citizen and as to whose Partnership Interest the General
Partner has become the Substituted Limited Partner, pursuant to
Section 4.9.
Nonrecourse Built-in Gain means with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to
Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if
such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other
consideration.
Nonrecourse Deductions means any and all
items of loss, deduction or expenditure (including 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.
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Nonrecourse Liability has the meaning set
forth in Treasury Regulation Section 1.752-1(a)(2).
Notice of Election to Purchase has the
meaning assigned to such term in Section 15.1(b).
Omnibus Agreement means that certain Omnibus
Agreement, dated as of the Closing Date, among DEFS, the General
Partner, the Partnership, the Operating Company and certain
other parties thereto, as such may be amended, supplemented or
restated from time to time.
Operating Expenditures means all Partnership
Group expenditures, including, but not limited to, taxes,
reimbursements of the General Partner, in accordance with this
Agreement, interest payments, Maintenance Capital Expenditures
and non-Pro Rata repurchases of Units (other than those made
with the proceeds of an Interim Capital Transaction), but
excluding, subject to the following:
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(a) payments (including prepayments and prepayment
penalties) of principal of and premium on indebtedness shall not
constitute Operating Expenditures; and |
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(b) Operating Expenditures shall not include
(i) Expansion Capital Expenditures, (ii) payment of
transaction expenses (including taxes) relating to Interim
Capital Transactions or (iii) distributions to Partners.
Where capital expenditures consist of both Maintenance Capital
Expenditures and Expansion Capital Expenditures, the General
Partner, with the concurrence of the Conflicts Committee, shall
determine the allocation between the portion consisting of
Maintenance Capital Expenditures and the portion consisting of
Expansion Capital Expenditures and, with respect to the part of
such capital expenditures consisting of Maintenance Capital
Expenditures, the period over which the capital expenditures
made for other purposes will be deducted as an Operating
Expenditure in calculating Operating Surplus. |
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Operating Partnership means DCP Midstream
Operating, LP, a Delaware limited partnership, and any
successors thereto.
Operating Surplus means, with respect to any
period ending prior to the Liquidation Date, on a cumulative
basis and without duplication,
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(a) the sum of (i) an amount equal to four times the
amount needed for any one Quarter for the Partnership to pay a
distribution on all Units, the General Partner Units and the
Incentive Distribution Rights at the same per Unit amount as was
distributed immediately preceding the date of determination, and
(ii) all cash receipts of the Partnership Group for the
period beginning on the Closing Date and ending on the last day
of such period, but excluding cash receipts from Interim Capital
Transactions (except to the extent specified in
Section 6.5) (or with respect to the period commencing on
the Closing Date and ending on December 31, 2005, it means
the product of (i) $1.40 multiplied by (ii) a fraction
of which the numerator is the number of days in such period and
the denominator is 92 multiplied by (iii) the number of
Units and General Partner Units Outstanding on the Record Date
with respect to such period), less |
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(b) the sum of (i) Operating Expenditures for the
period beginning on the Closing Date and ending on the last day
of such period and (ii) the amount of cash reserves
established by 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.
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Option Closing Date means the date or dates
on which any Common Units are sold by the Partnership to the
Underwriters upon exercise of the Over-Allotment Option.
Organizational Limited Partner means DEFS in
its capacity as the organizational limited partner of the
Partnership pursuant to this Agreement.
Outstanding means, with respect to
Partnership Securities, all Partnership Securities that are
issued by the Partnership and reflected as outstanding on the
Partnerships 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 the 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 Units so owned shall be considered to be Outstanding
for purposes of Section 11.1(b)(iv) (such Units shall not,
however, be treated as a separate class of Partnership
Securities for purposes of this Agreement); provided,
further, that the foregoing limitation shall not apply to
(i) any Person or Group who acquired 20% or more of the
Outstanding Partnership Securities of any class then Outstanding
directly from the General Partner or its Affiliates,
(ii) any Person or Group who acquired 20% or more of the
Outstanding Partnership Securities of any class then Outstanding
directly or indirectly from a Person or Group described in
clause (i) provided that the General Partner shall have
notified such Person or Group in writing that such limitation
shall not apply, or (iii) any Person or Group who acquired
20% or more of any Partnership Securities issued by the
Partnership with the prior approval of the Board of Directors.
Over-Allotment Option means the
over-allotment option granted to the Underwriters by the
Partnership pursuant to the Underwriting Agreement.
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 any
expenditure described in Section 705(a)(2)(B) of the Code)
that, in accordance with the principles of Treasury Regulation
Section 1.704-2(i), are attributable to a Partner
Nonrecourse Debt.
Partners means the General Partner and the
Limited Partners.
Partnership means DCP Midstream Partners, LP,
a Delaware limited partnership.
Partnership Group means the Partnership and
its Subsidiaries treated as a single consolidated entity.
Partnership Interest means an interest
in the Partnership, which shall include the General Partner
Interest 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 (but excluding any
options, rights, warrants and appreciation rights relating to an
equity interest in the Partnership), including Common Units,
Class B Units, Subordinated Units, General Partner Units
and Incentive Distribution Rights.
Per Unit Capital Amount means, as of any date
of determination, the Capital Account, stated on a per Unit
basis, underlying any Unit held by a Person other than the
General Partner or any Affiliate of the General Partner who
holds Units.
Percentage Interest means as of any date of
determination (a) as to the General Partner with respect to
General Partner Units and as to any Unitholder with respect to
Units, the product obtained by multiplying (i) 100% less
the percentage applicable to clause (b) below by
(ii) the quotient obtained by dividing (A) the number
of General Partner Units held by the General Partner or the
number of Units held by such Unitholder,
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as the case may be, by (B) the total number of Outstanding
Units and General Partner Units, and (b) as to the holders
of other Partnership Securities issued by the Partnership in
accordance with Section 5.6, the percentage established as
a part of such issuance. The Percentage Interest with respect to
an Incentive Distribution Right shall at all times be zero.
Person means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
trust, unincorporated organization, association, government
agency or political subdivision thereof or other entity.
Pro Rata means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests, (b) when used with respect to
Partners and Assignees or Record Holders, apportioned among all
Partners and Assignees or Record Holders in accordance with
their relative Percentage Interests and (c) when used with
respect to holders of Incentive Distribution Rights, apportioned
equally among all holders of Incentive Distribution Rights in
accordance with the relative number or percentage of Incentive
Distribution Rights held by each such holder.
Purchase Date means the date determined by
the General Partner as the date for purchase of all Outstanding
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 fiscal quarter of the Partnership, or, with respect
to the first fiscal quarter of the Partnership after the Closing
Date, the portion of such fiscal quarter after the Closing Date.
Recapture Income means any gain recognized by
the Partnership (computed without regard to any adjustment
required by Section 734 or Section 743 of the Code)
upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income
because it represents the recapture of deductions previously
taken with respect to such property or asset.
Record Date means the date established by the
General Partner or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to
receive any report or distribution or to participate in any
offer.
Record Holder means the Person in whose name
a Common Unit is registered on the books of the Transfer Agent
as of the opening of business on a particular Business Day, or
with respect to other Partnership Interests, the Person in whose
name any such other Partnership Interest is registered on the
books that the General Partner has caused to be kept as of the
opening of business on such Business Day.
Redeemable Interests means any
Partnership Interests for which a redemption notice has
been given, and has not been withdrawn, pursuant to
Section 4.10.
Registration Statement means the Registration
Statement on Form S-1 as it has been or as it may be
amended or supplemented from time to time, filed by the
Partnership with the Commission under the Securities Act to
register the offering and sale of the Common Units in the
Initial Offering.
Remaining Net Positive Adjustments means as
of the end of any taxable period, (i) with respect to the
Unitholders holding Common Units, Class B Units or
Subordinated Units, the excess of (a) the Net Positive
Adjustments of the Unitholders holding Common Units,
Class B Units or Subordinated Units as of the end of such
period over (b) the sum of those Partners Share of
Additional Book Basis Derivative Items for each prior taxable
period, (ii) with respect to the General Partner (as holder
of the General Partner Units), the excess of (a) the Net
Positive Adjustments of the General Partner as of the end of
such period over (b) the sum of the General Partners
Share of Additional Book Basis Derivative Items with respect to
the General Partner Units for each prior taxable period, and
(iii) with respect to the holders of Incentive Distribution
Rights, the excess of (a) the Net Positive Adjustments of
the holders of Incentive Distribution Rights as of the end of
such period over (b) the sum of the Share of Additional
Book Basis Derivative Items of the holders of the Incentive
Distribution Rights for each prior taxable period.
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Required Allocations means (a) any
limitation imposed on any allocation of Net Losses or Net
Termination Losses under Section 6.1(b) or
Section 6.1(c)(ii) and (b) any allocation of an item
of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), Section 6.1(d)(ii),
Section 6.1(d)(iv), Section 6.1(d)(vii) or
Section 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 Section 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.
Retained Converted Subordinated Unit has the
meaning assigned to such term in Section 5.5(c)(ii).
Second Liquidation Target Amount has the
meaning assigned to such term in Section 6.1(c)(i)(E).
Second Target Distribution means
$0.4375 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
December 31, 2005, it means the product of $0.4375
multiplied by a fraction of which the numerator is equal to the
number of days in such period and of which the denominator is
92), subject to adjustment in accordance with Section 5.11,
Section 6.6 and Section 6.9.
Securities Act means the Securities Act of
1933, as amended, supplemented or restated from time to time and
any successor to such statute.
Securities Exchange Act means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Share of Additional Book Basis Derivative
Items means in connection with any allocation of
Additional Book Basis Derivative Items for any taxable period,
(i) with respect to the Unitholders holding Common Units,
Class B Units or Subordinated Units, the amount that bears
the same ratio to such Additional Book Basis Derivative Items as
the Unitholders Remaining Net Positive Adjustments as of
the end of such period bears to the Aggregate Remaining Net
Positive Adjustments as of that time, (ii) with respect to
the General Partner (as holder of the General Partner Units),
the amount that bears the same ratio to such Additional Book
Basis Derivative Items as the General Partners Remaining
Net Positive Adjustments as of the end of such period bears to
the Aggregate Remaining Net Positive Adjustment as of that time,
and (iii) with respect to the Partners holding Incentive
Distribution Rights, the amount that bears the same ratio to
such Additional Book Basis Derivative Items as the Remaining Net
Positive Adjustments of the Partners holding the Incentive
Distribution Rights as of the end of such period bears to the
Aggregate Remaining Net Positive Adjustments as of that time.
Special Approval means approval by a majority
of the members of the Conflicts Committee.
Subordinated 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
Subordinated Units in this Agreement. The term
Subordinated Unit does not include a Common Unit or
Class B Unit. A Subordinated Unit that is convertible into
a Common Unit shall not constitute a Common Unit until such
conversion occurs.
Subordination Period means the period
commencing on the Closing Date and ending on the first to occur
of the following dates:
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(a) the first day of any Quarter beginning after
December 31, 2010 in respect of which
(i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units and Subordinated
Units and any other Outstanding Units that are senior or equal
in right of distribution to the Subordinated Units and the
General Partner Units with respect to each of the three
consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all Outstanding Common Units and
Subordinated Units and any other Outstanding Units that are
senior or equal in right of distribution to the Subordinated
Units and the General Partner Units during such periods and
(B) the Adjusted Operating Surplus for each of the three
consecutive, non-overlapping four-Quarter periods immediately
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such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the Common Units, Subordinated Units and
any other Units that are senior or equal in right of
distribution to the Subordinated Units that were Outstanding
during such periods on a Fully Diluted Basis, plus the related
distribution on the General Partner Units, with respect to each
such period and (ii) there are no Cumulative Common Unit
Arrearages; |
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(b) the first date on which there are no longer outstanding
any Subordinated Units due to the conversion of Subordinated
Units into Common Units pursuant to Section 5.7 or
otherwise; and |
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(c) the date on which the General Partner is removed as
general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the General Partner and its
Affiliates are not voted in favor of such removal. |
Subsidiary means, with respect to any Person,
(a) a corporation of which more than 50% of the voting
power of shares entitled (without regard to the occurrence of
any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one
or more Subsidiaries of such Person or a combination thereof,
(b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership,
but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly,
at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or
(c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of
such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the
election of a majority of the directors or other governing body
of such Person.
Surviving Business Entity has the meaning
assigned to such term in Section 14.2(b).
Target Distribution means, collectively, the
First Target Distribution, Second Target Distribution and Third
Target Distribution.
Third Liquidation Target Amount has the
meaning assigned to such term in Section 6.1(c)(i)(F).
Third Target Distribution means $0.525 per
Unit per Quarter (or, with respect to the period commencing on
the Closing Date and ending on December 31, 2005, it means
the product of $0.525 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of
which the denominator is 92), subject to adjustment in
accordance with Sections 5.11, 6.6 and 6.9.
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
General Partner to act as registrar and transfer agent for the
Common Units; provided, that if no Transfer Agent is
specifically designated for any other Partnership Securities,
the General Partner shall act in such capacity.
Underwriter means each Person named as an
underwriter in Schedule I to the Underwriting Agreement who
purchases Common Units pursuant thereto.
Underwriting Agreement means that certain
Underwriting Agreement dated as
of ,
2005 among the Underwriters, DEFS, the Partnership, the General
Partner, the Operating Partnership and other parties thereto,
providing for the purchase of Common Units by the Underwriters.
Unit means a Partnership Security that is
designated as a Unit and shall include Common Units,
Class B Units and Subordinated Units but shall not include
(i) General Partner Units (or the General Partner Interest
represented thereby) or (ii) Incentive Distribution Rights.
Unit Majority means (i) during the
Subordination Period, at least a majority of the Outstanding
Common Units (excluding Common Units owned by the General
Partner and its Affiliates), voting as a class,
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and at least a majority of the Outstanding Subordinated Units,
voting as a class, and (ii) after the end of the
Subordination Period, at least a majority of the Outstanding
Common Units and Class B Units, if any, voting as a single
class.
Unitholders means the holders of Units.
Unpaid MQD has the meaning assigned to such
term in Section 6.1(c)(i)(B).
Unrealized Gain attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the fair market value of such
property as of such date (as determined under
Section 5.5(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made
pursuant to Section 5.5(d) as of such date).
Unrealized Loss attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the Carrying Value of such property
as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined
under Section 5.5(d)).
Unrecovered Initial Unit Price means at any
time, with respect to a Unit, the Initial Unit Price less the
sum of all distributions constituting Capital Surplus
theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any
distributions in kind) in connection with the dissolution and
liquidation of the Partnership theretofore made in respect of an
Initial Common Unit, adjusted as the General Partner determines
to be appropriate to give effect to any distribution,
subdivision or combination of such Units.
U.S. GAAP means United States generally
accepted accounting principles consistently applied.
Withdrawal Opinion of Counsel has the meaning
assigned to such term in Section 11.1(b).
Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used
in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa;
(b) references to Articles and Sections refer to Articles
and Sections of this Agreement; (c) the terms
include, includes, including
or words of like import shall be deemed to be followed by the
words without limitation; and (d) the terms
hereof, herein or hereunder
refer to this Agreement as a whole and not to any particular
provision of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only, and
shall not affect in any way the meaning or interpretation of
this Agreement.
ARTICLE II
Organization
Section 2.1 Formation.
The General Partner and the Organizational Limited Partner have
previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act and hereby amend
and restate the original Agreement of Limited Partnership of DCP
Midstream Partners, LP in its entirety. This amendment and
restatement shall become effective on the date of this
Agreement. Except as expressly provided to the contrary in this
Agreement, the rights, duties (including fiduciary duties),
liabilities and obligations of the Partners and the
administration, dissolution and termination of the Partnership
shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of
the owner thereof for all purposes.
Section 2.2 Name.
The name of the Partnership shall be DCP Midstream
Partners, LP. The Partnerships business may be
conducted under any other name or names as determined by the
General Partner, including the name of
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the General Partner. The words Limited Partnership,
L.P., Ltd. or similar words or letters
shall be included in the Partnerships name where necessary
for the purpose of complying with the laws of any jurisdiction
that so requires. The General Partner may change the name of the
Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular
communication to the Limited Partners.
Section 2.3 Registered
Office; Registered Agent; Principal Office; Other Offices
Unless and until changed by the General Partner, the registered
office of the Partnership in the State of Delaware shall be
located at 2711 Centerville Road, Suite 400, Wilmington,
Delaware 19808-1645, and the registered agent for service of
process on the Partnership in the State of Delaware at such
registered office shall be Corporation Service Company. The
principal office of the Partnership shall be located at
370 17th Street, Suite 2775, Denver, Colorado 80202,
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 shall determine
necessary or appropriate. The address of the General Partner
shall be 370 17th Street, Suite 2775, Denver, Colorado
80202, or such other place as the General Partner may from time
to time designate by notice to the Limited Partners.
Section 2.4 Purpose
and Business.
The purpose and nature of the business to be conducted by the
Partnership shall be to (a) engage directly in, or enter
into or form, hold and dispose of 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 that 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 (b) do anything
necessary or appropriate to the foregoing, including the making
of capital contributions or loans to a Group Member;
provided, however, that the General Partner shall not
cause the Partnership to engage, directly or indirectly, in any
business activity that the General Partner determines would
cause the Partnership to be treated as an association taxable as
a corporation or otherwise taxable as an entity for federal
income tax purposes. To the fullest extent permitted by law, the
General Partner shall have no duty or obligation to propose or
approve, and may decline to propose or approve, the conduct by
the Partnership of any business free of any fiduciary duty or
obligation whatsoever to the Partnership or any Limited Partner
and, in declining to so propose or approve, shall not be
required to act in good faith or pursuant to any other standard
imposed by this Agreement, any Group Member Agreement, any other
agreement contemplated hereby or under the Delaware Act or any
other law, rule or regulation or at equity.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and
things necessary or appropriate for the furtherance and
accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the
Partnership.
Section 2.6 Power
of Attorney.
(a) Each Limited Partner hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been
selected pursuant to Section 12.3, the Liquidator (and any
successor to the Liquidator by merger, transfer, assignment,
election or otherwise) and each of their authorized officers and
attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact,
with full power and authority in his name, place and stead, to:
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(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 determines to be 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 |
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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
determines to be 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 determines to be 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, Article X,
Article XI or Article XII; (E) all certificates,
documents and other instruments relating to the determination of
the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and
(F) all certificates, documents and other instruments
(including agreements and a certificate of merger) relating to a
merger, consolidation or conversion 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 that the General Partner or the
Liquidator determines to be necessary or appropriate to
(A) 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 (B) 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 and the transfer of all or any portion of such
Limited Partners Partnership Interest and shall
extend to such Limited Partners heirs, successors, assigns
and personal representatives. Each such Limited Partner 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, 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 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 may request in order to
effectuate this Agreement and the purposes of the Partnership.
Section 2.7 Term.
The term of the Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the
Delaware Act and shall continue in existence until the
dissolution of the Partnership in accordance with the provisions
of Article XII. The existence of the Partnership as a
separate legal entity shall continue until the cancellation of
the Certificate of Limited Partnership as provided in the
Delaware Act.
Section 2.8 Title
to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by
the Partnership as an entity, and no Partner, 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
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that any Partnership assets for which record title is held in
the name of the General Partner or one or more of its Affiliates
or one or more nominees shall be held by the General Partner or
such Affiliate or nominee for the use and benefit of the
Partnership in accordance with the provisions of this Agreement;
provided, however, that the General Partner shall use
reasonable efforts to cause record title to such assets (other
than those assets in respect of which the General Partner
determines that the expense and difficulty of conveyancing makes
transfer of record title to the Partnership impracticable) to be
vested in the Partnership as soon as reasonably practicable;
provided, further, that, prior to the withdrawal or
removal of the General Partner or as soon thereafter as
practicable, the General Partner shall use reasonable efforts to
effect the transfer of record title to the Partnership and,
prior to any such transfer, will provide for the use of such
assets in a manner satisfactory to the General Partner. All
Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name
in which record title to such Partnership assets is held.
ARTICLE III
Rights of Limited Partners
Section 3.1 Limitation
of Liability.
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement or the
Delaware Act.
Section 3.2 Management
of Business.
No Limited Partner, in its capacity as such, shall participate
in the operation, management or control (within the meaning of
the Delaware Act) of the Partnerships business, transact
any business in the Partnerships 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, manager, member, general partner, agent or
trustee of the General Partner or any of its Affiliates, or any
officer, director, employee, manager, 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 under this
Agreement.
Section 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, any Limited Partner shall be entitled to and may have
business interests and engage in business activities in addition
to those relating to the Partnership, including business
interests and activities in direct competition with the
Partnership Group. Neither the Partnership nor any of the other
Partners shall have any rights by virtue of this Agreement in
any business ventures of any Limited Partner.
Section 3.4 Rights
of Limited Partners.
(a) In addition to other rights provided by this Agreement
or by applicable law, and except as limited by
Section 3.4(b), each Limited Partner shall have the right,
for a purpose reasonably related to such Limited Partners
interest as a Limited Partner in the Partnership, upon
reasonable written demand stating the purpose of such demand,
and at such Limited Partners own expense:
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(i) to obtain true and full information regarding the
status of the business and financial condition of the
Partnership; |
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(ii) promptly after its becoming available, to obtain a
copy of the Partnerships federal, state and local income
tax returns for each year; |
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(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner; |
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(iv) to obtain a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with
copies 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 that
each Partner has agreed to contribute in the future, and the
date on which each became a Partner; and |
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(vi) to obtain such other information regarding the affairs
of the Partnership as is just and reasonable. |
(b) The General Partner may keep confidential from the
Limited Partners, 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 its business or (C) that any Group
Member is required by law or by agreement with any third party
to keep confidential (other than agreements with Affiliates of
the Partnership the primary purpose of which is to circumvent
the obligations set forth in this Section 3.4).
ARTICLE IV
Certificates; Record Holders; Transfer of
Partnership Interests; Redemption of
Partnership Interests
Section 4.1 Certificates.
Upon the Partnerships issuance of Common Units,
Subordinated Units or Class B Units to any Person, the
Partnership shall issue, upon the request of such Person, one or
more Certificates in the name of such Person evidencing the
number of such Units being so issued. In addition, (a) upon
the General Partners request, the Partnership shall issue
to it one or more Certificates in the name of the General
Partner evidencing its General Partner Units and (b) upon
the request of any Person owning Incentive Distribution Rights
or any other Partnership Securities other than Common Units,
Subordinated Units or Class B Units, the Partnership shall
issue to such Person one or more certificates evidencing such
Incentive Distribution Rights or other Partnership Securities
other than Common Units, Subordinated Units or Class B
Units. Certificates shall be executed on behalf of the
Partnership by the Chairman of the Board, President or any
Executive Vice President, Senior Vice President or Vice
President and the Secretary or any Assistant Secretary of the
General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer
Agent; provided, however, that if the General Partner
elects to issue Common Units in global form, the Common Unit
Certificates shall be valid upon receipt of a certificate from
the Transfer Agent certifying that the Common Units have been
duly registered in accordance with the directions of the
Partnership. Subject to the requirements of Section 6.7(c)
and Section 6.7(e), the Partners holding Certificates
evidencing Subordinated Units may exchange such Certificates for
Certificates evidencing Common Units on or after the date on
which such Subordinated Units are converted into Common Units
pursuant to the terms of Section 5.7. Subject to the
requirements of Section 6.7(e), the Partners holding
Certificates evidencing Class B Units may exchange such
Certificates for Certificates evidencing Common Units on or
after the period set forth in Section 5.11(f) pursuant to
the terms of Section 5.11.
Section 4.2 Mutilated,
Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the
Transfer Agent (for Common Units) or the General Partner (for
Partnership Securities other than Common Units), the appropriate
officers of the General Partner on behalf of the Partnership
shall execute, and the Transfer Agent (for Common Units) or the
General Partner (for Partnership Securities other than Common
Units) shall countersign and deliver in exchange therefor, a new
Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.
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(b) The appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver, and the
Transfer Agent (for Common Units) shall countersign, a new
Certificate in place of any Certificate previously issued if the
Record Holder of the Certificate:
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(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen; |
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(ii) requests the issuance of a new Certificate before the
General Partner has notice that the Certificate has been
acquired by a purchaser for value in good faith and without
notice of an adverse claim; |
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(iii) if requested by the General Partner, delivers to the
General Partner a bond, in form and substance satisfactory to
the General Partner, with surety or sureties and with fixed or
open penalty as the General Partner may direct to indemnify the
Partnership, the Partners, the General Partner and the Transfer
Agent against any claim that may be made on account of the
alleged loss, destruction or theft of the Certificate; and |
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(iv) satisfies any other reasonable requirements imposed by
the General Partner. |
If a Limited Partner fails to notify the General Partner within
a reasonable period of 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
shall be precluded from making any claim against the
Partnership, the General Partner or the Transfer Agent for such
transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate
under this Section 4.2, the General Partner may require the
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the
Transfer Agent) reasonably connected therewith.
Section 4.3 Record
Holders.
The Partnership shall be entitled to recognize the Record Holder
as the Partner with respect to any Partnership Interest
and, accordingly, shall not be bound to recognize any equitable
or other claim to, or interest in, such
Partnership Interest on the part of any other Person,
regardless of whether the Partnership shall have actual or other
notice thereof, except as otherwise provided by law or any
applicable rule, regulation, guideline or requirement of any
National Securities Exchange on which such
Partnership Interests are listed or admitted to trading.
Without limiting the foregoing, when a Person (such as a broker,
dealer, bank, trust company or clearing corporation or an agent
of any of the foregoing) is acting as nominee, agent or in some
other representative capacity for another Person in acquiring
and/or holding Partnership Interests, as between the
Partnership on the one hand, and such other Persons on the
other, such representative Person shall be the Record Holder of
such Partnership Interest.
Section
4.4 Transfer Generally.
(a) The term transfer, when used in this
Agreement with respect to a Partnership Interest, shall be
deemed to refer to a transaction (i) by which the General
Partner assigns its General Partner Units to another Person or
by which a holder of Incentive Distribution Rights assigns its
Incentive Distribution Rights to another Person, and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise
or (ii) by which the holder of a Limited Partner Interest
(other than an Incentive Distribution Right) assigns such
Limited Partner Interest to another Person who is or becomes a
Limited Partner, and includes a sale, assignment, gift, exchange
or any other disposition by law or otherwise, including any
transfer upon foreclosure of any pledge, encumbrance,
hypothecation or mortgage.
(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.
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(c) Nothing contained in this Agreement shall be construed
to prevent a disposition by any stockholder, member, partner or
other owner of the General Partner of any or all of the shares
of stock, membership interests, partnership interests or other
ownership interests in the General Partner.
Section 4.5 Registration
and Transfer of Limited Partner Interests.
(a) The General Partner shall keep or cause to be kept on
behalf of the Partnership a register in which, subject to such
reasonable regulations as it may prescribe and subject to the
provisions of Section 4.5(b), the Partnership will provide
for the registration and transfer of Limited Partner Interests.
The Transfer Agent is hereby appointed registrar and transfer
agent for the purpose of registering Common Units and transfers
of such Common Units as herein provided. The Partnership shall
not recognize transfers of Certificates evidencing Limited
Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a
Certificate for registration of transfer of any Limited Partner
Interests evidenced by a Certificate, and subject to the
provisions of Section 4.5(b), the appropriate officers of
the General Partner on behalf of the Partnership shall execute
and deliver, and in the case of Common Units, the Transfer Agent
shall countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to
the holders instructions, one or more new Certificates
evidencing the same aggregate number and type of Limited Partner
Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the
General Partner shall not recognize any transfer of Limited
Partner Interests until the Certificates evidencing such Limited
Partner Interests are surrendered for registration of transfer.
No charge shall be imposed by the General Partner for such
transfer; provided, that as a condition to the issuance
of any new Certificate under this Section 4.5, the General
Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed with
respect thereto.
(c) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or an amendment to this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law including the Securities
Act, Limited Partner Interests (other than the Incentive
Distribution Rights) shall be freely transferable.
(d) The General Partner and its Affiliates shall have the
right at any time to transfer their Subordinated Units,
Class B Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or
more Persons.
Section 4.6 Transfer
of the General Partners General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to
December 31, 2015, the General Partner shall not transfer
all or any part of its General Partner Interest (represented by
General Partner Units) to a Person unless such transfer
(i) has been approved by the prior written consent or vote
of the holders of at least a majority of the Outstanding Common
Units (excluding Common Units held by the General Partner and
its Affiliates) or (ii) is of all, but not less than all,
of its General Partner Interest to (A) an Affiliate of the
General Partner (other than an individual) or (B) another
Person (other than an individual) in connection with the merger
or consolidation of the General Partner with or into such other
Person or the transfer by the General Partner of all or
substantially all of its assets to such other Person.
(b) Subject to Section 4.6(c) below, on or after
December 31, 2015, the General Partner may transfer all or
any of its General Partner Interest without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no
transfer by the General Partner of all or any part of its
General Partner Interest to another Person shall be permitted
unless (i) the transferee agrees to assume the rights and
duties of the General Partner under this Agreement and to be
bound by the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer
would not result in the loss of limited liability of any Limited
Partner under the Delaware Act or cause the Partnership to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to
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the extent not already so treated or taxed) and (iii) such
transferee also agrees to purchase all (or the appropriate
portion thereof, if applicable) of the partnership or membership
interest of the General Partner as the general partner or
managing member, if any, 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 the General
Partner immediately prior to the transfer of the General Partner
Interest, and the business of the Partnership shall continue
without dissolution.
Section 4.7 Transfer
of Incentive Distribution Rights.
Prior to December 31, 2015, a holder of Incentive
Distribution Rights may transfer any or all of the Incentive
Distribution Rights held by such holder without any consent of
the Unitholders to (a) an Affiliate of such holder (other
than an individual) or (b) another Person (other than an
individual) in connection with (i) the merger or
consolidation of such holder of Incentive Distribution Rights
with or into such other Person, (ii) the transfer by such
holder of all or substantially all of its assets to such other
Person or (iii) the sale of all the ownership interests in
such holder. Any other transfer of the Incentive Distribution
Rights prior to December 31, 2015 shall require the prior
approval of holders of at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner
and its Affiliates). On or after September 30, 2015, the
General Partner or any other holder of Incentive Distribution
Rights may transfer any or all of its Incentive Distribution
Rights without Unitholder approval. Notwithstanding anything
herein to the contrary, (i) the transfer of Class B
Units issued pursuant to Section 5.11, or the transfer of
Common Units issued upon conversion of the Class B Units,
shall not be treated as a transfer of all or any part of the
Incentive Distribution Rights and (ii) no transfer of
Incentive Distribution Rights to another Person shall be
permitted unless the transferee agrees to be bound by the
provisions of this Agreement.
Section 4.8 Restrictions
on Transfers.
(a) Except as provided in Section 4.8(d) below, but
notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interests shall be made if such
transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the
Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer,
(ii) terminate the existence or qualification of the
Partnership under the laws of the jurisdiction of its formation,
or (iii) cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
already so treated or taxed).
(b) The General Partner may impose restrictions on the
transfer of Partnership Interests if it receives an Opinion
of Counsel that such restrictions are necessary to avoid a
significant risk of the Partnership becoming taxable as a
corporation or otherwise becoming taxable as an entity for
federal income tax purposes. The General Partner may impose such
restrictions by amending this Agreement; provided,
however, that any amendment that would 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 listed
or admitted to trading must be approved, prior to such amendment
being effected, by the holders of at least a majority of the
Outstanding Limited Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has converted
into a Common Unit shall be subject to the restrictions imposed
by Section 6.7(c).
(d) The transfer of a Class B Unit that has converted
into a Common Unit shall be subject to the restrictions imposed
by Section 6.7(e).
(e) 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 or admitted to
trading.
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(f) Each certificate evidencing Partnership Interests
shall bear a conspicuous legend in substantially the following
form:
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THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF DCP
MIDSTREAM PARTNERS, LP THAT THIS SECURITY MAY NOT BE SOLD,
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION
OVER SUCH TRANSFER, (B) TERMINATE THE EXISTENCE OR
QUALIFICATION OF DCP MIDSTREAM PARTNERS, LP UNDER THE LAWS OF
THE STATE OF DELAWARE, OR (C) CAUSE DCP MIDSTREAM PARTNERS,
LP 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). DCP
MIDSTREAM GP LLC, THE GENERAL PARTNER OF DCP MIDSTREAM PARTNERS,
LP, MAY IMPOSE ADDITIONAL RESTRICTIONS ON THE TRANSFER OF THIS
SECURITY IF IT RECEIVES AN OPINION OF COUNSEL THAT SUCH
RESTRICTIONS ARE NECESSARY TO AVOID A SIGNIFICANT RISK OF DCP
MIDSTREAM PARTNERS, LP BECOMING TAXABLE AS A CORPORATION OR
OTHERWISE BECOMING TAXABLE AS AN ENTITY FOR FEDERAL INCOME TAX
PURPOSES. THE RESTRICTIONS SET FORTH ABOVE SHALL NOT PRECLUDE
THE SETTLEMENT OF ANY TRANSACTIONS INVOLVING THIS SECURITY
ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL SECURITIES
EXCHANGE ON WHICH THIS SECURITY IS LISTED OR ADMITTED TO TRADING. |
Section 4.9 Citizenship
Certificates; Non-citizen Assignees.
(a) If any Group Member is or becomes subject to any
federal, state or local law or regulation that the General
Partner determines would create 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, the General Partner
may request any Limited Partner 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 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 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 that a Limited Partner is not an
Eligible Citizen, the Limited Partner Interests owned by such
Limited Partner shall be subject to redemption in accordance
with the provisions of Section 4.10. In addition, the
General Partner may require that the status of any such Limited
Partner 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 the
Non-citizen Assignees Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights
in respect of Limited Partner Interests held by it on behalf of
Non-citizen Assignees, distribute the votes in the same ratios
as the votes of Partners (including 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 Assignees
share of any 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 that with respect to
any Limited Partner
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Interests of such Non-citizen Assignee not redeemed pursuant to
Section 4.10, such Non-citizen Assignee be admitted as a
Limited Partner, and upon approval of the General Partner, such
Non-citizen Assignee shall be admitted as a Limited Partner and
shall no longer constitute a Non-citizen Assignee and the
General Partner shall cease to be deemed to be the Limited
Partner in respect of the Non-citizen Assignees Limited
Partner Interests.
Section 4.10 Redemption
of Partnership Interests of Non-citizen Assignees.
(a) If at any time a Limited Partner fails to furnish a
Citizenship Certification or other information requested within
the 30-day period specified in Section 4.9(a), or if upon
receipt of such Citizenship Certification or other information
the General Partner determines, with the advice of counsel, that
a Limited Partner is not an Eligible Citizen, the Partnership
may, unless the Limited Partner establishes to the satisfaction
of the General Partner that such Limited Partner is an Eligible
Citizen or has transferred his Partnership Interests to a Person
who is an Eligible Citizen and who furnishes a Citizenship
Certification to the General Partner prior to the date fixed for
redemption as provided below, redeem the Limited Partner
Interest of such Limited Partner as follows:
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(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, at his last address designated on the
records of the Partnership or the Transfer Agent, by registered
or certified mail, postage prepaid. The notice shall be deemed
to have been given when so mailed. The notice shall specify the
Redeemable Interests, the date fixed for redemption, the place
of payment, that payment of the redemption price will be made
upon surrender of the Certificate evidencing the Redeemable
Interests and that on and after the date fixed for redemption no
further allocations or distributions to which the Limited
Partner would otherwise be entitled in respect of the Redeemable
Interests will accrue or be made. |
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(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, as determined by 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 5% annually and payable in three
equal annual installments of principal together with accrued
interest, commencing one year after the redemption date. |
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(iii) Upon surrender by or on behalf of the Limited
Partner, 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 his duly authorized
representative shall be entitled to receive the payment therefor. |
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(iv) After the redemption date, Redeemable Interests shall
no longer constitute issued and Outstanding Limited Partner
Interests. |
(b) The provisions of this Section 4.10 shall also be
applicable to Limited Partner Interests held by a Limited
Partner as nominee of a Person determined to be other than an
Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent the
recipient of a notice of redemption from transferring his
Limited Partner Interest before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon
receipt of notice of such a transfer, the General Partner shall
withdraw the notice of redemption, provided the transferee of
such Limited Partner Interest certifies to the satisfaction of
the General Partner that he is an Eligible Citizen. If the
transferee fails to make such certification, such redemption
shall be effected from the transferee on the original redemption
date.
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ARTICLE V
Capital Contributions and Issuance of Partnership Interests
Section 5.1
Organizational Contributions.
In connection with the formation of the Partnership under the
Delaware Act, the General Partner made an initial Capital
Contribution to the Partnership in the amount of $40.00, for a
2% General Partner Interest in the Partnership and has been
admitted as the General Partner of the Partnership, and the
Organizational Limited Partner made an initial Capital
Contribution to the Partnership in the amount of $1,960.00 for a
98% Limited Partner Interest in the Partnership and has been
admitted as a Limited Partner of the Partnership. As of the
Closing Date, the interest of the Organizational Limited Partner
shall be redeemed as provided in the Contribution Agreement; and
the initial Capital Contribution of the Organizational Limited
Partner shall thereupon be refunded. Ninety-eight percent of any
interest or other profit that may have resulted from the
investment or other use of such initial Capital Contributions
shall be allocated and distributed to the Organizational Limited
Partner, and the balance thereof shall be allocated and
distributed to the General Partner.
Section 5.2 Contributions
by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the Contribution
Agreement: (i) the General Partner shall contribute to the
Partnership, as a Capital Contribution, all of its ownership
interests in DCP Assets Holdings, LP, a Delaware limited
partnership (DCP LP Holdings), in exchange for (A)
357,143 General Partner Units representing a continuation of its
2% General Partner Interest, subject to all of the rights,
privileges and duties of the General Partner under this
Agreement, (B) the Incentive Distribution Rights,
(C) the right to receive $4.0 million to reimburse the
General Partner for certain capital expenditures and
(D) the right to receive $171.0 million from the net
proceeds of borrowings by OLP on the Closing Date pursuant to
the Credit Agreement; and (ii) DCP LP Holdings shall
contribute to the Partnership, as a Capital Contribution, all of
(A) its limited partner interests in DCP Assets Holdings,
LP, a Delaware limited partnership and (B) all of its
member interest in where Duke Energy Guadalupe Pipeline, LLC, a
Delaware limited liability company, in exchange for 1,357,143
Common Units, 7,142,857 Subordinated Units and the right to
receive $4.0 million in reimbursement for certain capital
expenditures.
(b) Upon the issuance of any additional Limited Partner
Interests by the Partnership (other than the Common Units issued
in the Initial Offering, the Common Units issued pursuant to the
Over-Allotment Option, the Common Units and Subordinated Units
issued pursuant to Section 5.2(a), any Class B Units
issued pursuant to Section 5.11 and any Common Units issued
upon conversion of Class B Units), the General Partner may,
in exchange for a proportionate number of General Partner Units,
make additional Capital Contributions in an amount equal to the
product obtained by multiplying (i) the quotient determined
by dividing (A) the General Partners Percentage
Interest by (B) 100 less the General Partners
Percentage Interest 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
Article XII, the General Partner shall not be obligated to
make any additional Capital Contributions to the Partnership.
Section 5.3 Contributions
by Initial Limited Partners.
(a) On the Closing Date and pursuant to the Underwriting
Agreement, each Underwriter shall contribute to the Partnership
cash in an amount equal to the Issue Price per Initial Common
Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at
the Closing Date. In exchange for such Capital Contributions by
the Underwriters, the Partnership shall issue Common Units to
each Underwriter on whose behalf such Capital Contribution is
made in an amount equal to the quotient obtained by dividing
(i) the cash contribution to the Partnership by or on
behalf of such Underwriter by (ii) the Issue Price per
Initial Common Unit.
(b) Upon the exercise of the Over-Allotment Option, each
Underwriter shall contribute to the Partnership cash in an
amount equal to the Issue Price per Initial Common Unit,
multiplied by the number of Common Units to be purchased by such
Underwriter at the Option Closing Date. In exchange for such
Capital
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Contributions by the Underwriters, the Partnership shall issue
Common Units to each Underwriter on whose behalf such Capital
Contribution is made in an amount equal to the quotient obtained
by dividing (i) the cash contributions to the Partnership
by or on behalf of such Underwriter by (ii) the Issue Price
per Initial Common Unit. Upon receipt by the Partnership of the
Capital Contributions from the Underwriters as provided in this
Section 5.3(b), the Partnership shall use such cash to
purchase United States Treasury and other qualifying securities,
which will be assigned as collateral to secure borrowings that
are, in turn, used to redeem at the Issue Price per Initial
Common Unit, on a Pro Rata basis, from DCP LP Holdings, LP that
number of Common Units held by DCP LP Holdings, LP equal to the
number of Common Units issued to the Underwriters as provided in
this Section 5.3(b).
(c) No Limited Partner Interests will be issued or issuable
as of or at the Closing Date other than (i) the Common
Units issuable pursuant to subparagraph (a) hereof in
aggregate number equal to 9,000,000, (ii) the Option
Units as such term is used in the Underwriting Agreement
in an aggregate number up to 1,350,000 issuable upon exercise of
the Over-Allotment Option pursuant to subparagraph
(b) hereof, (iii) the 7,142,857 Subordinated Units
issuable to pursuant to Section 5.2 hereof, (iv) the
1,357,143 Common Units issuable pursuant to Section 5.2
hereof, and (v) the Incentive Distribution Rights.
Section 5.4 Interest
and Withdrawal.
No interest shall be paid by the Partnership on Capital
Contributions. No Partner or Assignee shall be entitled to the
withdrawal or return of its Capital Contribution, except to the
extent, if any, that distributions made pursuant to this
Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided
for in this Agreement. Except to the extent expressly provided
in this Agreement, no Partner or Assignee shall have priority
over any other Partner or Assignee either as to the return of
Capital Contributions or as to profits, losses or distributions.
Any such return shall be a compromise to which all Partners and
Assignees agree within the meaning of Section 17-502(b) of
the Delaware Act.
Section 5.5 Capital
Accounts.
(a) The Partnership shall maintain for each Partner (or a
beneficial owner of Partnership Interests held by a nominee in
any case in which the nominee has furnished the identity of such
owner to the Partnership in accordance with Section 6031(c)
of the Code or any other method acceptable to the General
Partner) 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 and (ii) all items of Partnership
income and gain (including income and gain exempt from tax)
computed in accordance with Section 5.5(b) and allocated
with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash
or Net Agreed Value of all actual and deemed distributions of
cash or property made with respect to such Partnership Interest
and (y) all items of Partnership deduction and loss
computed in accordance with Section 5.5(b) and allocated
with respect to such Partnership Interest pursuant to
Section 6.1.
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction which is to be allocated
pursuant to Article VI and is to be reflected in the
Partners Capital Accounts, the determination, recognition
and classification of any such item shall be the same as its
determination, recognition and classification for federal income
tax purposes (including any method of depreciation, cost
recovery or amortization used for that purpose), provided, that:
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(i) Solely for purposes of this Section 5.5, the
Partnership shall be treated as owning directly its
proportionate share (as determined by the General Partner based
upon the provisions of the applicable Group Member Agreement or
governing, organizational or similar documents) of all property
owned by any other Group Member that is classified as a
partnership for federal income tax purposes and (y) any other
partnership, limited liability company, unincorporated business
or other entity classified as a partnership for federal income
tax purposes of which a Group Member is, directly or indirectly,
a partner. |
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(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a Partnership
Interest that can neither be deducted nor amortized under
Section 709 of the Code, if any, shall, for purposes of
Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall
be allocated among the Partners pursuant to Section 6.1. |
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(iii) Except as otherwise provided in Treasury
Regulation Section 1.704-1(b)(2)(iv)(m), the computation of
all items of income, gain, loss and deduction shall be made
without regard to any election under Section 754 of the Code
which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the
Code, without regard to the fact that such items are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes. To the extent
an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment in the Capital
Accounts shall be treated as an item of gain or loss. |
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(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnerships
Carrying Value with respect to such property as of such date. |
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(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.5(d) to the
Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying
Value of such property immediately following such adjustment and
(B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or,
if applicable, the remaining useful life) as is applied for
federal income tax purposes; provided, however, that, if
the asset has a zero adjusted basis for federal income tax
purposes, depreciation, cost recovery or amortization deductions
shall be determined using any method that the General Partner
may adopt. |
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(vi) If the Partnerships adjusted basis in a
depreciable or cost recovery property is reduced for federal
income tax purposes pursuant to Section 48(q)(1) or
48(q)(3) of the Code, the amount of such reduction shall, solely
for purposes hereof, be deemed to be an additional depreciation
or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to
Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible,
be allocated in the same manner to the Partners to whom such
deemed deduction was allocated. |
(c) (i) A transferee of a Partnership Interest shall
succeed to a pro rata portion of the Capital Account of the
transferor relating to the Partnership Interest so transferred.
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(ii) Subject to Section 6.7(c), immediately prior to
the transfer of a Subordinated Unit or of a Subordinated Unit
that has converted into a Common Unit pursuant to
Section 5.7 by a holder thereof (other than a transfer to
an Affiliate unless the General Partner elects to have this
subparagraph 5.5(c)(ii) apply), the Capital Account maintained
for such Person with respect to its Subordinated Units or
converted Subordinated Units will (A) first, be allocated
to the Subordinated Units or converted Subordinated Units to be
transferred in an amount equal to the product of (x) the
number of such Subordinated Units or converted Subordinated
Units to be transferred and (y) the Per Unit Capital Amount
for a Common Unit, and (B) second, any remaining balance in
such Capital Account will be retained by the transferor,
regardless of whether it has retained any Subordinated Units or
converted Subordinated Units (Retained Converted
Subordinated Units). Following any such
allocation, the transferors Capital Account, if any,
maintained with respect to the retained Subordinated Units or
Retained Converted Subordinated Units, if any, will have a
balance equal to the amount allocated under clause (B)
hereinabove, and the transferees Capital Account
established with respect to the transferred |
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Subordinated Units or converted Subordinated Units will have a
balance equal to the amount allocated under clause (A)
hereinabove. |
(d) (i) In accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), on an issuance of
additional Partnership Interests for cash or Contributed
Property, the issuance of Partnership Interests as consideration
for the provision of services or the conversion of the General
Partners 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 cash
or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the
General Partner using such 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)
to arrive at a fair market value for individual properties.
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(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other
than a distribution of cash that is not in redemption or
retirement of a Partnership Interest), the Capital Accounts of
all Partners and the Carrying Value of all Partnership property
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership
property, as if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and
had been allocated to the Partners, at such time, pursuant to
Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized
Loss the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents)
immediately prior to a distribution shall (A) in the case
of an actual distribution that is not made pursuant to
Section 12.4 or in the case of a deemed distribution, be
determined and allocated in the same manner as that provided in
Section 5.5(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 12.4, be determined and
allocated by the Liquidator using such method of valuation as it
may adopt. |
Section 5.6 Issuances
of Additional Partnership Securities.
(a) The Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights
relating to the Partnership Securities for any Partnership
purpose at any time and from time to time to such Persons for
such consideration and on such terms and conditions as the
General Partner shall determine, all without the approval of any
Limited Partners.
(b) Each additional Partnership Security authorized to be
issued by the Partnership pursuant to Section 5.6(a) may be
issued in one or more classes, or one or more series of any such
classes, with such designations, preferences, rights, powers and
duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General
Partner, including (i) the right to share in Partnership
profits and losses or items thereof; (ii) the right to
share in Partnership distributions; (iii) the rights upon
dissolution and liquidation of the Partnership;
(iv) whether, and the terms and conditions upon which, the
Partnership may redeem the Partnership Security;
(v) whether such Partnership Security is issued with the
privilege of conversion or exchange and, if so, the terms and
conditions of such conversion or exchange; (vi) the terms
and conditions upon which each Partnership Security will be
issued, evidenced by certificates and assigned or transferred;
(vii) the method for determining the Percentage Interest as
to such Partnership Security; and (viii) the right, if any,
of each such Partnership Security to vote on Partnership
matters, including matters relating to the relative rights,
preferences and privileges of such Partnership Security.
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(c) The General Partner shall take all actions that it
determines to be necessary or appropriate in connection with
(i) each issuance of Partnership Securities and options,
rights, warrants and appreciation rights relating to Partnership
Securities pursuant to this Section 5.6, (ii) the
conversion of the General Partner Interest (represented by
General Partner Units) or any Incentive Distribution Rights into
Units pursuant to the terms of this Agreement, (iii) the
issuance of Class B Units pursuant to Section 5.11 and
the conversion of Class B Units into Common Units pursuant
to the terms of this Agreement, (iv) reflecting admission
of such additional Limited Partners in the books and records of
the Partnership as the Record Holder of such Limited Partner
Interest and (v) all additional issuances of Partnership
Securities. The General Partner shall determine the relative
rights, powers and duties of the holders of the Units or other
Partnership Securities being so issued. The General Partner
shall do all things necessary to comply with the Delaware Act
and is authorized and directed to do all things that it
determines to be necessary or appropriate in connection with any
future issuance of Partnership Securities or in connection with
the conversion of the General Partner Interest or any Incentive
Distribution Rights into Units pursuant to the terms of this
Agreement, including compliance with any statute, rule,
regulation or guideline of any federal, state or other
governmental agency or any National Securities Exchange on which
the Units or other Partnership Securities are listed or admitted
to trading.
(d) No fractional Units shall be issued by the Partnership.
Section 5.7 Conversion
of Subordinated Units.
(a) A total of 50% of the Outstanding Subordinated Units
will convert into Common Units on a one-for-one basis on the
second Business Day following the distribution of Available Cash
to Partners pursuant to Section 6.3(a) in respect of any
Quarter ending on or after December 31, 2007, in respect of
which:
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(i) distributions of Available Cash from Operating Surplus
under Section 6.4(a) on each of the Outstanding Common
Units and Subordinated Units and any other Outstanding Units
that are senior or equal in right of distribution to the
Subordinated Units and the General Partner Units with respect to
each of the two consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all of the
Outstanding Common Units and Subordinated Units and any other
Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units during such periods; |
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(ii) the Adjusted Operating Surplus for each of the two
consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the Common Units, Subordinated
Units and any other Units that are senior or equal in right of
distribution to the Subordinated Units that were Outstanding
during such periods on a Fully Diluted Basis and the General
Partner Units, with respect to such periods; and |
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(iii) there are no Cumulative Common Unit Arrearages. |
(b) An additional 50% of the Outstanding Subordinated Units
will convert into Common Units on a one-for-one basis on the
second Business Day following the distribution of Available Cash
to Partners pursuant to Section 6.3(a) in respect of any
Quarter ending on or after December 31, 2008, in respect of
which:
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(i) distributions of Available Cash from Operating Surplus
under Section 6.4(a) on each of the Outstanding Common
Units and Subordinated Units and any other Outstanding Units
that are senior or equal in right of distribution to the
Subordinated Units and the General Partner Units with respect to
each of the two consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded 125%
of the sum of the Minimum Quarterly Distribution on all of the
Outstanding Common Units and Subordinated Units and any other
Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units during such periods; |
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(ii) the Adjusted Operating Surplus for each of the two
consecutive, non-overlapping four-Quarter periods immediately
preceding such date equaled or exceeded 125% of the sum of the
Minimum Quarterly Distribution on all of the Common Units,
Subordinated Units and any other Units that are senior or equal
in right of distribution to the Subordinated Units that were
Outstanding during such periods on a Fully Diluted Basis and the
General Partner Units, with respect to such periods; and |
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(iii) there are no Cumulative Common Unit Arrearages; |
provided, however, that the conversion of Subordinated
Units pursuant to this Section 5.7(b) may not occur until
at least one year following the end of the last four-Quarter
period in respect of which conversion of Subordinated Units
pursuant to Section 5.7(a) occurred.
(c) In the event that less than all of the Outstanding
Subordinated Units shall convert into Common Units pursuant to
Section 5.7(a) or (b) at a time when there shall be
more than one holder of Subordinated Units, then, unless all of
the holders of Subordinated Units shall agree to a different
allocation, the Subordinated Units that are to be converted into
Common Units shall be allocated among the holders of
Subordinated Units pro rata based on the number of Subordinated
Units held by each such holder.
(d) Any Subordinated Units that are not converted into
Common Units pursuant to Section 5.7(a) or (b) shall
convert into Common Units on a one-for-one basis on the second
Business Day following the distribution of Available Cash to
Partners pursuant to Section 6.3(a) in respect of the final
Quarter of the Subordination Period.
(e) Notwithstanding any other provision of this Agreement,
all the then Outstanding Subordinated Units will automatically
convert into Common Units on a one-for-one basis as set forth
in, and pursuant to the terms of, Section 11.4.
(f) A Subordinated Unit that has converted into a Common
Unit shall be subject to the provisions of Section 6.7(b)
and Section 6.7(c).
Section 5.8 Limited
Preemptive Right.
Except as provided in this Section 5.8 and in
Section 5.2, no Person shall have any preemptive,
preferential or other similar right with respect to the issuance
of any Partnership Security, whether unissued, held in the
treasury or hereafter created. The General Partner shall have
the right, which it may from time to time assign in whole or in
part to any of its Affiliates, to purchase Partnership
Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons
other than the General Partner and its Affiliates, to the extent
necessary to maintain the Percentage Interests of the General
Partner and its Affiliates equal to that which existed
immediately prior to the issuance of such Partnership Securities.
Section 5.9 Splits
and Combinations.
(a) Subject to Section 5.9(d), Section 6.6 and
Section 6.9 (dealing with adjustments of distribution
levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as,
after any such event, each Partner shall have the same
Percentage Interest in the Partnership as before such event, and
any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit Arrearage) or stated as
a number of Units (including the number of Subordinated Units
that may convert prior to the end of the Subordination Period)
are proportionately adjusted.
(b) Whenever such a distribution, subdivision or
combination of Partnership Securities is declared, the General
Partner shall select a Record Date as of which the distribution,
subdivision or combination shall be effective and shall send
notice thereof at least 20 days prior to such Record Date
to each Record Holder as of a date not less than 10 days
prior to the date of such notice. The General Partner also may
cause a firm of independent public accountants selected by it to
calculate the number of Partnership Securities to be held by
each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be
entitled to rely on any certificate provided by such firm as
conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution, subdivision
or combination, the Partnership may issue Certificates to the
Record Holders of Partnership Securities as of the applicable
Record Date representing the new number of Partnership
Securities held by such Record Holders, or the General Partner
may adopt such other procedures that it determines to be
necessary or appropriate to reflect such changes. If any such
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combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a
condition to the delivery to a Record Holder of such new
Certificate, the surrender of any Certificate held by such
Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional Units upon
any distribution, subdivision or combination of Units. If a
distribution, subdivision or combination of Units would result
in the issuance of fractional Units but for the provisions of
this Section 5.9(d), each fractional Unit shall be rounded
to the nearest whole Unit (and a 0.5 Unit shall be rounded to
the next higher Unit).
Section 5.10 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.
Section 5.11 Issuance
of Class B Units in Connection with Reset of Incentive
Distribution Rights.
(a) Subject to the provisions of this Section 5.11,
the holder of the Incentive Distribution Rights (or, if there is
more than one holder of the Incentive Distribution Rights, the
holders of a majority in interest of the Incentive Distribution
Rights) shall have the right, at any time when there are no
Subordinated Units outstanding and the Partnership has made a
distribution pursuant to Section 6.4(b)(v) for each of the
four most recently completed Quarters and the amount of each
such distribution did not exceed Adjusted Operating Surplus for
such Quarter, to make an election (the IDR Reset
Election) to cause the Minimum Quarterly
Distribution and the Target Distributions to be reset in
accordance with the provisions of Section 5.11(e) and, in
connection therewith, the holder or holders of the Incentive
Distribution Rights will become entitled to receive their
respective proportionate share of a number of Class B Units
derived by dividing (i) the average amount of cash
distributions made by the Partnership for the two full Quarters
immediately preceding the giving of the Reset Notice (as defined
in Section 5.11(b)) in respect of the Incentive
Distribution Rights by (ii) the average of the cash
distributions made by the Partnership in respect of each Common
Unit for each of the two full Quarters immediately preceding the
giving of the Reset Notice (the number of Class B Units
determined by such quotient is referred to herein as the
Aggregate Quantity of Class B
Units). The making of the IDR Reset Election in
the manner specified in Section 5.11(b) shall cause the
Minimum Quarterly Distribution and the Target Distributions to
be reset in accordance with the provisions of
Section 5.11(e) and, in connection therewith, the holder or
holders of the Incentive Distribution Rights will become
entitled to receive Class B Units on the basis specified
above, without any further approval required by the General
Partner or the Unitholders, at the time specified in
Section 5.11(c) unless the IDR Reset Election is rescinded
pursuant to Section 5.11(d).
(b) To exercise the right specified in
Section 5.11(a), the holder of the Incentive Distribution
Rights (or, if there is more than one holder of the Incentive
Distribution Rights, the holders of a majority in interest of
the Incentive Distribution Rights) shall deliver a written
notice (the Reset Notice) to the
Partnership. Within 10 Business Days after the receipt by the
Partnership of such Reset Notice, as the case may be, the
Partnership shall deliver a written notice to the holder or
holders of the Incentive Distribution Rights of the
Partnerships determination of the aggregate number of
Class B Units which each holder of Incentive Distribution
Rights will be entitled to receive.
(c) The holder or holders of the Incentive Distribution
Rights will be entitled to receive the Aggregate Quantity of
Class B Units on the fifteenth Business Day after receipt
by the Partnership of the Reset Notice, and the Partnership
shall issue Certificates for the Class B Units to the
holder or holders of the Incentive Distribution Rights;
provided, however, that the issuance of Class B
Units to the holder or holders of the Incentive Distribution
Rights shall not occur prior to the approval of the listing or
admission for trading of the Common Units into which the
Class B Units are convertible pursuant to
Section 5.11(f) by the principal National Securities
Exchange upon which the Common Units are then listed or admitted
for trading if any such approval is required pursuant to the
rules and regulations of such National Securities Exchange.
(d) In the event that the principal National Securities
Exchange upon which the Common Units are then traded have not
approved the listing or admission for trading of the Common
Units into which the Class B
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Units are convertible pursuant to Section 5.11(f) on or
before the 30th calendar day following the Partnerships
receipt of the Reset Notice and such approval is required by the
rules and regulations of such National Securities Exchange, then
the holder of the Incentive Distribution Rights (or, if there is
more than one holder of the Incentive Distribution Rights, the
holders of a majority in interest of the Incentive Distribution
Rights) shall have the right to either rescind the IDR Reset
Election or elect to receive other Partnership Securities having
such terms as the General Partner may approve, with the approval
of the Conflicts Committee, that will provide (i) the same
economic value, in the aggregate, as the Aggregate Quantity of
Class B Units would have had at the time of the
Partnerships receipt of the Reset Notice, as determined by
the General Partner, and (ii) for the subsequent conversion
of such Partnership Securities into Common Units within not more
than 12 months following the Partnerships receipt of
the Reset Notice upon the satisfaction of one or more conditions
that are reasonably acceptable to the holder of the Incentive
Distribution Rights (or, if there is more than one holder of the
Incentive Distribution Rights, the holders of a majority in
interest of the Incentive Distribution Rights).
(e) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution shall be adjusted at the time of the issuance of
Common Units or other Partnership Securities pursuant to this
Section 5.11 such that (i) the Minimum Quarterly
Distribution shall be reset to equal to the average cash
distribution amount per Common Unit for the two Quarters
immediately prior to the Partnerships receipt of the Reset
Notice (the Reset MQD), (ii) the
First Target Distribution shall be reset to equal 115% of the
Reset MQD, (iii) the Second Target Distribution shall be
reset to equal to 125% of the Reset MQD and (iv) the Third
Target Distribution shall be reset to equal 150% of the Reset
MQD.
(f) Any holder of Class B Units shall have the right
to elect, by giving written notice to the General Partner, to
convert all or a portion of the Class B Units held by such
holder, at any time following the first anniversary of the
issuance of such Class B Units, into Common Units on a
one-for-one basis, such conversion to be effective on the second
Business Day following the General Partners receipt of
such written notice.
ARTICLE VI
Allocations and Distributions
Section 6.1 Allocations
for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the
Partnerships items of income, gain, loss and deduction
(computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.
(a) Net Income. After giving effect to the special
allocations set forth in Section 6.1(d), Net Income for
each taxable year and all items of income, gain, loss and
deduction taken into account in computing Net Income for such
taxable year shall be allocated as follows:
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(i) First, 100% to the General Partner, in an amount equal
to the aggregate Net Losses allocated to the General Partner
pursuant to Section 6.1(b)(iii) for all previous taxable
years until the aggregate Net Income allocated to the General
Partner pursuant to this Section 6.1(a)(i) for the current
taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant
to Section 6.1(b)(iii) for all previous taxable years; |
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(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such
Partners pursuant to this Section 6.1(a)(ii) for the
current taxable year and all previous taxable years is equal to
the aggregate Net Losses allocated to such Partners pursuant to
Section 6.1(b)(ii) for all previous taxable years; and |
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(iii) Third, the balance, if any, 100% to the General
Partner and to the Unitholders, in accordance with their
respective Percentage Interests. |
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(b) Net Losses. After giving effect to the special
allocations set forth in Section 6.1(d), Net Losses for
each taxable period and all items of income, gain, loss and
deduction taken into account in computing Net Losses for such
taxable period shall be allocated as follows:
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(i) First, 100% to the General Partner and the Unitholders,
in accordance with their respective Percentage Interests, until
the aggregate Net Losses allocated pursuant to this
Section 6.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income
allocated to such Partners pursuant to Section 6.1(a)(iii)
for all previous taxable years, provided that the Net Losses
shall not be allocated pursuant to this Section 6.1(b)(i)
to the extent that such allocation would cause any Unitholder to
have a deficit balance in its Adjusted Capital Account at the
end of such taxable year (or increase any existing deficit
balance in its Adjusted Capital Account); |
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(ii) Second, 100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests; provided, that Net Losses shall not be
allocated pursuant to this Section 6.1(b)(ii) to the extent
that such allocation would cause any Unitholder to have a
deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in
its Adjusted Capital Account); and |
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(iii) Third, the balance, if any, 100% to the General
Partner. |
(c) Net Termination Gains and Losses. After giving
effect to the special allocations set forth in
Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain
or Net Termination Loss for such taxable period shall be
allocated in the same manner as such Net Termination Gain or Net
Termination Loss is allocated hereunder. All allocations under
this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided
under this Section 6.1 and after all distributions of
Available Cash provided under Section 6.4 and
Section 6.5 have been made;
provided, however, that solely for purposes of this
Section 6.1(c), Capital Accounts shall not be adjusted for
distributions made pursuant to Section 12.4.
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(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Gain shall be allocated among the Partners in the
following manner (and the Capital Accounts of the Partners shall
be increased by the amount so allocated in each of the following
subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause): |
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(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance
bears to the total deficit balances in the Capital Accounts of
all Partners, until each such Partner has been allocated Net
Termination Gain equal to any such deficit balance in its
Capital Account; |
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(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders
holding Common Units, Pro Rata, a percentage equal to 100% less
the percentage applicable to subclause (x) of this clause
(B), until the Capital Account in respect of each Common Unit
then Outstanding is equal to the sum of (1) its Unrecovered
Initial Unit Price, (2) the Minimum Quarterly Distribution
for the Quarter during which the Liquidation Date occurs,
reduced by any distribution pursuant to Section 6.4(a)(i) or
Section 6.4(b)(i) with respect to such Common Unit for such
Quarter (the amount determined pursuant to this clause
(2) is hereinafter defined as the Unpaid MQD)
and (3) any then existing Cumulative Common Unit Arrearage; |
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(C) Third, if such Net Termination Gain is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Class B Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Class B Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to subclause
(x) of this clause (C), until the Capital Account in
respect of each Class B Unit then Outstanding equals the
sum of (1) its Unrecovered Initial Unit Price, and
(2) the Minimum Quarterly Distribution for the Quarter
during which the |
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Liquidation Date occurs, reduced by any distribution pursuant to
Section 6.4(b)(i) with respect to such Class B Unit
for such Quarter; |
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(D) Fourth, if such Net Termination Gain is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to subclause
(x) of this clause (D), until the Capital Account in
respect of each Subordinated Unit then Outstanding equals the
sum of (1) its Unrecovered Initial Unit Price, determined
for the taxable year (or portion thereof) to which this
allocation of gain relates, and (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date
occurs, reduced by any distribution pursuant to
Section 6.4(a)(iii) with respect to such Subordinated Unit
for such Quarter; |
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(E) Fifth, 100% to the General Partner and all Unitholders
in accordance with their respective Percentage Interests, until
the Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) its Unrecovered
Initial Unit Price, (2) the Unpaid MQD, (3) any then
existing Cumulative Common Unit Arrearage, and (4) the
excess of (aa) the First Target Distribution less the
Minimum Quarterly Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(iv) and Section 6.4(b)(ii) (the sum of
(1), (2), (3) and (4) is hereinafter defined as the
First Liquidation Target Amount); |
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(F) Sixth, (x) to the General Partner in accordance
with its Percentage Interest, (y) 13% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (F), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the First Liquidation Target Amount, and
(2) the excess of (aa) the Second Target Distribution
less the First Target Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(v) and Section 6.4(b)(iii) (the sum of
(1) and (2) is hereinafter defined as the
Second Liquidation Target Amount); |
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(G) Seventh, (x) to the General Partner in accordance
with its Percentage Interest, (y) 23% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (G), until the Capital Account in
respect of each Common Unit then Outstanding is equal to the sum
of (1) the Second Liquidation Target Amount, and
(2) the excess of (aa) the Third Target Distribution
less the Second Target Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(vi) and Section 6.4(b)(iv) (the sum of
(1) and (2) is hereinafter defined as the
Third Liquidation Target Amount); and |
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(H) Finally, (x) to the General Partner in accordance
with its Percentage Interest, (y) 48% to the holders of the
Incentive Distribution Rights, Pro Rata, and (z) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (x) and
(y) of this clause (H). |
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(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Loss shall be allocated among the Partners in the
following manner: |
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(A) First, if such Net Termination Loss is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, Pro Rata, a percentage
equal to 100% less the percentage applicable to subclause
(x) of this clause (A), until the Capital Account in
respect of each Subordinated Unit then Outstanding has been
reduced to zero; |
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(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to the Class B
Unitholders, Pro Rata, a percentage equal to 100% less the
percentage applicable to subclause (x) of this
clause (B) until the Capital Account in respect of each
Class B Unit then Outstanding has been reduced to zero; |
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(C) Third, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders,
Pro Rata, a percentage equal to 100% less the percentage
applicable to subclause (x) of this clause (B) until
the Capital Account in respect of each Unit then Outstanding has
been reduced to zero; and |
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(D) Fourth, 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: |
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(i) Partnership Minimum Gain
Chargeback. Notwithstanding any
other provision of this Section 6.1, if there is a net
decrease in Partnership Minimum Gain during any Partnership
taxable period, each Partner shall be allocated items of
Partnership income and gain for such period (and, if necessary,
subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6),
1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision.
For purposes of this Section 6.1(d), each Partners
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
Section 6.1(d)(vi) and Section 6.1(d)(vii)). This
Section 6.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith. |
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(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 Partners 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 Section 6.1(d)(vi) and
Section 6.1(d)(vii), with respect to such taxable period.
This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury
Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith. |
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(iii) Priority Allocations. |
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(A) If the amount of cash or the Net Agreed Value of any
property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to
its Units for a taxable year is greater (on a per Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) there shall be allocated
income and gain to each Unitholder receiving such greater cash
or property distribution until the aggregate amount of such
items allocated pursuant to this Section 6.1(d)(iii)(A) for the
current taxable year and all previous taxable years is equal to
the product of (aa) the amount by which the distribution
(on a per Unit basis) to such Unitholder exceeds the
distribution (on a per Unit basis) to the Unitholders receiving
the smallest distribution and (bb) the number of Units
owned by the Unitholder receiving the greater distribution; and
(2) the General Partner shall be allocated income and gain
in an aggregate amount equal to the product obtained by
multiplying (aa) the quotient determined by |
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dividing (x) the General Partners Percentage Interest
at the time in which the greater cash or property distribution
occurs by (y) the sum of 100 less the General
Partners Percentage Interest at the time in which the
greater cash or property distribution occurs times (bb) the
sum of the amounts allocated in clause (1) above. |
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(B) After the application of Section 6.1(d)(iii)(A),
all or any portion of the remaining items of Partnership income
or gain for the taxable period, if any, shall be allocated
(1) to the holders of Incentive Distribution Rights, Pro
Rata, until the aggregate amount of such items allocated to the
holders of Incentive Distribution Rights pursuant to this
Section 6.1(d)(iii)(B) for the current taxable year and all
previous taxable years is equal to the cumulative amount of all
Incentive Distributions made to the holders of Incentive
Distribution Rights from the Closing Date to a date 45 days
after the end of the current taxable year; and (2) to the
General Partner an amount equal to the product of (aa) an
amount equal to the quotient determined by dividing (x) the
General Partners Percentage Interest by (y) the sum
of 100 less the General Partners Percentage Interest times
(bb) the sum of the amounts allocated in clause
(1) above. |
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(iv) Qualified Income Offset. In the event any
Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury
Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations promulgated under
Section 704(b) of the Code, the deficit balance, if any, in
its Adjusted Capital Account created by such adjustments,
allocations or distributions as quickly as possible unless such
deficit balance is otherwise eliminated pursuant to
Section 6.1(d)(i) or Section 6.1(d)(ii). |
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(v) Gross Income Allocations. In the event any
Partner has a deficit balance in its Capital Account at the end
of any Partnership taxable period in excess of the sum of
(A) the amount such Partner is required to restore pursuant
to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such
Partner shall be specially allocated items of Partnership income
and gain in the amount of such excess as quickly as possible;
provided, that an allocation pursuant to this
Section 6.1(d)(v) shall be made only if and to the extent
that such Partner would have a deficit balance in its Capital
Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this
Section 6.1(d)(v) were not in this Agreement. |
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(vi) Nonrecourse Deductions. Nonrecourse Deductions
for any taxable period shall be allocated to the Partners in
accordance with their respective Percentage Interests. If the
General Partner determines that the Partnerships
Nonrecourse Deductions should 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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(vii) Partner Nonrecourse Deductions. Partner
Nonrecourse Deductions for any taxable period shall be allocated
100% to the Partner that bears the Economic Risk of Loss with
respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i). If more than
one Partner bears the Economic Risk of Loss with respect to a
Partner Nonrecourse Debt, such Partner Nonrecourse Deductions
attributable thereto shall be allocated between or among such
Partners in accordance with the ratios in which they share such
Economic Risk of Loss. |
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(viii) Nonrecourse Liabilities. For purposes of
Treasury Regulation Section 1.752-3(a)(3), the Partners
agree that Nonrecourse Liabilities of the Partnership in excess
of the sum of (A) the amount of Partnership Minimum Gain
and (B) the total amount of Nonrecourse Built-in Gain shall
be allocated among the Partners in accordance with their
respective Percentage Interests. |
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(ix) Code Section 754 Adjustments. To the
extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(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 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. |
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(x) Economic Uniformity. |
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(A) At the election of the General Partner with respect to
any taxable period ending upon, or after, the termination of the
Subordination Period, all or a portion of the remaining items of
Partnership income or gain for such taxable period, after taking
into account allocations pursuant to Section 6.1(d)(iii),
shall be allocated 100% to each Partner holding Subordinated
Units that are Outstanding as of the termination of the
Subordination Period (Final Subordinated
Units) in the proportion of the number of Final
Subordinated Units held by such Partner to the total number of
Final Subordinated Units then Outstanding, until each such
Partner has been allocated an amount of income or gain that
increases the Capital Account maintained with respect to such
Final Subordinated Units to an amount equal to the product of
(A) the number of Final Subordinated Units held by such
Partner and (B) the Per Unit Capital Amount for a Common
Unit. The purpose of this allocation is to establish uniformity
between the Capital Accounts underlying Final Subordinated Units
and the Capital Accounts underlying Common Units held by Persons
other than the General Partner and its Affiliates immediately
prior to the conversion of such Final Subordinated Units into
Common Units. This allocation method for establishing such
economic uniformity will be available to the General Partner
only if the method for allocating the Capital Account maintained
with respect to the Subordinated Units between the transferred
and retained Subordinated Units pursuant to
Section 5.5(c)(ii) does not otherwise provide such economic
uniformity to the Final Subordinated Units. |
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(B) At the election of the General Partner with respect to
any taxable period ending upon, or after, the conversion of the
Class B Units pursuant to Section 5.11(f), all or a
portion of the remaining items of Partnership income or gain for
such taxable period, after taking into account allocations
pursuant to Section 6.1(d)(iii) and
Section 6.1(d)(x)(A), shall be allocated 100% to the holder
or holders of the Common Units resulting from the conversion
pursuant to Section 5.11(f) (Converted Common
Units) in the proportion of the number of the
Converted Common Units held by such holder or holders to the
total number of Converted Common Units then Outstanding, until
each such holder has been allocated an amount of income or gain
that increases the Capital Account maintained with respect to
such Converted Common Units to an amount equal to the product of
(A) the number of Converted Common Units held by such
holder and (B) the Per Unit Capital Amount for a Common
Unit. The purpose of this allocation is to establish uniformity
between the Capital Accounts underlying Converted Common Units
and the Capital Accounts underlying Common Units held by Persons
other than the General Partner and its Affiliates immediately
prior to the receipt of Common Units pursuant to
Section 5.11(f). |
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(xi) Curative Allocation. |
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(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. |
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Notwithstanding the preceding sentence, Required Allocations
relating to (1) Nonrecourse Deductions shall not be taken
into account except to the extent that there has been a decrease
in Partnership Minimum Gain and (2) Partner Nonrecourse
Deductions shall not be taken into account except to the extent
that there has been a decrease in Partner Nonrecourse Debt
Minimum Gain. Allocations pursuant to this
Section 6.1(d)(xi)(A) shall only be made with respect to
Required Allocations to the extent the General Partner
determines that such allocations will otherwise be inconsistent
with the economic agreement among the Partners. Further,
allocations pursuant to this Section 6.1(d)(xi)(A) shall be
deferred with respect to allocations pursuant to clauses
(1) and (2) hereof to the extent the General Partner
determines that such allocations are likely to be offset by
subsequent Required Allocations. |
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(B) The General Partner shall, with respect to each taxable
period, (1) apply the provisions of
Section 6.1(d)(xi)(A) in whatever order is most likely to
minimize the economic distortions that might otherwise result
from the Required Allocations, and (2) divide all allocations
pursuant to Section 6.1(d)(xi)(A) among the Partners in a
manner that is likely to minimize such economic distortions. |
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(xii) Corrective Allocations. In the event of any
allocation of Additional Book Basis Derivative Items or any
Book-Down Event or any recognition of a Net Termination Loss,
the following rules shall apply: |
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(A) In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the General
Partner shall allocate additional items of income and gain away
from the holders of Incentive Distribution Rights to the
Unitholders and the General Partner, or additional items of
deduction and loss away from the Unitholders and the General
Partner to the holders of Incentive Distribution Rights, to the
extent that the Additional Book Basis Derivative Items allocated
to the Unitholders or the General Partner exceed their Share of
Additional Book Basis Derivative Items. For this purpose, the
Unitholders and the General Partner shall be treated as being
allocated Additional Book Basis Derivative Items to the extent
that such Additional Book Basis Derivative Items have reduced
the amount of income that would otherwise have been allocated to
the Unitholders or the General Partner under the Partnership
Agreement (e.g., Additional Book Basis Derivative Items taken
into account in computing cost of goods sold would reduce the
amount of book income otherwise available for allocation among
the Partners). Any allocation made pursuant to this
Section 6.1(d)(xii)(A) shall be made after all of the other
Agreed Allocations have been made as if this
Section 6.1(d)(xii) were not in this Agreement and, to the
extent necessary, shall require the reallocation of items that
have been allocated pursuant to such other Agreed Allocations. |
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(B) In the case of any negative adjustments to the Capital
Accounts of the Partners resulting from a Book-Down Event or
from the recognition of a Net Termination Loss, such negative
adjustment (1) shall first be allocated, to the extent of
the Aggregate Remaining Net Positive Adjustments, in such a
manner, as determined by the General Partner, that to the extent
possible the aggregate Capital Accounts of the Partners will
equal the amount that would have been the Capital Account
balance of the Partners if no prior Book-Up Events had occurred,
and (2) any negative adjustment in excess of the Aggregate
Remaining Net Positive Adjustments shall be allocated pursuant
to Section 6.1(c) hereof. |
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(C) In making the allocations required under this
Section 6.1(d)(xii), the General Partner may apply whatever
conventions or other methodology it determines will satisfy the
purpose of this Section 6.1(d)(xii). |
Section 6.2
Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income
tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its
correlative item of book income, gain, loss or
deduction is allocated pursuant to Section 6.1.
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(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:
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(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 5.5(d)(i) or Section 5.5(d)(ii),
and (2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a
manner consistent with Section 6.2(b)(i)(A); and
(B) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the Partners in
the same manner as its correlative item of book gain
or loss is allocated pursuant to Section 6.1. |
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(iii) The General Partner shall apply the principles of
Treasury Regulation Section 1.704-3(d) to eliminate
Book-Tax Disparities[, except with respect to goodwill
contributed to the Partnership upon formation.] |
(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 (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for
federal income tax purposes of income (including gross income)
or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or
promulgation of Treasury Regulations under Section 704(b)
or Section 704(c) of the Code or (y) otherwise to
preserve or achieve uniformity of the Limited Partner Interests
(or any class or classes thereof). The General Partner may adopt
such conventions, make such allocations and make such amendments
to this Agreement as provided in this Section 6.2(c) only
if such conventions, allocations or amendments would not have a
material adverse effect on the Partners, the holders of any
class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner 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 Partnerships common basis of such property, despite
any inconsistency of such approach with Treasury Regulation
Section 1.167(c)-l(a)(6) or any successor regulations
thereto. If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may
adopt depreciation and amortization conventions under which all
purchasers acquiring Limited Partner Interests in the same month
would receive depreciation and amortization deductions, based
upon the same applicable rate as if they had purchased a direct
interest in the Partnerships property. If the General
Partner chooses not to utilize such aggregate method, the
General Partner may use any other depreciation and amortization
conventions to preserve the uniformity of the intrinsic tax
characteristics of any Limited Partner Interests, so long as
such conventions 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) In accordance with Treasury Regulation
Section 1.1245-1(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.
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(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes
and allocated to the Partners in accordance with the provisions
hereof shall be determined without regard to any election under
Section 754 of the Code that may be made by the
Partnership; provided, however, that such allocations,
once made, shall be adjusted (in the manner determined by the
General Partner) 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, for federal income tax purposes, shall 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, such items for the period beginning on
the Closing Date and ending on the last day of the month in
which the Option Closing Date or the expiration of the
Over-Allotment Option occurs shall be allocated to the Partners
as of the opening of the New York Stock Exchange on the first
Business Day of the next succeeding month; and provided,
further, that gain or loss on a sale or other disposition of any
assets of the Partnership or any other extraordinary item of
income or loss realized and recognized other than in the
ordinary course of business, as determined by the General
Partner, shall be allocated to the Partners as of the opening of
the New York Stock Exchange on the first Business Day of the
month in which such gain or loss is recognized for federal
income tax purposes. The General Partner may revise, alter or
otherwise modify such methods of allocation 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 determined by the General Partner.
Section 6.3 Requirement
and Characterization of Distributions; Distributions to Record
Holders.
(a) Within 45 days following the end of each Quarter
commencing with the Quarter ending on December 31, 2005, 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. All amounts of Available Cash
distributed by the Partnership on any date from any source shall
be deemed to be Operating Surplus until the sum of all amounts
of Available Cash theretofore distributed by the Partnership to
the Partners pursuant to Section 6.4 equals the Operating
Surplus from the Closing Date through the close of the
immediately preceding Quarter. Any remaining amounts of
Available Cash distributed by the Partnership on such date
shall, except as otherwise provided in Section 6.5, be
deemed to be Capital Surplus. All distributions
required to be made under this Agreement shall be made subject
to Section 17-607 of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event of
the dissolution and liquidation of the Partnership, all receipts
received during or after the Quarter in which the Liquidation
Date occurs shall be applied and distributed solely in
accordance with, and subject to the terms and conditions of,
Section 12.4.
(c) The General Partner may 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 Partnerships liability in
respect of such payment, regardless of any claim of any Person
who may have an interest in such payment by reason of an
assignment or otherwise.
Section 6.4 Distributions
of Available Cash from Operating Surplus.
(a) During Subordination Period. Available Cash with
respect to any Quarter within the Subordination Period that is
deemed to be Operating Surplus pursuant to the provisions of
Section 6.3 or 6.5 shall, subject
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to Section 17-607 of the Delaware Act, be distributed as
follows, except as otherwise contemplated by Section 5.6 in
respect of other Partnership Securities issued pursuant thereto:
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(i) First, to the General Partner and the Unitholders
holding Common Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Minimum Quarterly Distribution for such Quarter; |
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(ii) Second, to the General Partner and the Unitholders
holding Common Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Cumulative Common Unit Arrearage existing with respect to
such Quarter; |
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(iii) Third, to the General Partner and the Unitholders
holding Subordinated Units, in accordance with their respective
Percentage Interests, until there has been distributed in
respect of each Subordinated Unit then Outstanding an amount
equal to the Minimum Quarterly Distribution for such Quarter; |
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(iv) Fourth, to the General Partner and all Unitholders, in
accordance with their respective Percentage Interests, until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such
Quarter; |
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(v) Fifth, (A) to the General Partner in accordance
with its Percentage Interest; (B) 13% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (A) and
(B) of this clause (v) until there has been
distributed in respect of each Unit then Outstanding an amount
equal to the excess of the Second Target Distribution over the
First Target Distribution for such Quarter; |
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(vi) Sixth, (A) to the General Partner in accordance
with its Percentage Interest, (B) 23% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (A) and
(B) of this subclause (vi), until there has been
distributed in respect of each Unit then Outstanding an amount
equal to the excess of the Third Target Distribution over the
Second Target Distribution for such Quarter; and |
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(vii) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to subclauses
(A) and (B) of this clause (vii); |
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(a)(vii).
(b) After Subordination Period. Available Cash with
respect to any Quarter after the Subordination Period that is
deemed to be Operating Surplus pursuant to the provisions of
Section 6.3 or Section 6.5, subject to
Section 17-607 of the Delaware Act, shall be distributed as
follows, except as otherwise required by Section 5.6(b) in
respect of additional Partnership Securities issued pursuant
thereto:
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(i) First, 100% to the General Partner and the Unitholders
in accordance with their respective Percentage Interests, until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter; |
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(ii) Second, 100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter; |
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(iii) Third, (A) to the General Partner in accordance
with its Percentage Interest; (B) 13% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage |
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equal to 100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (iii), until
there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target
Distribution over the First Target Distribution for such Quarter; |
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(iv) Fourth, (A) to the General Partner in accordance
with its Percentage Interest; (B) 23% to the holders of the
Incentive Distribution Rights, Pro Rata; and (C) to all
Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclause (A) and (B) of
this clause (iv), until there has been distributed in respect of
each Unit then Outstanding an amount equal to the excess of the
Third Target Distribution over the Second Target Distribution
for such Quarter; and |
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(v) Thereafter, (A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to subclauses
(A) and (B) of this clause (v); |
provided, however, if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(b)(v).
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Section 6.5 |
Distributions of Available Cash from Capital Surplus. |
Available Cash that is deemed to be Capital Surplus pursuant to
the provisions of Section 6.3(a) shall, subject to
Section 17-607 of the Delaware Act, be distributed, unless
the provisions of Section 6.3 require otherwise, 100% to
the General Partner and the Unitholders in accordance with their
respective Percentage Interests, until a hypothetical holder of
a Common Unit acquired on the Closing Date has received with
respect to such Common Unit, during the period since the Closing
Date through such date, distributions of Available Cash that are
deemed to be Capital Surplus in an aggregate amount equal to the
Initial Unit Price. Available Cash that is deemed to be Capital
Surplus shall then be distributed to the General Partner and all
Unitholders holding Common Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the Cumulative Common Unit Arrearage.
Thereafter, all Available Cash shall be distributed as if it
were Operating Surplus and shall be distributed in accordance
with Section 6.4.
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Section 6.6 |
Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels. |
(a) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution, Third Target
Distribution, Common Unit Arrearages and Cumulative Common Unit
Arrearages shall be proportionately adjusted in the event of any
distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.9. 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 Initial
Unit Price of the Common Units immediately after giving effect
to such distribution and of which the denominator is the
Unrecovered Initial Unit Price of the Common Units immediately
prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution, shall also be subject to adjustment pursuant to
Section 5.11 and Section 6.9.
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Section 6.7 |
Special Provisions Relating to the Holders of Subordinated
Units and Class B Units. |
(a) Except with respect to the right to vote on or approve
matters requiring the vote or approval of a percentage of the
holders of Outstanding Common Units and the right to participate
in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units, the holder of a
Subordinated Unit shall have all of the rights and obligations
of a Unitholder holding Common Units hereunder; provided,
however, that immediately upon the conversion of
Subordinated Units into Common Units pursuant to
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Section 5.7, the Unitholder holding a Subordinated Unit
shall possess all of the rights and obligations of a Unitholder
holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such
converted Subordinated Units shall remain subject to the
provisions of Sections 5.5(c)(ii), 6.1(d)(x)(A), 6.7(b) and
6.7(c).
(b) A Unitholder shall not be permitted to transfer a
Subordinated Unit or a Subordinated Unit that has converted into
a Common Unit pursuant to Section 5.7 (other than a
transfer to an Affiliate) if the remaining balance in the
transferring Unitholders Capital Account with respect to
the retained Subordinated Units or Retained Converted
Subordinated Units would be negative after giving effect to the
allocation under Section 5.5(c)(ii)(B).
(c) The Unitholder holding a Common Unit that has resulted
from the conversion of a Subordinated Unit pursuant to
Section 5.7 shall not be issued a Common Unit Certificate
pursuant to Section 4.1, and shall not be permitted to
transfer such Common Units to a Person that is not an Affiliate
of the holder until such time as the General Partner determines,
based on advice of counsel, that each such Common Unit should
have, as a substantive matter, like intrinsic economic and
federal income tax characteristics, in all material respects, to
the intrinsic economic and federal income tax characteristics of
an Initial Common Unit. In connection with the condition imposed
by this Section 6.7(c), the General Partner may take
whatever steps are required to provide economic uniformity to
such Common Units in preparation for a transfer of such Common
Units, including the application of Sections 5.5(c)(ii),
6.1(d)(x) and 6.7(b); provided, however, that no such
steps may be taken that would have a material adverse effect on
the Unitholders holding Common Units represented by Common Unit
Certificates.
(d) Except with respect to the right to vote on or approve
matters requiring the vote or approval of a percentage of the
holders of Outstanding Common Units and the right to participate
in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units, the holders of
Class B Units shall have all the rights and obligations of
a Unitholder holding Common Units; provided, however,
that immediately upon the conversion of Class B Units into
Common Units pursuant to Section 5.11, the Unitholders
holding a Class B Unit shall possess all the rights and
obligations of a Unitholder holding Common Units hereunder,
including the right to vote as a Common Unitholder and the right
to participate in allocations of income, gain, loss and
deduction and distributions made with respect to Common Units;
provided, however, that such converted Class B Units
shall remain subject to the provisions of
Sections 6.1(d)(x)(B) and 6.7(e).
(e) The holder or holders of Common Units resulting from
the conversion pursuant to Section 5.11(f) of any
Class B Units pursuant to Section 5.11 shall not be
issued a Common Unit Certificate pursuant to Section 4.1,
and shall not be permitted to transfer such Common Units until
such time as the General Partner determines, based on advice of
counsel, that each such Common Unit should have, as a
substantive matter, like intrinsic economic and federal income
tax characteristics, in all material respects, to the intrinsic
economic and federal income tax characteristics of an Initial
Common Unit. In connection with the condition imposed by this
Section 6.7(d), the General Partner may take whatever steps
are required to provide economic uniformity to such Common
Units, including the application of Section 6.1(d)(x)(B);
provided, however, that no such steps may be taken that
would have a material adverse effect on the Unitholders holding
Common Units represented by Common Unit Certificates.
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Section 6.8 |
Special Provisions Relating to the Holders of Incentive
Distribution Rights. |
Notwithstanding anything to the contrary set forth in this
Agreement, the holders of the Incentive Distribution Rights
(a) shall (i) possess the rights and obligations
provided in this Agreement with respect to a Limited Partner
pursuant to Article III and Article VII and
(ii) have a Capital Account as a Partner pursuant to
Section 5.5 and all other provisions related thereto and
(b) shall not (i) be entitled to vote on any matters
requiring the approval or vote of the holders of Outstanding
Units, except as provided by law, (ii) be entitled to any
distributions other than as provided in Sections 6.4(a)(v),
(vi) and (vii), Section 6.4(b)(iii), (iv) and
(v), and Section 12.4 or (iii) be allocated items of
income, gain, loss or deduction other than as specified in this
Article VI.
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Section 6.9 Entity-Level
Taxation.
If legislation is enacted or the interpretation of existing
language is modified by a governmental taxing authority so that
a Group Member is treated as an association taxable as a
corporation or is otherwise subject to an entity-level tax for
federal, state or local income tax purposes, then the General
Partner shall estimate for each Quarter the Partnership
Groups aggregate liability (the Estimated
Incremental Quarterly Tax Amount) for all such
income taxes that are payable by reason of any such new
legislation or interpretation; provided that any difference
between such estimate and the actual tax liability for such
Quarter that is owed by reason of any such new legislation or
interpretation shall be taken into account in determining the
Estimated Incremental Quarterly Tax Amount with respect to each
Quarter in which any such difference can be determined. For each
such Quarter, the Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution, shall be the product obtained by multiplying
(a) the amounts therefor that are set out herein prior to
the application of this Section 6.9 times (b) the
quotient obtained by dividing (i) Available Cash with
respect to such Quarter by (ii) the sum of Available Cash
with respect to such Quarter and the Estimated Incremental
Quarterly Tax Amount for such Quarter, as determined by the
General Partner. For purposes of the foregoing, Available Cash
with respect to a Quarter will be deemed reduced by the
Estimated Incremental Quarterly Tax Amount for that Quarter.
ARTICLE VII
Management and Operation of Business
Section 7.1 Management.
(a) The General Partner shall conduct, direct and manage
all activities of the Partnership. Except as otherwise expressly
provided in this Agreement, all management powers over the
business and affairs of the Partnership shall be exclusively
vested in the General Partner, and no Limited Partner or
Assignee shall have any management power over the business and
affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership
under applicable law or that 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 determines to
be 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:
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(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; |
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(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 and
Article XIV); |
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(iv) the use of the assets of the Partnership (including
cash on hand) for any purpose consistent with the terms of this
Agreement, including the financing of the conduct of the
operations of the Partnership Group; subject to
Section 7.6(a), the lending of funds to other Persons
(including other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member; |
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(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including
instruments that limit the liability of the Partnership under
contractual arrangements to all or particular assets of the
Partnership, with the other party to the contract to have no
recourse against the |
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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); |
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(vi) the distribution of Partnership cash; |
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(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; |
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(viii) the maintenance of insurance for the benefit of the
Partnership Group, the Partners and Indemnitees; |
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(ix) the formation of, or acquisition of an interest in,
and the contribution of property and the making of loans to, any
further limited or general partnerships, joint ventures,
corporations, limited liability companies or other relationships
(including the acquisition of interests in, and the
contributions of property to, any Group Member from time to
time) subject 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, arbitration or mediation and the
incurring of legal expense and the settlement of claims and
litigation; |
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(xi) the indemnification of any Person against liabilities
and contingencies to the extent permitted by law; |
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(xii) the entering into of listing agreements with any
National Securities Exchange and the delisting of some or all of
the Limited Partner Interests from, or requesting that trading
be suspended on, any such exchange (subject to any prior
approval that may be required under Section 4.8); |
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(xiii) the purchase, sale or other acquisition or
disposition of Partnership Securities, or the issuance of
options, rights, warrants and appreciation rights relating to
Partnership Securities; |
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(xiv) the undertaking of any action in connection with the
Partnerships participation in any Group Member; and |
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(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership. |
(b) Notwithstanding any other provision of this Agreement,
any Group Member Agreement, the Delaware Act or any applicable
law, rule or regulation, each of the Partners and the Assignees
and each other Person who may acquire an interest in Partnership
Securities hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of
this Agreement and the Group Member Agreement of each other
Group Member, the Underwriting Agreement, the Omnibus Agreement,
the Contribution Agreement, any Group Member Agreement and the
other agreements described in or filed as exhibits to the
Registration Statement that are related to the transactions
contemplated by the Registration Statement; (ii) agrees
that the General Partner (on its own or through any officer of
the Partnership) is authorized to execute, deliver and perform
the agreements referred to in clause (i) of this sentence
and the other agreements, acts, transactions and matters
described in or contemplated by the Registration Statement on
behalf of the Partnership without any further act, approval or
vote of the Partners or the Assignees or the other Persons who
may acquire an interest in Partnership Securities; and
(iii) agrees that the execution, delivery or performance by
the General Partner, any Group Member or any Affiliate of any of
them of this Agreement or any agreement authorized or permitted
under this Agreement (including the exercise by the General
Partner or any Affiliate of the General Partner of the rights
accorded pursuant to Article XV) shall not constitute a
breach by the General Partner of any duty that the General
Partner may owe the Partnership or the Limited Partners or any
other Persons under this Agreement (or any other agreements) or
of any duty stated or implied by law or equity.
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Section 7.2 Certificate
of Limited Partnership.
The General Partner has caused the Certificate of Limited
Partnership to be filed with the Secretary of State of the State
of Delaware as required by the Delaware Act. The General Partner
shall use all reasonable efforts to cause to be filed such other
certificates or documents that the General Partner determines to
be 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 the General Partner determines such action to be
necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited
Partnership and do all things to maintain the Partnership as a
limited partnership (or a partnership or other entity in which
the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the
Partnership may elect to do business or own property. Subject to
the terms of Section 3.4(a), the General Partner shall not
be required, before or after filing, to deliver or mail a copy
of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions
on the General Partners Authority.
Except as provided in Article XII and Article XIV, the
General Partner may not sell, exchange or otherwise dispose of
all or substantially all of the assets of the Partnership Group,
taken as a whole, in a single transaction or a series of related
transactions (including by way of merger, consolidation, other
combination or sale of ownership interests of the
Partnerships Subsidiaries) without the approval of holders
of a Unit Majority; provided, however, that this
provision shall not preclude or limit the General Partners
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.
Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, except as
permitted under Section 4.6, 11.1 and Section 11.2,
elect or cause the Partnership to elect a successor general
partner of the Partnership.
Section 7.4 Reimbursement
of the General Partner.
(a) Except as provided in this Section 7.4 and
elsewhere in this Agreement, the General Partner shall not be
compensated for its services as a general partner or managing
member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine,
for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership Group (including
salary, bonus, incentive compensation and other amounts paid to
any Person, including Affiliates of the General Partner to
perform services for the Partnership Group or for the General
Partner in the discharge of its duties to the Partnership
Group), and (ii) all other expenses allocable to the
Partnership Group or otherwise incurred by the General Partner
in connection with operating the Partnership Groups
business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the
expenses that are allocable to the Partnership Group.
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, 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 or rights,
warrants or appreciation rights relating to Partnership
Securities), or cause the Partnership to issue Partnership
Securities in connection with, or pursuant to, any employee
benefit plan, employee program or employee practice maintained
or sponsored by the General Partner, Group Member or any
Affiliates in each case for the benefit of employees of the
General Partner or any of its Affiliates, 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 Affiliates are
obligated to provide to any employees pursuant to
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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
Affiliates of Partnership Securities purchased by the General
Partner or such Affiliates 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 Section 11.2 or the
transferee of or successor to all of the General Partners
General Partner Interest (represented by General Partner Units)
pursuant to Section 4.6.
Section 7.5 Outside
Activities.
(a) After the Closing Date, the General Partner, for so
long as it is the General Partner of the Partnership
(i) agrees that its sole business will be to act as a
general partner or managing member, as the case may be, of the
Partnership and any other partnership or limited liability
company of which the Partnership is, directly or indirectly, a
partner or member and to undertake activities that are ancillary
or related thereto (including being a limited partner in the
Partnership) and (ii) shall not engage in any business or
activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general
partner or managing member, if any, of one or more Group Members
or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity
securities in any Group Member.
(b) Each Indemnitee (other than the General Partner) shall
have the right to engage in businesses of every type and
description and other activities for profit and to engage in and
possess an interest in other business ventures of any and every
type or description, whether in businesses engaged in or
anticipated to be engaged in by any Group Member, independently
or with others, including business interests and activities in
direct competition with the business and activities of any Group
Member, and none of the same shall constitute a breach of this
Agreement or any duty expressed or implied by law to any Group
Member or any Partner or Assignee. None of any Group Member, any
Limited Partner or any other Person shall have any rights by
virtue of this Agreement, any Group Member Agreement, or the
partnership relationship established hereby in any business
ventures of any Indemnitee.
(c) Notwithstanding anything to the contrary in this
Agreement, (i) the engaging in competitive activities by
any Indemnitees (other than the General Partner) in accordance
with the provisions of this Section 7.5 is hereby approved
by the Partnership and all Partners, (ii) it shall be
deemed not to be a breach of any fiduciary duty or any other
obligation of any type whatsoever of any Indemnitee for the
Indemnitees (other than the General Partner) to engage in such
business interests and activities in preference to or to the
exclusion of the Partnership and (iii) the Indemnitees
shall have no obligation hereunder or as a result of any duty
expressed or implied by law to present business opportunities to
the Partnership. Notwithstanding anything to the contrary in
this Agreement, the doctrine of corporate opportunity, or any
analogous doctrine, shall not apply to any Indemnitee (including
the General Partner). No Indemnitee (including the General
Partner) who acquires knowledge of a potential transaction,
agreement, arrangement or other matter that may be an
opportunity for the Partnership, shall have any duty to
communicate or offer such opportunity to the Partnership, and
such Indemnitee (including the General Partner) shall not be
liable to the Partnership, to any Limited Partner or any other
Person for breach of any fiduciary or other duty by reason of
the fact that such Indemnitee (including the General Partner)
pursues or acquires for itself, directs such opportunity to
another Person or does not communicate such opportunity or
information to the Partnership.
(d) The General Partner and each of its Affiliates may
acquire Units or other Partnership Securities in addition to
those acquired on the Closing Date and, except as otherwise
provided in this Agreement, shall be entitled to exercise, at
their option, all rights relating to all Units or other
Partnership Securities acquired by them. The term
Affiliates when used in this Section 7.5(d)
with respect to the General Partner shall not include any Group
Member.
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(e) Notwithstanding anything to the contrary in this
Agreement, to the extent that any provision of this Agreement
purports or is interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware
or other applicable law, be owed by the General Partner to the
Partnership and its Limited Partners, or to constitute a waiver
or consent by the Limited Partners to any such restriction, such
provisions shall be inapplicable and have no effect in
determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it
under this Section 7.5.
Section 7.6 Loans
from the General Partner; Loans or Contributions from the
Partnership or Group Members.
(a) The General Partner or any of its Affiliates may lend
to any Group Member, and any Group Member may borrow from the
General Partner or any of its Affiliates, funds needed or
desired by the Group Member for such periods of time and in such
amounts as the General Partner may determine; provided,
however, that in any such case the lending party may not
charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms
less favorable to the borrowing party than would be charged or
imposed on the borrowing party by unrelated lenders on
comparable loans made on an arms-length basis (without
reference to the lending partys financial abilities or
guarantees), all as determined by the General Partner. 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.
(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 determined by the General Partner.
No Group Member may lend funds to the General Partner or any of
its Affiliates (other than another Group Member).
(c) No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a
breach of any duty, expressed or implied, of the General Partner
or its Affiliates to the Partnership or the Limited Partners by
reason of the fact that the purpose or effect of such borrowing
is directly or indirectly to (i) enable distributions to
the General Partner or its Affiliates (including in their
capacities as Limited Partners) to exceed the General
Partners Percentage Interest of the total amount
distributed to all partners or (ii) hasten the expiration
of the Subordination Period or the conversion of any
Subordinated Units into Common Units.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to
the limitations expressly provided in this Agreement, all
Indemnitees shall be indemnified and held harmless by the
Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee;
provided, that the Indemnitee shall not be indemnified
and held harmless if there has been a final and non-appealable
judgment entered by a court of competent jurisdiction
determining that, in respect of the matter for which the
Indemnitee is seeking indemnification pursuant to this
Section 7.7, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was unlawful; provided,further, no indemnification
pursuant to this Section 7.7 shall be available to the
General Partner or its Affiliates (other than a Group Member)
with respect to its or their obligations incurred pursuant to
the Underwriting Agreement, the Omnibus Agreement or the
Contribution Agreement (other than obligations incurred by the
General Partner on behalf of the Partnership). 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.
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(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 a determination
that the Indemnitee is not entitled to be indemnified 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 Indemnitees
capacity as an Indemnitee and as to actions in any other
capacity (including any capacity under the Underwriting
Agreement), and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit
of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse
the General Partner or its Affiliates for the cost of)
insurance, on behalf of the General Partner, its Affiliates and
such other Persons as the General Partner shall determine,
against any liability that may be asserted against, or expense
that may be incurred by, such Person in connection with the
Partnerships activities or such Persons 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 best interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
that is in the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to
which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for
the benefit of any other Persons.
(i) No amendment, modification or repeal of this
Section 7.7 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to be indemnified by the Partnership, nor the
obligations of the Partnership to indemnify any such Indemnitee
under and in accordance with the provisions of this
Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
Section 7.8 Liability
of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in
this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, the Limited Partners, or any other
Persons who have acquired interests in the Partnership
Securities, for losses sustained or liabilities incurred as a
result of any act or omission of an Indemnitee unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that, in respect of the
matter in question, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was criminal.
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(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
Partnerships 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.
(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.
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Section 7.9 |
Resolution of Conflicts of Interest; Standards of Conduct and
Modification of Duties. |
(a) Unless otherwise expressly provided in this Agreement
or any Group Member 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, any Group
Member or any Partner, on the other, any resolution or course of
action by the General Partner or its Affiliates in respect of
such conflict of interest shall be permitted and deemed approved
by all Partners, and shall not constitute a breach of this
Agreement, of any Group Member 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 in
respect of such conflict of interest is (i) approved by
Special Approval, (ii) approved by the vote of a majority
of the Common Units (excluding Common Units owned by the General
Partner and its Affiliates), (iii) on terms no less
favorable to the Partnership than those generally being provided
to or available from unrelated third parties or (iv) fair
and reasonable 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 shall
be authorized but not required in connection with its resolution
of such conflict of interest to seek Special Approval of such
resolution, and the General Partner may also adopt a resolution
or course of action that has not received Special Approval. If
Special Approval is not sought and the Board of Directors
determines that the resolution or course of action taken with
respect to a conflict of interest satisfies either of the
standards set forth in clauses (iii) or (iv) above,
then it shall be presumed that, in making its decision, the
Board of Directors acted in good faith, and in any proceeding
brought by any Limited Partner or by or on behalf of such
Limited Partner or any other Limited Partner or the Partnership
challenging such approval, the Person bringing or prosecuting
such proceeding shall have the burden of overcoming such
presumption. Notwithstanding anything to the contrary in this
Agreement or any duty otherwise existing at law or equity, the
existence of the conflicts of interest described in the
Registration Statement are hereby approved by all Partners and
shall not constitute a breach of this Agreement.
(b) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its capacity as the general
partner of the Partnership as opposed to in its individual
capacity, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then, unless another express standard is provided for
in this Agreement, the General Partner, or such Affiliates
causing it to do so, shall make such determination or take or
decline to take such other action in good faith and shall not be
subject to any other or different standards imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. In order for a determination or
other action to be in good faith for purposes of
this Agreement, the Person or Persons making such determination
or taking or declining to take such other action must believe
that the determination or other action is in the best interests
of the Partnership.
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(c) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its individual capacity as
opposed to in its capacity as the general partner of the
Partnership, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then the General Partner, or such Affiliates causing
it to do so, are entitled to make such determination or to take
or decline to take such other action free of any fiduciary duty
or obligation whatsoever to the Partnership, any Limited
Partner, and the General Partner, or such Affiliates causing it
to do so, shall not be required to act in good faith or pursuant
to any other standard imposed by this Agreement, any Group
Member Agreement, any other agreement contemplated hereby or
under the Delaware Act or any other law, rule or regulation or
at equity. By way of illustration and not of limitation,
whenever the phrase, at the option of the General
Partner, or some variation of that phrase, is used in this
Agreement, it indicates that the General Partner is acting in
its individual capacity. For the avoidance of doubt, whenever
the General Partner votes or transfers its Partnership
Interests, or refrains from voting or transferring its
Partnership Interests, it shall be acting in its individual
capacity. The General Partners organizational documents
may provide that determinations to take or decline to take any
action in its individual, rather than representative, capacity
may or shall be determined by its members, if the General
Partner is a limited liability company, stockholders, if the
General Partner is a corporation, or the members or stockholders
of the General Partners general partner, if the General
Partner is a partnership.
(d) Notwithstanding anything to the contrary in this
Agreement, the General Partner and its Affiliates shall have no
duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership Group other
than in the ordinary course of business or (ii) 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. Any determination by the General Partner or any
of its Affiliates to enter into such contracts shall be at its
option.
(e) Except as expressly set forth in this Agreement,
neither the General Partner nor any other Indemnitee shall have
any duties or liabilities, including fiduciary duties, to the
Partnership or any Limited Partner and the provisions of this
Agreement, to the extent that they restrict, eliminate or
otherwise modify the duties and liabilities, including fiduciary
duties, of the General Partner or any other Indemnitee otherwise
existing at law or in equity, are agreed by the Partners to
replace such other duties and liabilities of the General Partner
or such other Indemnitee.
(f) The Unitholders hereby authorize the General Partner,
on behalf of the Partnership as a partner or member of a Group
Member, to approve of actions by the general partner or managing
member of such Group Member similar to those actions permitted
to be taken by the General Partner pursuant to this
Section 7.9.
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Section 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 Persons 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.
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Section 7.11 Purchase
or Sale of Partnership Securities.
The General Partner may cause the Partnership to purchase or
otherwise acquire Partnership Securities; provided that,
except as permitted pursuant to Section 4.10, the General
Partner may not cause any Group Member to purchase Subordinated
Units during the Subordination Period. Such Partnership
Securities shall be held by the Partnership as treasury
securities unless they are expressly cancelled by action of an
appropriate officer of the General Partner. As long as
Partnership Securities are held by any Group Member, such
Partnership Securities shall not be considered Outstanding for
any purpose, except as otherwise provided herein. The General
Partner or any Affiliate of the General Partner may also
purchase or otherwise acquire and sell or otherwise dispose of
Partnership Securities for its own account, subject to the
provisions of Articles IV and X.
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Section 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 at the option and upon the request of
the Holder, the Partnership shall file with the Commission as
promptly as practicable after receiving such request, and use
all commercially 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
Section 7.12(a) and Section 7.12(b); and provided
further, however, that if the Conflicts Committee determines in
good faith that the requested registration would be materially
detrimental to the Partnership and its Partners because such
registration would (x) materially interfere with a
significant acquisition, reorganization or other similar
transaction involving the Partnership, (y) require
premature disclosure of material information that the
Partnership has a bona fide business purpose for preserving as
confidential or (z) render the Partnership unable to comply
with requirements under applicable securities laws, then the
Partnership shall have the right to postpone such requested
registration for a period of not more than six months after
receipt of the Holders request, such right pursuant to
this Section 7.12(a) or Section 7.12(b) not to be
utilized more than once in any twelve-month period. Except as
provided in the preceding sentence, the Partnership shall be
deemed not to have used all commercially reasonable efforts to
keep the registration statement effective during the applicable
period if it voluntarily takes any action that would result in
Holders of Partnership Securities covered thereby not being able
to offer and sell such Partnership Securities at any time during
such period, unless such action is required by applicable law.
In connection with any registration pursuant to the first
sentence of this Section 7.12(a), the Partnership shall
(i) promptly prepare and file (A) such documents as
may be necessary to register or qualify the securities subject
to such registration under the securities laws of such states as
the Holder shall reasonably request; provided, however,
that no such qualification shall be required in any jurisdiction
where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to
do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such
registration, and (B) 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 (ii) do any and all
other acts and things that may be necessary or appropriate to
enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), 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 any Holder holds Partnership Securities that it
desires to sell and Rule 144 of the Securities Act (or any
successor rule or regulation to Rule 144) or another
exemption from registration is not available to
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enable such 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 at the
option and upon the request of the Holder, 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 shelf registration statement have
been sold, a shelf registration statement covering
the Partnership Securities specified by the Holder on an
appropriate form under Rule 415 under the Securities Act,
or any similar rule that may be adopted by the Commission;
provided, however, that the Partnership shall not be
required to effect more than three registrations pursuant to
Section 7.12(a) and this Section 7.12(b); and provided
further, however, that if the Conflicts Committee determines in
good faith that any offering under, or the use of any prospectus
forming a part of, the shelf registration statement would be
materially detrimental to the Partnership and its Partners
because such offering or use would (x) materially interfere
with a significant acquisition, reorganization or other similar
transaction involving the Partnership, (y) require
premature disclosure of material information that the
Partnership has a bona fide business purpose for preserving as
confidential or (z) render the Partnership unable to comply
with requirements under applicable securities laws, then the
Partnership shall have the right to suspend such offering or use
for a period of not more than six months after receipt of the
Holders request, such right pursuant to
Section 7.12(a) or this Section 7.12(b) not to be
utilized more than once in any twelve-month period. Except as
provided in the preceding sentence, the Partnership shall be
deemed not to have used all reasonable efforts to keep the shelf
registration statement effective during the applicable period if
it voluntarily takes any action that would result in Holders of
Partnership Securities covered thereby not being able to offer
and sell such Partnership Securities at any time during such
period, unless such action is required by applicable law. In
connection with any shelf registration pursuant to this
Section 7.12(b), the Partnership shall (i) promptly
prepare and file (A) such documents as may be necessary to
register or qualify the securities subject to such shelf
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 shelf
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such shelf registration on such National Securities Exchange
as the Holder shall reasonably request, and (ii) do any and
all other acts and things that may be necessary or appropriate
to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such shelf
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(c) If the Partnership shall at any time propose to file a
registration statement under the Securities Act for an offering
of equity securities of the Partnership for cash (other than an
offering relating solely to an employee benefit plan), the
Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such
registration statement as the Holder shall request; provided,
that the Partnership is not required to make any effort or take
any action to so include the securities of the Holder once the
registration statement is declared effective by the Commission
or otherwise becomes effective, including any registration
statement providing for the offering from time to time of
securities pursuant to Rule 415 of the Securities Act. If
the proposed offering pursuant to this Section 7.12(c)
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 Holders
Partnership Securities would adversely and materially affect the
success of the offering, the Partnership shall include in such
offering only that number or amount, if any, of securities held
by the Holder that, 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(d), 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.
(d) 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
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underwriters in form and substance reasonably satisfactory to
such underwriters. Further, in addition to and not in limitation
of the Partnerships 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) 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 Indemnified Person may be involved, or is threatened
to be involved, as a party or otherwise, under the Securities
Act or otherwise (hereinafter referred to in this
Section 7.12(d) 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.
(e) The provisions of Section 7.12(a),
Section 7.12(b) and Section 7.12(c) shall continue to
be applicable with respect to the General Partner (and any of
the General Partners 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 which registration was
demanded during such two-year period. The provisions of
Section 7.12(d) shall continue in effect thereafter.
(f) The rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12 may be
assigned (but only with all related obligations) by a Holder to
a transferee or assignee of such Partnership Securities,
provided (i) the Partnership is, within a reasonable time
after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the Partnership
Securities with respect to which such registration rights are
being assigned; and (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms set forth in
this Section 7.12.
(g) 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 Persons present intent
to offer such Partnership Securities for distribution,
(iii) describe the nature or method of the proposed offer
and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and
materials and take all action as may be required in order to
permit the Partnership to comply with all applicable
requirements in connection with the registration of such
Partnership Securities.
Section 7.13 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 Partnerships sole party in interest, both legally and
beneficially.
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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
(a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and
empowered to do so for and on behalf of the Partnership and
(c) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
Books, Records, Accounting and Reports
Section 8.1 Records
and Accounting.
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and
records with respect to the Partnerships 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 of Units or other Partnership Securities, books of
account and records of Partnership proceedings, may be kept on,
or be in the form of, computer disks, hard drives, punch cards,
magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and
records so maintained are convertible into clearly legible
written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial reporting
purposes, on an accrual basis in accordance with U.S. GAAP.
Section 8.2 Fiscal
Year.
The fiscal year of the Partnership shall be a fiscal year ending
December 31.
Section 8.3 Reports.
(a) As soon as practicable, but in no event later than
120 days after the close of each fiscal year of the
Partnership, the General Partner shall cause to be mailed or
made available, by any reasonable means (including posting on or
accessible through the Partnerships website) to each
Record Holder of a Unit as of a date selected by the General
Partner, an annual report containing financial statements of the
Partnership for such fiscal year of the Partnership, presented
in accordance with U.S. GAAP, including a balance sheet and
statements of operations, Partnership equity and cash flows,
such statements to be audited by a firm of independent public
accountants selected by the General Partner.
(b) As soon as practicable, but in no event later than
90 days after the close of each Quarter except the last
Quarter of each fiscal year, the General Partner shall cause to
be mailed or made available, by any reasonable means (including
posting on or accessible through the Partnerships website)
to each Record Holder of a Unit, as of a date selected by the
General Partner, a report containing unaudited financial
statements of the Partnership and such other information as may
be required by applicable law, regulation or rule of any
National Securities Exchange on which the Units are listed or
admitted to trading, or as the General Partner determines to be
necessary or appropriate.
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ARTICLE IX
Tax Matters
Section 9.1 Tax
Returns and Information.
The Partnership shall timely file all returns of the Partnership
that are required for federal, state and local income tax
purposes on the basis of the accrual method and the taxable year
or years that it is required by law to adopt, from time to time,
as determined by the General Partner. In the event the
Partnership is required to use a taxable year other than a year
ending on December 31, the General Partner shall use
reasonable efforts to change the taxable year of the Partnership
to a 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 Partnerships taxable year
ends. The classification, realization and recognition of income,
gain, losses and deductions and other items shall be on the
accrual method of accounting for federal income tax purposes.
Section 9.2 Tax
Elections.
(a) The Partnership shall make the election under
Section 754 of the Code in accordance with applicable
regulations thereunder, subject to the reservation of the right
to seek to revoke any such election upon the General
Partners determination that such revocation is in the best
interests of the Limited Partners. Notwithstanding any other
provision herein contained, for the purposes of computing the
adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of a Limited
Partner Interest will be deemed to be the lowest quoted closing
price of the Limited Partner Interests on any National
Securities Exchange on which such Limited Partner Interests are
listed or admitted to trading 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) Except as otherwise provided herein, the General
Partner shall determine whether the Partnership should make any
other elections permitted by the Code.
Section 9.3 Tax
Controversies.
Subject to the provisions hereof, the General Partner is
designated as the Tax Matters Partner (as defined in the Code)
and is authorized and required to represent the Partnership (at
the Partnerships expense) in connection with all
examinations of the Partnerships affairs by tax
authorities, including resulting administrative and judicial
proceedings, and to expend Partnership funds for professional
services and costs associated therewith. Each Partner agrees to
cooperate with the General Partner and to do or refrain from
doing any or all things reasonably required by the General
Partner to conduct such proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that may be
required to cause the Partnership and other Group Members to
comply with any withholding requirements established under the
Code or any other federal, state or local law including 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 by reason of Section 1446 of the Code),
the General Partner may treat the amount withheld as a
distribution of cash pursuant to Section 6.3 in the amount
of such withholding from such Partner.
ARTICLE X
Admission of Partners
Section 10.1 Admission
of Limited Partners.
(a) By acceptance of the transfer of any Limited Partner
Interests in accordance with Article IV or the acceptance
of any Limited Partner Interests issued pursuant to
Article V or pursuant to a merger or
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consolidation pursuant to Article XIV, and except as
provided in Section 4.9, each transferee of, or other such
Person acquiring, a Limited Partner Interest (including any
nominee holder or an agent or representative acquiring such
Limited Partner Interests for the account of another Person)
(i) shall be admitted to the Partnership as a Limited
Partner with respect to the Limited Partner Interests so
transferred or issued to such Person when any such transfer,
issuance or admission is reflected in the books and records of
the Partnership and such Limited Partner becomes the Record
Holder of the Limited Partner Interests so transferred,
(ii) shall become bound by the terms of this Agreement,
(iii) represents that the transferee has the capacity,
power and authority to enter into this Agreement,
(iv) grants the powers of attorney set forth in this
Agreement and (v) makes the consents and waivers contained
in this Agreement, all with or without execution of this
Agreement by such Person. The transfer of any Limited Partner
Interests and the admission of any new Limited Partner shall not
constitute an amendment to this Agreement. A Person may become a
Limited Partner or Record Holder of a Limited Partner Interest
without the consent or approval of any of the Partners. A Person
may not become a Limited Partner without acquiring a Limited
Partner Interest and until such Person is reflected in the books
and records of the Partnership as the Record Holder of such
Limited Partner Interest. The rights and obligations of a Person
who is a Non-citizen Assignee shall be determined in accordance
with Section 4.9 hereof.
(b) The name and mailing address of each Limited Partner
shall be listed on the books and records of the Partnership
maintained for such purpose by the Partnership or the Transfer
Agent. The General Partner shall update the books and records of
the Partnership from time to time as necessary to reflect
accurately the information therein (or shall cause the Transfer
Agent to do so, as applicable). A Limited Partner Interest may
be represented by a Certificate, as provided in Section 4.1
hereof.
(c) Any transfer of a Limited Partner Interest shall not
entitle the transferee to share in the profits and losses, to
receive distributions, to receive allocations of income, gain,
loss, deduction or credit or any similar item or to any other
rights to which the transferor was entitled until the transferee
becomes a Limited Partner pursuant to Section 10.2(a).
Section 10.2 Admission
of Successor General Partner.
A successor General Partner approved pursuant to
Section 11.1 or Section 11.2 or the transferee of or
successor to all of the General Partner Interest (represented by
General Partner Units) 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 (represented by General Partner Units) pursuant to
Section 4.6, provided, however, that no such
successor shall be admitted to the Partnership until compliance
with the terms of Section 4.6 has occurred and such
successor has executed and delivered such other documents or
instruments as may be required to effect such admission. Any
such successor shall, subject to the terms hereof, carry on the
business of the members of the Partnership Group without
dissolution.
Section 10.3 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 or appropriate
under the Delaware Act to amend the records of the Partnership
to reflect such admission and, if necessary, to prepare as soon
as practicable an amendment to this Agreement and, if required
by law, the General Partner shall prepare and file an amendment
to the Certificate of Limited Partnership, and the General
Partner may for this purpose, among others, exercise the power
of attorney granted pursuant to Section 2.6.
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ARTICLE XI
Withdrawal or Removal of Partners
Section 11.1 Withdrawal
of the General Partner.
(a) The General Partner shall be deemed to have withdrawn
from the Partnership upon the occurrence of any one of the
following events (each such event herein referred to as an
Event of Withdrawal);
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(i) The General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners; |
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(ii) The General Partner transfers all of its rights as
General Partner pursuant to Section 4.6; |
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(iii) The General Partner is removed pursuant to
Section 11.2; |
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(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 |
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(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
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If an Event of Withdrawal specified in Section 11.1(a)(iv),
(v) or (vi)(A), (B), (C) or (E) occurs, the
withdrawing General Partner shall give notice to the Limited
Partners within 30 days after such occurrence. The Partners
hereby agree that only the Events of Withdrawal described in
this Section 11.1 shall result in the withdrawal of the
General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership
upon the occurrence of an Event of Withdrawal shall not
constitute a breach of this Agreement under the following
circumstances: (i) at any time during the period beginning
on the Closing Date and ending at 12:00 midnight, Mountain
Standard Time, on December 31, 2015, the General Partner
voluntarily withdraws by giving at least 90 days
advance notice of its intention to withdraw to the Limited
Partners; provided, that prior to the effective date of
such withdrawal, the withdrawal is approved by Unitholders
holding at least a majority of the Outstanding Common Units
(excluding Common Units held by the General Partner and its
Affiliates) and the General Partner delivers to the Partnership
an Opinion of Counsel (Withdrawal Opinion of
Counsel) that such withdrawal (following the
selection of the successor General Partner) would not result in
the loss of the limited liability of any Limited Partner or any
Group Member or cause any Group Member 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); (ii) at any time after 12:00
midnight, Eastern Standard Time, on December 31, 2015, the
General Partner voluntarily withdraws by giving at least
90 days advance notice to the Unitholders, such
withdrawal to take effect on the date specified in such notice;
(iii) at any time that the General Partner ceases to be the
General Partner pursuant to Section 11.1(a)(ii) or is
removed pursuant to Section 11.2; or
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(iv) notwithstanding clause (i) of this sentence, at
any time that the General Partner voluntarily withdraws by
giving at least 90 days advance notice of its
intention to withdraw to the Limited Partners, such withdrawal
to take effect on the date specified in the notice, if at the
time such notice is given one Person and its Affiliates (other
than the General Partner and its Affiliates) own beneficially or
of record or control at least 50% of the Outstanding Units. The
withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall also constitute the
withdrawal of the General Partner as general partner or managing
member, if any, to the extent applicable, of the other Group
Members. If the General Partner gives a notice of withdrawal
pursuant to Section 11.1(a)(i), the holders of a Unit
Majority, may, prior to the effective date of such withdrawal,
elect a successor General Partner. The Person so elected as
successor General Partner shall automatically become the
successor general partner or managing member, to the extent
applicable, of the other Group Members of which the General
Partner is a general partner or a managing member. If, prior to
the effective date of the General Partners withdrawal, a
successor is not selected by the Unitholders as provided herein
or the Partnership does not receive a Withdrawal Opinion of
Counsel, the Partnership shall be dissolved in accordance with
Section 12.1. Any successor General Partner elected in
accordance with the terms of this Section 11.1 shall be
subject to the provisions of Section 10.3.
Section 11.2 Removal
of the General Partner.
The General Partner may be removed if such removal is approved
by the Unitholders holding at least
662/3%
of the Outstanding Units (including Units held by the General
Partner and its Affiliates) voting as a single class. Any such
action by such holders for removal of the General Partner must
also provide for the election of a successor General Partner by
the Unitholders holding a majority of the outstanding Common
Units and Class B Units, if any, voting as a single class
and a majority of the outstanding Subordinated Units (if any
Subordinated Units are then Outstanding) voting as a class
(including, in each case, Units held by the General Partner and
its Affiliates). Such removal shall be effective immediately
following the admission of a successor General Partner pursuant
to Section 10.3. The removal of the General Partner shall
also automatically constitute the removal of the General Partner
as general partner or managing member, to the extent applicable,
of the other Group Members of which the General Partner is a
general partner or a managing member. 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, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member. The right of the holders of
Outstanding Units to remove the General Partner shall not exist
or be exercised unless the Partnership has received an opinion
opining as to the matters covered by a Withdrawal Opinion of
Counsel. Any successor General Partner elected in accordance
with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.
Section 11.3 Interest
of Departing General Partner and Successor General Partner.
(a) In the event of (i) withdrawal of the General
Partner under circumstances where such withdrawal does not
violate this Agreement or (ii) removal of the General
Partner by the holders of Outstanding Units under circumstances
where Cause does not exist, if the successor General Partner is
elected in accordance with the terms of Section 11.1 or
Section 11.2, the Departing General Partner shall have the
option, exercisable prior to the effective date of the departure
of such Departing General Partner, to require its successor to
purchase its General Partner Interest (represented by General
Partner Units) and its general partner interest (or equivalent
interest), if any, in the other Group Members and all of its
Incentive Distribution Rights (collectively, the Combined
Interest) in exchange for an amount in cash equal to the
fair market value of such Combined Interest, such amount to be
determined and payable as of the effective date of its
departure. If the General Partner is removed by the Unitholders
under circumstances where Cause exists or if the General Partner
withdraws under circumstances where such withdrawal violates
this Agreement, and if a successor General Partner is elected in
accordance with the terms of Section 11.1 or
Section 11.2 (or if the business of the Partnership is
continued pursuant to Section 12.2 and the successor
General Partner is not the former General Partner), such
successor shall have the option, exercisable prior to the
effective date of the departure of such Departing General
Partner (or, in the event the business of the Partnership is
continued, prior to the date the business of the Partnership is
continued), to purchase the Combined Interest for such fair
market value of such Combined Interest of the Departing General
Partner. In
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either event, the Departing General Partner shall be entitled to
receive all reimbursements due such Departing General 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
Departing General Partner or its Affiliates (other than any
Group Member) 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 General Partners Combined Interest shall
be determined by agreement between the Departing General Partner
and its successor or, failing agreement within 30 days
after the effective date of such Departing General
Partners departure, by an independent investment banking
firm or other independent expert selected by the Departing
General Partner and its successor, which, in turn, may rely on
other experts, and the determination of which shall be
conclusive as to such matter. If such parties cannot agree upon
one independent investment banking firm or other independent
expert within 45 days after the effective date of such
departure, then the Departing General Partner shall designate an
independent investment banking firm or other independent expert,
the Departing General Partners 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 of the Departing General Partner. In making its
determination, such third independent investment banking firm or
other independent expert may consider the then current trading
price of Units on any National Securities Exchange on which
Units are then listed or admitted to trading, the value of the
Partnerships assets, the rights and obligations of the
Departing 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 General Partner
(or its transferee) shall become a Limited Partner and its
Combined Interest shall be converted into Common Units pursuant
to a valuation made by an investment banking firm or other
independent expert selected pursuant to Section 11.3(a),
without reduction in such Partnership Interest (but subject
to proportionate dilution by reason of the admission of its
successor). Any successor General Partner shall indemnify the
Departing General Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date
on which the Departing General Partner (or its transferee)
becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing General
Partner to Common Units will be characterized as if the
Departing General Partner (or its transferee) contributed its
Combined Interest to the Partnership in exchange for the newly
issued Common Units.
(c) If a successor General Partner is elected in accordance
with the terms of Section 11.1 or Section 11.2 (or if
the business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner) and the option described in
Section 11.3(a) is not exercised by the party entitled to
do so, the successor General Partner shall, at the effective
date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to the product of the
Percentage Interest of the Departing General Partner and the Net
Agreed Value of the Partnerships assets on such date. In
such event, such successor General Partner shall, subject to the
following sentence, be entitled to its Percentage Interest of
all Partnership allocations and distributions to which the
Departing General Partner was entitled. In addition, the
successor General Partner shall cause this Agreement to be
amended to reflect that, from and after the date of such
successor General Partners admission, the successor
General Partners interest in all Partnership distributions
and allocations shall be its Percentage Interest.
Section 11.4 Termination
of Subordination Period, Conversion of Subordinated Units and
Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the General
Partner is removed as general partner of the Partnership under
circumstances where Cause does not exist and Units held by the
General Partner and its Affiliates are not voted in favor of
such removal, (i) the Subordination Period will end and all
Outstanding Subordinated Units will immediately and
automatically convert into Common Units on a one-for-one basis,
(ii) all Cumulative Common Unit Arrearages on the Common
Units will be extinguished and (iii) the General Partner
will have the right to convert its General Partner Interest
(represented by General Partner Units) and
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its Incentive Distribution Rights into Common Units or to
receive cash in exchange therefor in accordance with
Section 11.3.
Section 11.5 Withdrawal
of Limited Partners.
No Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of
a Limited Partners Limited Partner Interest becomes a
Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so
transferred.
ARTICLE XII
Dissolution and Liquidation
Section 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of
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 Section 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) 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; |
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(b) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority; |
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(c) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware
Act; or |
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(d) at any time there are no Limited Partners, unless the
Partnership is continued without dissolution in accordance with
the Delaware Act. |
Section 12.2 Continuation
of the Business of the Partnership After Dissolution.
Upon (a) dissolution of the Partnership following an Event
of Withdrawal caused by the withdrawal or removal of the General
Partner as provided in Section 11.1(a)(i) or (iii) and
the failure of the Partners to select a successor to such
Departing General Partner pursuant to Section 11.1 or
Section 11.2, then within 90 days thereafter, or
(b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in
Section 11.1(a)(iv), (v) or (vi), then, to the maximum
extent permitted by law, within 180 days thereafter, the
holders of a Unit Majority may elect to continue the business of
the Partnership on the same terms and conditions set forth in
this Agreement by appointing as a successor General Partner a
Person approved by the holders of a Unit Majority. Unless such
an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities
necessary to wind up its affairs. If such an election is so
made, then:
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(i) the Partnership shall continue without dissolution
unless earlier dissolved in accordance with this
Article XII; |
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(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 |
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(iii) the successor General Partner shall be admitted to
the Partnership as General Partner, effective as of the Event of
Withdrawal, by agreeing in writing to be bound by this
Agreement; provided, that the right of the holders of a
Unit Majority to approve a successor General Partner and to
continue the business of the Partnership shall not exist and may
not be exercised unless the Partnership has received |
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an Opinion of Counsel that (x) the exercise of the right
would not result in the loss of limited liability of any Limited
Partner and (y) neither the Partnership nor 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
(to the extent not already so treated or taxed). |
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 12.2, the
General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner)
shall be entitled to receive such compensation for its services
as may be approved by holders of at least a majority of the
Outstanding Common Units and Subordinated Units voting as a
single class. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days
prior notice and may be removed at any time, with or without
cause, by notice of removal approved by holders of at least a
majority of the Outstanding Common Units, Class B Units (if
any), and Subordinated Units voting as a single class. Upon
dissolution, removal or resignation of the Liquidator, a
successor and substitute Liquidator (who shall have and succeed
to all rights, powers and duties of the original Liquidator)
shall within 30 days thereafter be approved by holders of
at least a majority of the Outstanding Common Units,
Class B Units (if any), and Subordinated Units voting as a
single class. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to
refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly
provided in this Article XII, the Liquidator approved in
the manner provided herein shall have and may exercise, without
further authorization or consent of any of the parties hereto,
all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of
such powers, other than the limitation on sale set forth in
Section 7.3) necessary or appropriate to carry out the
duties and functions of the Liquidator hereunder for and during
the period of time required to complete the winding up and
liquidation of the Partnership as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up
its affairs in such manner and over such period as determined by
the Liquidator, subject to Section 17-804 of the Delaware
Act and the following:
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(a) 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 defer
liquidation or distribution of the Partnerships assets for
a reasonable time if it determines that an immediate sale or
distribution of all or some of the Partnerships assets
would be impractical or would cause undue loss to the Partners.
The Liquidator may distribute the Partnerships 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) Liabilities of the Partnership include amounts owed to
the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts to
Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is
contingent, conditional or unmatured or is otherwise not yet due
and payable, the Liquidator shall either settle such claim for
such amount as it thinks appropriate or establish a reserve of
cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional
liquidation proceeds. |
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(c) 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 |
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taxable year of the Partnership during which the liquidation of
the Partnership occurs (with such date of occurrence being
determined pursuant to Treasury Regulation
Section 1.704-1(b)(2)(ii)(g)), and such distribution shall
be made by the end of such taxable year (or, if later, within
90 days after said date of such occurrence). |
Section 12.5 Cancellation
of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and
property as provided in Section 12.4 in connection with the
liquidation of the Partnership, the Certificate of Limited
Partnership and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section 12.6 Return
of Contributions.
The General Partner shall not be personally liable for, and
shall have no obligation to contribute or loan any monies or
property to the Partnership to enable it to effectuate, the
return of the Capital Contributions of the Limited Partners or
Unitholders, or any portion thereof, it being expressly
understood that any such return shall be made solely from
Partnership assets.
Section 12.7 Waiver
of Partition.
To the maximum extent permitted by law, each Partner hereby
waives any right to partition of the Partnership property.
Section 12.8 Capital
Account Restoration.
No Limited Partner shall have any obligation to restore any
negative balance in its Capital Account upon liquidation of the
Partnership. The General Partner shall be obligated to restore
any negative balance in its Capital Account upon liquidation of
its interest in the Partnership by the end of the taxable year
of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
Amendment of Partnership Agreement; Meetings; Record Date
Section 13.1 Amendments
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:
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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; |
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(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement; |
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(c) a change that the General Partner determines to be
necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability
under the laws of any state or to ensure that the Group Members
will not be treated as associations taxable as corporations or
otherwise taxed as entities for federal income tax purposes; |
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(d) a change that the General Partner determines,
(i) does not adversely affect the Limited Partners
(including any particular class of Partnership Interests as
compared to other classes of Partnership Interests) in any
material respect, (ii) to be necessary or appropriate to
(A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or judicial authority or
contained in any federal or state statute (including the
Delaware Act) or (B) facilitate the trading of the Units
(including the division of any class or classes of Outstanding
Units into different classes to facilitate uniformity of tax
consequences within such classes of Units) or |
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comply with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are or will
be listed or admitted to trading, (iii) to be necessary or
appropriate in connection with action taken by the General
Partner pursuant to Section 5.9 or (iv) is required to
effect the intent expressed in the Registration Statement or the
intent of the provisions of this Agreement or is otherwise
contemplated by this Agreement; |
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(e) a change in the fiscal year or taxable year of the
Partnership and any other changes that the General Partner
determines to be necessary or appropriate 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; |
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(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 the General Partner determines to be
necessary or appropriate in connection with the authorization of
issuance of any class or series of Partnership Securities
pursuant to Section 5.6, including any amendment that the
General Partner determines is necessary or appropriate in
connection with (i) the adjustments of the Minimum
Quarterly Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution pursuant to the
provisions of Section 5.11, (ii) the implementation of
the provisions of Section 5.11 or (iii) any
modifications to the Incentive Distribution Rights made in
connection with the issuance of Partnership Securities pursuant
to Section 5.6, provided that, with respect to this
clause (iii), the modifications to the Incentive
Distribution Rights and the related issuance of Partnership
Securities have received Special Approval; |
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(h) any amendment expressly permitted in this Agreement to
be made by the General Partner acting alone; |
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(i) an amendment effected, necessitated or contemplated by
a Merger Agreement approved in accordance with Section 14.3; |
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(j) an amendment that the General Partner determines to be
necessary or appropriate to reflect and account for the
formation by the Partnership of, or investment by the
Partnership in, any corporation, partnership, joint venture,
limited liability company or other entity, in connection with
the conduct by the Partnership of activities permitted by the
terms of Section 2.4; |
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(k) a merger, conveyance or conversion pursuant to
Section 14.3(d); or |
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(l) any other amendments substantially similar to the
foregoing. |
Section 13.2 Amendment
Procedures.
Except as provided in Section 13.1 and Section 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 the General Partner; provided,
however, that the General Partner shall have no duty or
obligation to propose any amendment to this Agreement and may
decline to do so free of any fiduciary duty or obligation
whatsoever to the Partnership or any Limited Partner and, in
declining to propose an amendment, to the fullest extent
permitted by law shall not be required to act in good faith or
pursuant to any other standard imposed by this Agreement, any
Group Member Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation
or at equity. A proposed amendment shall be effective upon its
approval by the General Partner and the holders of a Unit
Majority, unless a greater or different percentage is required
under this Agreement or by Delaware law. Each proposed amendment
that requires the approval of the holders of a specified
percentage of Outstanding Units shall be set forth in a writing
that contains the text of the proposed amendment. If such an
amendment is proposed, the General Partner shall seek the
written approval of the requisite percentage of Outstanding
Units or call a meeting of the Unitholders to consider and
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vote on such proposed amendment. The General Partner shall
notify all Record Holders upon final adoption of any such
proposed amendments.
Section 13.3 Amendment
Requirements.
(a) Notwithstanding the provisions of Section 13.1 and
Section 13.2, no provision of this Agreement that
establishes a percentage of Outstanding Units (including Units
deemed owned by the General Partner) required to take any action
shall be amended, altered, changed, repealed or rescinded in any
respect that would have the effect of reducing such voting
percentage unless such amendment is approved by the written
consent or the affirmative vote of holders of Outstanding Units
whose aggregate Outstanding Units constitute not less than the
voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Section 13.1 and
Section 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), or (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any
way the amounts distributable, reimbursable or otherwise payable
to, the General Partner or any of its Affiliates without its
consent, which consent may be given or withheld at its option.
(c) Except as provided in Section 14.3, and without
limitation of the General Partners authority to adopt
amendments to this Agreement without the approval of any
Partners or Assignees as contemplated in Section 13.1, any
amendment that would have a material adverse effect on the
rights or preferences of any class of Partnership Interests
in relation to other classes of Partnership Interests must
be approved by the holders of not less than a majority of the
Outstanding Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement,
except for amendments pursuant to Section 13.1 and except
as otherwise provided by Section 14.3(b), no amendments
shall become effective without the approval of the holders of at
least 90% of the Outstanding Units voting as a single class
unless the Partnership obtains an Opinion of Counsel to the
effect that such amendment will not affect the limited liability
of any Limited Partner under applicable partnership law of the
state under whose laws the Partnership is organized.
(e) Except as provided in Section 13.1, this
Section 13.3 shall only be amended with the approval of the
holders of at least 90% of the Outstanding Units.
Section 13.4 Special
Meetings.
All acts of Limited Partners to be taken pursuant to this
Agreement shall be taken in the manner provided in this
Article XIII. Special meetings of the Limited Partners may
be called by the General Partner or by Limited Partners owning
20% or more of the Outstanding Units of the class or classes for
which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General Partner one or more
requests in writing stating that the signing Limited Partners
wish to call a special meeting and indicating the general or
specific purposes for which the special meeting is to be called.
Within 60 days after receipt of such a call from Limited
Partners or within such greater time as may be reasonably
necessary for the Partnership to comply with any statutes,
rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of
proxies for use at such a meeting, the General Partner shall
send a notice of the meeting to the Limited Partners either
directly or indirectly through the Transfer Agent. A meeting
shall be held at a time and place determined by the General
Partner on a date not less than 10 days nor more than
60 days after the mailing of notice of the meeting. Limited
Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and
control of the business and affairs of the Partnership so as to
jeopardize the Limited Partners limited liability under
the Delaware Act or the law of any other state in which the
Partnership is qualified to do business.
Section 13.5 Notice
of a Meeting.
Notice of a meeting called pursuant to Section 13.4 shall
be given to the Record Holders of the class or classes of Units
for which a meeting is proposed in writing by mail or other
means of written communication
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in accordance with Section 16.1. The notice shall be deemed
to have been given at the time when deposited in the mail or
sent by other means of written communication.
Section 13.6 Record
Date.
For purposes of determining the Limited Partners entitled to
notice of or to vote at a meeting of the Limited Partners or to
give approvals without a meeting as provided in
Section 13.11 the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 days
before (a) the date of the meeting (unless such requirement
conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities 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. If the General Partner does not set a Record Date,
then (a) the Record Date for determining the Limited
Partners entitled to notice of or to vote at a meeting of the
Limited Partners shall be the close of business on the day next
preceding the day on which notice is given, and (b) the
Record Date for determining the Limited Partners entitled to
give approvals without a meeting shall be the date the first
written approval is deposited with the Partnership in care of
the General Partner in accordance with Section 13.11.
Section 13.7 Adjournment.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced
at the meeting at which the adjournment is taken, unless such
adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section 13.8 Waiver
of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however
called and noticed, and whenever held, shall be as valid as if
it had occurred at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy.
Attendance of a Limited Partner at a meeting shall constitute a
waiver of notice of the meeting, except when the Limited Partner
attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened; and
except that attendance at a meeting is not a waiver of any right
to disapprove the consideration of matters required to be
included in the notice of the meeting, but not so included, if
the disapproval is expressly made at the meeting.
Section 13.9 Quorum
and Voting.
The holders of a majority of the Outstanding Units of the class
or classes for which a meeting has been called (including
Outstanding Units deemed owned by the General Partner)
represented in person or by proxy shall constitute a quorum at a
meeting of Limited Partners of such class or classes unless any
such action by the Limited Partners requires approval by holders
of a greater percentage of such Units, 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 Units that in the aggregate represent a
majority of the Outstanding Units 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 Units 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 Units specified in
this Agreement (including Outstanding Units deemed owned by the
General Partner). In the absence of a quorum any meeting of
Limited Partners may be adjourned from time to time by the
affirmative vote of holders of at
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least a majority of the Outstanding Units entitled to vote at
such meeting (including Outstanding Units deemed owned by the
General Partner) represented either in person or by proxy, but
no other business may be transacted, except as provided in
Section 13.7.
Section 13.10 Conduct
of a Meeting.
The General Partner shall have full power and authority
concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including the
determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of
Section 13.4, the conduct of voting, the validity and
effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or
during the meeting or voting. The General Partner shall
designate a Person to serve as chairman of any meeting and shall
further designate a Person to take the minutes of any meeting.
All minutes shall be kept with the records of the Partnership
maintained by the General Partner. The General Partner may make
such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any
meeting of the Limited Partners or solicitation of approvals in
writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and
approvals, the submission and examination of proxies and other
evidence of the right to vote, and the revocation of approvals
in writing.
Section 13.11 Action
Without a Meeting.
If authorized by the General Partner, any action that may be
taken at a meeting of the Limited Partners may be taken without
a meeting if an approval in writing setting forth the action so
taken is signed by Limited Partners owning not less than the
minimum percentage of the Outstanding Units (including Units
deemed owned by the General Partner) that would be necessary to
authorize or take such action at a meeting at which all the
Limited Partners were present and voted (unless such provision
conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities 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 Units held
by the Limited Partners, the Partnership shall be deemed to have
failed to receive a ballot for the Units that were not voted. If
approval of the taking of any action by the Limited Partners is
solicited by any Person other than by or on behalf of the
General Partner, the written approvals shall have no force and
effect unless and until (a) they are deposited with the
Partnership in care of the General Partner, (b) approvals
sufficient to take the action proposed are dated as of a date
not more than 90 days prior to the date sufficient
approvals are deposited with the Partnership and (c) an
Opinion of Counsel is delivered to the General Partner to the
effect that the exercise of such right and the action proposed
to be taken with respect to any particular matter (i) will
not cause the Limited Partners to be deemed to be taking part in
the management and control of the business and affairs of the
Partnership so as to jeopardize the Limited Partners
limited liability, and (ii) is otherwise permissible under
the state statutes then governing the rights, duties and
liabilities of the Partnership and the Partners.
Section 13.12 Right
to Vote and Related Matters.
(a) Only those Record Holders of the Units 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 Units 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
Units shall be deemed to be references to the votes or acts of
the Record Holders of such Outstanding Units.
(b) With respect to Units that are held for a Persons
account by another Person (such as a broker, dealer, bank, trust
company or clearing corporation, or an agent of any of the
foregoing), in whose name such Units are registered, such other
Person shall, in exercising the voting rights in respect of such
Units on any
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matter, and unless the arrangement between such Persons provides
otherwise, vote such Units in favor of, and at the direction of,
the Person who is the beneficial owner, and the Partnership
shall be entitled to assume it is so acting without further
inquiry. The provisions of this Section 13.12(b) (as well
as all other provisions of this Agreement) are subject to the
provisions of Section 4.3.
ARTICLE XIV
Merger, Consolidation or Conversion
Section 14.1 Authority.
The Partnership may merge or consolidate with or into one or
more corporations, limited liability companies, statutory trusts
or associations, real estate investment trusts, common law
trusts or unincorporated businesses, including a partnership
(whether general or limited (including a limited liability
partnership)) or convert into any such entity, whether such
entity is formed under the laws of the State of Delaware or any
other state of the United States of America, pursuant to a
written plan of merger or consolidation (Merger
Agreement) or a written plan of conversion
(Plan of Conversion), as the case may
be, in accordance with this Article XIV.
Section 14.2 Procedure
for Merger, Consolidation or Conversion.
(a) Merger, consolidation or conversion of the Partnership
pursuant to this Article XIV requires the prior consent of
the General Partner, provided, however, that, to the
fullest extent permitted by law, the General Partner shall have
no duty or obligation to consent to any merger, consolidation or
conversion of the Partnership and may decline to do so free of
any fiduciary duty or obligation whatsoever to the Partnership,
any Limited Partner and, in declining to consent to a merger,
consolidation or conversion, shall not be required to act in
good faith or pursuant to any other standard imposed by this
Agreement, any other agreement contemplated hereby or under the
Act or any other law, rule or regulation or at equity.
(b) If the General Partner shall determine to consent to
the merger or consolidation, the General partner shall approve
the Merger Agreement, which shall set forth:
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(i) name and state of domicile of each of the business
entities proposing to merge or consolidate; |
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(ii) the name and state of domicile of the business entity
that is to survive the proposed merger or consolidation (the
Surviving Business Entity); |
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(iii) the terms and conditions of the proposed merger or
consolidation; |
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(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or 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 interests,
rights, securities or obligations of any general or limited
partnership, corporation, trust, limited liability company,
unincorporated business 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 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, limited liability company, unincorporated
business or other entity (other than the Surviving Business
Entity), or evidences thereof, are to be delivered; |
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(v) 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,
operating agreement or other similar charter or governing
document) of the Surviving Business Entity to be effected by
such merger or consolidation; |
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(vi) 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 such certificate of merger, the effective time shall
be fixed at a date or time certain at or prior to the time of
the filing of such certificate of merger and stated
therein); and |
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(vii) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate. |
(c) If the General Partner shall determine to consent to
the conversion, the General Partner shall approve the Plan of
Conversion, which shall set forth:
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(i) the name of the converting entity and the converted
entity; |
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(ii) a statement that the Partnership is continuing its
existence in the organizational form of the converted entity; |
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(iii) a statement as to the type of entity that the
converted entity is to be and the state or country under the
laws of which the converted entity is to be incorporated, formed
or organized; |
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(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the converted entity; |
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(v) in an attachment or exhibit, the certificate of limited
partnership of the Partnership; and |
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(vi) in an attachment or exhibit, the certificate of
limited partnership, articles of incorporation, or other
organizational documents of the converted entity; |
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(vii) the effective time of the conversion, which may be
the date of the filing of the articles of conversion or a later
date specified in or determinable in accordance with the Plan of
Conversion (provided, that if the effective time of the
conversion is to be later than the date of the filing of such
articles of conversion, the effective time shall be fixed at a
date or time certain at or prior to the time of the filing of
such articles of conversion and stated therein); and |
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(viii) such other provisions with respect to the proposed
conversion that the General Partner determines to be necessary
or appropriate. |
Section 14.3 Approval
by Limited Partners.
(a) Except as provided in Sections 14.3(d), the
General Partner, upon its approval of the Merger Agreement or
the Plan of Conversion, as the case may be, shall direct that
the Merger Agreement or the Plan of Conversion, as applicable,
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 or the Plan of Conversion, as the case may
be, 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 or Plan of Conversion, as the case may be, shall be
approved upon receiving the affirmative vote or consent of the
holders of a Unit Majority.
(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 or
articles of conversion pursuant to Section 14.4, the
merger, consolidation or conversion may be abandoned pursuant to
provisions therefor, if any, set forth in the Merger Agreement
or Plan of Conversion, as the case may be.
(d) Notwithstanding anything else contained in this
Article XIV or in this Agreement, the General Partner is
permitted, without Limited Partner approval, to convert the
Partnership or any Group Member into a new limited liability
entity, to merge the Partnership or any Group Member into, or
convey all of the Partnerships assets to, another limited
liability entity that shall be newly formed and shall have no
assets, liabilities or operations at the time of such
conversion, merger or conveyance other than those it receives
from
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the Partnership or other Group Member if (i) the General
Partner has received an Opinion of Counsel that the conversion,
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 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 conversion, 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.
(e) Additionally, notwithstanding anything else contained
in this Article XIV or in this Agreement, the General
Partner is permitted, without Limited Partner approval, to merge
or consolidate the Partnership with or into another entity if
(A) the General Partner has received an Opinion of Counsel
that the merger or consolidation, as the case may be, would not
result in the loss of the limited liability of any Limited
Partner or cause the Partnership to be treated as an association
taxable as a corporation or otherwise to be taxed as an entity
for federal income tax purposes (to the extent not previously
treated as such), (B) the merger or consolidation would not
result in an amendment to the Partnership Agreement, other than
any amendments that could be adopted pursuant to
Section 13.1, (C) the Partnership is the Surviving
Business Entity in such merger or consolidation, (D) each
Unit outstanding immediately prior to the effective date of the
merger or consolidation is to be an identical Unit of the
Partnership after the effective date of the merger or
consolidation, and (E) the number of Partnership Securities
to be issued by the Partnership in such merger or consolidation
do not exceed 20% of the Partnership Securities Outstanding
immediately prior to the effective date of such merger or
consolidation.
(f) Pursuant to Section 17-211(g) of the Delaware Act,
an agreement of merger or consolidation approved in accordance
with this Article XIV may (a) effect any amendment to
this Agreement or (b) effect the adoption of a new
partnership agreement for the Partnership if it is the Surviving
Business Entity. Any such amendment or adoption made pursuant to
this Section 14.5 shall be effective at the effective time
or date of the merger or consolidation.
Section 14.4 Certificate
of Merger.
Upon the required approval by the General Partner and the
Unitholders of a Merger Agreement or the Plan of Conversion, as
the case may be, a certificate of merger or articles of
conversion, as applicable, shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with
the requirements of the Delaware Act.
Section 14.5 Effect
of Merger, Consolidation or Conversion.
(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; |
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(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; |
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(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 |
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(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity
and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted by
it. |
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(b) At the effective time of the articles of conversion:
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(i) the Partnership shall continue to exist, without
interruption, but in the organizational form of the converted
entity rather than in its prior organizational form; |
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(ii) all rights, title, and interests to all real estate
and other property owned by the Partnership shall continue to be
owned by the converted entity in its new organizational form
without reversion or impairment, without further act or deed,
and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon; |
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(iii) all liabilities and obligations of the Partnership
shall continue to be liabilities and obligations of the
converted entity in its new organizational form without
impairment or diminution by reason of the conversion; |
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(iv) all rights of creditors or other parties with respect
to or against the prior interest holders or other owners of the
Partnership in their capacities as such in existence as of the
effective time of the conversion will continue in existence as
to those liabilities and obligations and may be pursued by such
creditors and obligees as if the conversion did not occur; |
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(v) a proceeding pending by or against the Partnership or
by or against any of Partners in their capacities as such may be
continued by or against the converted entity in its new
organizational form and by or against the prior partners without
any need for substitution of parties; and |
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(vi) the Partnership Units that are to be converted into
partnership interests, shares, evidences of ownership, or other
securities in the converted entity as provided in the plan of
conversion shall be so converted, and Partners shall be entitled
only to the rights provided in the Plan of Conversion. |
ARTICLE XV
Right to Acquire Limited Partner Interests
Section 15.1 Right
to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this Agreement,
if at any time the General Partner and its Affiliates hold more
than 80% of the total Limited Partner Interests of any class
then Outstanding, 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 at its option, 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 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, as reported in the
principal consolidated transaction reporting system with respect
to securities listed on the principal National Securities
Exchange (other than the Nasdaq Stock Market) on which such
Limited Partner Interests are listed or admitted to trading or,
if such Limited Partner Interests of such class are not listed
or admitted to trading on any National Securities Exchange
(other than the Nasdaq Stock Market), the last quoted price on
such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the over-the-counter market, as
reported by the Nasdaq Stock Market or such other system then in
use, or, if on any such day such Limited Partner Interests of
such class are not quoted by any such organization, the average
of the closing bid and asked prices on such day as furnished by
a professional market maker making a market in such Limited
Partner Interests of such class selected by the General Partner,
or if on any such day no market maker is making a market in such
Limited Partner Interests of such class, the fair value of such
Limited Partner
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Interests on such day as determined 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 for
trading is open for the transaction of business or, if Limited
Partner Interests of a class are not listed or admitted for
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. 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
Article IV, Article V, Article VI, and
Article 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 Article IV, Article V, Article VI and
Article 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
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Section 16.1 |
Addresses and Notices. |
Any notice, demand, request, report or proxy materials required
or permitted to be given or made to a Partner under this
Agreement shall be in writing and shall be deemed given or made
when delivered in person or when sent by first class United
States mail or by other means of written communication to the
Partner at the address described below. Any notice, payment or
report to be given or made to a Partner
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hereunder shall be deemed conclusively to have been given or
made, and the obligation to give such notice or report or to
make such payment shall be deemed conclusively to have been
fully satisfied, upon sending of such notice, payment or report
to the Record Holder of such Partnership Securities at his
address as shown on the records of the Transfer Agent or as
otherwise shown on the records of the Partnership, regardless of
any claim of any Person who may have an interest in such
Partnership Securities by reason of any assignment or otherwise.
An affidavit or certificate of making of any notice, payment or
report in accordance with the provisions of this
Section 16.1 executed by the General Partner, the Transfer
Agent or the mailing organization shall be prima facie evidence
of the giving or making of such notice, payment or report. If
any notice, payment or report addressed to a Record Holder at
the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by
the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments
and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder
or another Person notifies the Transfer Agent or the Partnership
of a change in his address) if they are available for the
Partner 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. 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 or other Person if believed by it to be genuine.
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Section 16.2 |
Further Action. |
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this
Agreement.
Section 16.3 Binding
Effect.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 16.4 Integration.
This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining
thereto.
Section 16.5 Creditors.
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the
Partnership.
Section 16.6 Waiver.
No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach of any other
covenant, duty, agreement or condition.
Section 16.7 Third-Party
Beneficiaries.
Each Partner agrees that any Indemnitee shall be entitled to
assert rights and remedies hereunder as a third-party
beneficiary hereto with respect to those provisions of this
Agreement affording a right, benefit or privilege to such
Indemnitee.
Section 16.8 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, pursuant to Section 10.1(a)
without execution hereto.
A-73
Section 16.9 Applicable
Law.
This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without regard to
the principles of conflicts of law.
Section 16.10 Invalidity
of Provisions.
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not be affected thereby.
Section 16.11 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.
Section 16.12 Facsimile
Signatures.
The use of facsimile signatures affixed in the name and on
behalf of the transfer agent and registrar of the Partnership on
certificates representing Common Units is expressly permitted by
this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
A-74
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
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GENERAL PARTNER: |
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DCP MIDSTREAM GP, LP |
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By: DCP MIDSTREAM GP, LLC |
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Name: |
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Title: |
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ORGANIZATIONAL LIMITED PARTNER: |
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DUKE ENERGY FIELD SERVICES, LLC |
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Name: |
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Title: |
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LIMITED PARTNERS: |
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All Limited Partners now and hereafter admitted as Limited
Partners of the Partnership, pursuant to powers of attorney now
and hereafter executed in favor of, and granted and delivered to
the General Partner or without execution hereof pursuant to
Section 10.2(a) hereof. |
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DCP LP HOLDINGS, LP |
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By: |
DUKE ENERGY FIELD SERVICES, LLC |
A-75
EXHIBIT A
to the First Amended and Restated
Agreement of Limited Partnership of
DCP Midstream Partners, LP
Certificate Evidencing Common Units
Representing Limited Partner Interests in
DCP Midstream Partners, LP
In accordance with Section 4.1 of the First Amended and
Restated Agreement of Limited Partnership of DCP Midstream
Partners, LP, as amended, supplemented or restated from time to
time (the Partnership Agreement),
DCP Midstream Partners, LP, a Delaware limited partnership
(the Partnership), hereby certifies
that (the Holder) is the
registered owner of Common Units representing limited partner
interests in the Partnership (the Common
Units) transferable on the books of the
Partnership, in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. The rights,
preferences and limitations of the Common Units are set forth
in, and this Certificate and the Common Units represented hereby
are issued and shall in all respects be subject to the terms and
provisions of, the Partnership Agreement. Copies of the
Partnership Agreement are on file at, and will be furnished
without charge on delivery of written request to the Partnership
at, the principal office of the Partnership located at
370 17th Street, Suite 2775, Denver, Colorado
80202. Capitalized terms used herein but not defined shall have
the meanings given them in the Partnership Agreement.
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
DCP MIDSTREAM PARTNERS, LP THAT THIS SECURITY MAY NOT BE
SOLD, OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IF SUCH
TRANSFER WOULD (A) VIOLATE THE THEN APPLICABLE FEDERAL OR
STATE SECURITIES LAWS OR RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY
OTHER GOVERNMENTAL AUTHORITY WITH JURISDICTION OVER SUCH
TRANSFER, (B) TERMINATE THE EXISTENCE OR QUALIFICATION OF
DCP MIDSTREAM PARTNERS, LP UNDER THE LAWS OF THE STATE OF
DELAWARE, OR (C) CAUSE DCP MIDSTREAM PARTNERS, LP 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).
DCP MIDSTREAM GP LLC, THE GENERAL PARTNER OF
DCP MIDSTREAM PARTNERS, LP, MAY IMPOSE ADDITIONAL
RESTRICTIONS ON THE TRANSFER OF THIS SECURITY IF IT RECEIVES AN
OPINION OF COUNSEL THAT SUCH RESTRICTIONS ARE NECESSARY TO AVOID
A SIGNIFICANT RISK OF DCP MIDSTREAM PARTNERS, LP BECOMING
TAXABLE AS A CORPORATION OR OTHERWISE BECOMING TAXABLE AS AN
ENTITY FOR FEDERAL INCOME TAX PURPOSES. THE RESTRICTIONS SET
FORTH ABOVE SHALL NOT PRECLUDE THE SETTLEMENT OF ANY
TRANSACTIONS INVOLVING THIS SECURITY ENTERED INTO THROUGH THE
FACILITIES OF ANY NATIONAL SECURITIES EXCHANGE ON WHICH THIS
SECURITY IS LISTED OR ADMITTED TO TRADING.
The Holder, by accepting this Certificate, is deemed to have
(i) requested admission as, and agreed to become, a Limited
Partner and to have agreed to comply with and be bound by and to
have executed the Partnership Agreement, (ii) represented
and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney
provided for in the Partnership Agreement and (iv) made the
waivers and given the consents and approvals contained in the
Partnership Agreement.
This Certificate shall not be valid for any purpose unless it
has been countersigned and registered by the Transfer Agent and
Registrar.
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Dated:
Countersigned and Registered by:
American Stock Transfer & Trust Company By:
as
Transfer Agent and Registrar
By: Authorized
Signature |
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DCP Midstream Partners, LP
By: DCP Midstream GP, LP
By: DCP Midstream GP, LLC,
its General Partner
By: By: American
Stock Transfer & Trust Company
By:
Name:
By: Secretary |
[Reverse of Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows
according to applicable laws or regulations:
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TEN COM as tenants in common
TEN ENT as tenants by the entireties
JT TEN as joint tenants with right of
survivorship and not as tenants in common |
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UNIF GIFT/TRANSFERS MIN ACT
Custodian (Cust)
(Minor)
under Uniform Gifts/Transfers to CD Minors Act (State) |
Additional abbreviations, though not in the above list, may also
be used.
ASSIGNMENT OF COMMON UNITS OF
DCP MIDSTREAM PARTNERS, LP
FOR VALUE
RECEIVED, hereby
assigns, conveys, sells and transfers unto
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(Please
print or typewrite name and address of assignee) |
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(Please
insert Social Security or
other identifying number of assignee) |
Common
Units representing limited partner interests evidenced by this
Certificate, subject to the Partnership Agreement, and does
hereby irrevocably constitute and
appoint as
its attorney-in-fact with full power of substitution to transfer
the same on the books of DCP Midstream Partners, LP.
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Date: |
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NOTE: The signature to any endorsement hereon must
correspond with the name as written upon the face of this
Certificate in every particular, without alteration, enlargement
or change. |
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17d-15 |
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(Signature)
(Signature) |
No transfer of the Common Units evidenced hereby will be
registered on the books of the Partnership, unless the
Certificate evidencing the Common Units to be transferred is
surrendered for registration or transfer.
APPENDIX B
GLOSSARY OF TERMS
adjusted operating surplus: For any period,
operating surplus generated during that period is adjusted to:
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(a) |
increase operating surplus by any net decreases made in
subsequent periods in cash reserves for operating expenditures
initially established with respect to such period; |
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(b) |
decrease operating surplus by any net reduction in cash reserves
for operating expenditures during that period not relating to an
operating expenditure made during that period; and |
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(c) |
increase operating surplus by 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. |
Adjusted operating surplus does not include the portion of
operating surplus described in subpart (a)(2) of the definition
of operating surplus in this Appendix B.
available cash: For any quarter ending prior to
liquidation:
(a) the sum of:
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(1) all cash and cash equivalents of DCP Midstream
Partners, LP and its subsidiaries on hand at the end of that
quarter; and |
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(2) if our general partner so determines all or a portion
of any additional cash or cash equivalents of DCP Midstream
Partners, LP and its subsidiaries on hand on the date of
determination of available cash for that quarter; |
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(b) less the amount of cash reserves established by our
general partner to: |
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(1) provide for the proper conduct of the business of DCP
Midstream Partners, LP and its subsidiaries (including reserves
for future capital expenditures and for future credit needs of
DCP Midstream Partners, LP and its subsidiaries) after that
quarter; |
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(2) comply with applicable law or any debt instrument or
other agreement or obligation to which DCP Midstream Partners,
LP or any of its subsidiaries is a party or its assets are
subject; and |
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(3) provide funds for minimum quarterly distributions and
cumulative common unit arrearages for any one or more of the
next four quarters; |
provided, however, that our general partner may not
establish cash reserves pursuant to clause (b)(3)
immediately above unless our general partner has determined that
the establishment of reserves will not prevent us from
distributing the minimum quarterly distribution on all common
units and any cumulative common unit arrearages thereon for that
quarter; and provided, further, that disbursements made
by us or any of our 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 our general partner so determines.
Bbls: Barrels.
Btu: British Thermal Units.
capital account: The capital account maintained
for a partner under the partnership agreement. The capital
account of a partner for a common unit, a Class B unit, a
subordinated unit, an incentive distribution right or any other
partnership interest will be the amount which that capital
account would be if that common unit, a Class B unit,
subordinated unit, incentive distribution right or other
partnership interest were the only interest in
DCP Midstream Partners, LP held by a partner.
B-1
capital surplus: All available cash distributed by
us on any date from any source will be treated as distributed
from operating surplus until the sum of all available cash
distributed since the closing of the initial public offering
equals the operating surplus from the closing of the initial
public offering through the end of the quarter immediately
preceding that distribution. Any excess available cash
distributed by us on that date will be deemed to be capital
surplus.
closing price: The last sale price on a day,
regular way, or in case no sale takes place on that day, the
average of the closing bid and asked prices on that day, regular
way, in either case, as reported in the principal consolidated
transaction reporting system for securities listed or admitted
to trading on the principal national securities exchange on
which the units of that class are listed or admitted to trading.
If the units of that class are not listed or admitted to trading
on any national securities exchange, the last quoted price on
that day. If no quoted price exists, the average of the high bid
and low asked prices on that day in the over-the-counter market,
as reported by the New York Stock Exchange or any other system
then in use. If on any day the units of that class are not
quoted by any organization of that type, the average of the
closing bid and asked prices on that day as furnished by a
professional market maker making a market in the units of the
class selected by the our board of directors. If on that day no
market maker is making a market in the units of that class, the
fair value of the units on that day as determined reasonably and
in good faith by our board of directors.
condensate: Similar to crude oil and produced in
association with natural gas gathering and processing.
cumulative 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.
current market price: For any class of units
listed or admitted to trading on any national securities
exchange as of any date, the average of the daily closing prices
for the 20 consecutive trading days immediately prior to that
date.
interim capital transactions: The following
transactions if they occur prior to liquidation:
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(a) |
borrowings, refinancings or refundings of indebtedness and sales
of debt securities (other than for items purchased on open
account in the ordinary course of business) by DCP Midstream
Partners, LP or any of its subsidiaries; |
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(b) |
sales of equity interests by DCP Midstream Partners, LP or any
of its subsidiaries; |
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(c) |
sales or other voluntary or involuntary dispositions of any
assets of DCP Midstream Partners, LP or any of its subsidiaries
(other than sales or other dispositions of inventory, accounts
receivable and other assets in the ordinary course of business,
and sales or other dispositions of assets as a part of normal
retirements or replacements); |
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(d) |
the termination of interest rate swap agreements; |
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(e) |
capital contributions; and |
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(f) |
corporate reorganizations or restructurings. |
MMBbls: One million barrels.
MMBtu: One million British Thermal Units.
MMcf: One million cubic feet of natural gas.
MBbls/d: One thousand barrels per day.
MMBtu/d: One million British Thermal Units per day.
MMcf/d: One million cubic feet per day.
NGLs: Natural gas liquids which consist primarily
of ethane, propane, isobutane, normal butane and natural
gasoline.
B-2
operating expenditures: All of our expenditures
and expenditures of our subsidiaries, including, but not limited
to, taxes, reimbursements of our general partner, non-pro rata
repurchase of units, interest payments and maintenance capital
expenditures, subject to the following:
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(a) |
Payments (including prepayments) of principal of and premium on
indebtedness will not constitute operating expenditures. |
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(b) |
Operating expenditures will not include: |
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(1) |
expansion capital expenditures; |
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(2) |
payment of transaction expenses relating to interim capital
transactions; or |
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(3) |
distributions to unitholders. |
Where capital expenditures consist of both maintenance capital
expenditures and expansion capital expenditures, the general
partner, with the concurrence of the conflicts committee, shall
determine the allocation between the amounts paid for each.
operating surplus: For any period prior to
liquidation, on a cumulative basis and without duplication:
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(1) |
all cash receipts of DCP Midstream Partners, LP and our
subsidiaries for the period beginning on the closing date of our
initial public offering and ending with the last day of that
period, other than cash receipts from interim capital
transactions; and |
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(2) |
an amount equal to four times the amount needed for any one
quarter for us to pay a distribution on all units (including
general partner units) and incentive distribution rights at the
same per-unit amount as was distributed in the immediately
preceding quarter; less |
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(1) |
operating expenditures for the period beginning on the closing
date of our initial public offering and ending with the last day
of that period; and |
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(2) |
the amount of cash reserves that is established by our general
partner to provide funds for future operating expenditures;
provided however, that disbursements made (including
contributions to DCP Midstream Partners, LP or our subsidiaries
or disbursements on behalf of DCP Midstream Partners, LP or our
subsidiaries) or cash reserves established, increased or reduced
after the end of that period but on or before the date of
determination of available cash for that period shall be deemed
to have been made, established, increased or reduced for
purposes of determining operating surplus, within that period if
our general partner so determines. |
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residue gas: The pipeline quality natural gas
remaining after natural gas is processed.
subordination period: The subordination period
will extend from the closing of the initial public offering
until the first to occur of:
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(a) |
the first day of any quarter beginning after December 31,
2010 for which: |
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(1) |
distributions of available cash from operating surplus on each
of the outstanding common units and subordinated units equaled
or exceeded the sum of the minimum quarterly distributions on
all of the outstanding common units and subordinated units for
each of the three consecutive, non-overlapping four-quarter
periods immediately preceding that date; |
B-3
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(2) |
the adjusted operating surplus generated during each of the
three consecutive, non-overlapping four quarter periods,
immediately preceding that date equaled or exceeded the sum of
the minimum quarterly distributions on all of the common units
and subordinated units that were outstanding during those
periods on a fully diluted basis; and |
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(3) |
there are no outstanding cumulative common units arrearages. |
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(b) |
the date on which the general partner is removed as our general
partner upon the requisite vote by the limited partners under
circumstances where cause does not exist and units held by our
general partner and its affiliates are not voted in favor of the
removal. |
throughput: The volume of natural gas or NGLs
transported or passing through a pipeline, plant, terminal or
other facility in an economically meaningful period of time.
B-4
9,000,000 Common Units
Representing Limited Partner Interests
PROSPECTUS
,
2005
Lehman
Brothers
Citigroup
UBS Investment
Bank
Wachovia
Securities
A.G. Edwards
KeyBanc Capital
Markets
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
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Item 13. |
Other Expenses of Issuance and Distribution. |
Set forth below are the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered
hereby. With the exception of the Securities and Exchange
Commission registration fee, the NASD filing fee, the amounts
set forth below are estimates.
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SEC registration fee
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$ |
25,583 |
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NASD filing fee
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22,235 |
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New York Stock Exchange listing fee
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150,000 |
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Printing and engraving expenses
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550,000 |
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Fees and expenses of legal counsel
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1,300,000 |
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Accounting fees and expenses
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2,300,000 |
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Transfer agent and registrar fees
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5,000 |
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Miscellaneous
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5,000 |
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Total
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$ |
4,357,818 |
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Item 14. |
Indemnification of Officers and Members of Our Board of
Directors. |
The section of the prospectus entitled The Partnership
Agreement Indemnification discloses that we
will generally indemnify officers, directors and affiliates of
the general partner to the fullest extent permitted by the law
against all losses, claims, damages or similar events and is
incorporated herein by this reference. Reference is also made to
Section Eight of the Underwriting Agreement filed as an exhibit
to this registration statement in which DCP Midstream Partners,
LP and certain of its affiliates will agree to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, and to contribute
to payments that may be required to be made in respect of these
liabilities. Subject to any terms, conditions or restrictions
set forth in the partnership agreement, Section 17-108 of
the Delaware Revised Uniform Limited Partnership Act empowers a
Delaware limited partnership to indemnify and hold harmless any
partner or other persons from and against all claims and demands
whatsoever.
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Item 15. |
Recent Sales of Unregistered Securities. |
On August 5, 2005, in connection with the formation of DCP
Midstream Partners, LP (the Partnership), the
Partnership issued to (i) DCP Midstream GP, LP the 2%
general partner interest in the Partnership for $40 and
(ii) Duke Energy Field Services, LLC the 98% limited
partner interest in the Partnership for $1,960. The issuance was
exempt from registration under Section 4(2) of the
Securities Act. There have been no other sales of unregistered
securities within the past three years.
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Item 16. |
Exhibits and Financial Statement Schedules. |
The following documents are filed as exhibits to this
registration statement:
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Exhibit |
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Number |
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Description |
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1 |
.1 |
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Form of Underwriting Agreement |
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3 |
.1* |
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Certificate of Limited Partnership of DCP Midstream Partners, LP |
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3 |
.2 |
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Form of Amended and Restated Limited Partnership Agreement of
DCP Midstream Partners, LP (included as Appendix A to
the Prospectus and including specimen unit certificate for the
common units) |
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3 |
.3* |
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Certificate of Limited Partnership of DCP Midstream GP, LP |
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3 |
.4 |
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Form of First Amended and Restated Limited Partnership Agreement
of DCP Midstream GP, LP |
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3 |
.5 |
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Certificate of Formation of DCP Midstream GP, LLC |
II-1
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Exhibit |
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Number |
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Description |
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3 |
.6 |
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Form of Amended and Restated Limited Liability Agreement of DCP
Midstream GP, LLC |
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5 |
.1 |
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Opinion of Vinson & Elkins L.L.P. as to the legality of
the securities being registered |
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8 |
.1 |
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Opinion of Vinson & Elkins L.L.P. relating to tax
matters |
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10 |
.1 |
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Form of Credit Agreement |
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10 |
.2 |
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Form of DCP Midstream Partners, LP Long-Term Incentive Plan |
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10 |
.3 |
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Form of Contribution, Conveyance and Assumption Agreement |
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10 |
.4 |
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Form of Omnibus Agreement |
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10 |
.5 |
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Natural Gas Gathering Agreement dated June 1, 1987, as
amended, between DEFS Asset Holding, LP, successor to the
interest of Cornerstone Natural Gas Company and Conoco Phillips,
successor to the interest of Phillips Petroleum Company |
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21 |
.1 |
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List of Subsidiaries of DCP Midstream Partners, LP |
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23 |
.1 |
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Consent of Deloitte & Touche LLP |
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23 |
.2 |
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Consent of Deloitte & Touche LLP |
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23 |
.3 |
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Consent of Deloitte & Touche LLP |
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23 |
.4 |
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Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1) |
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23 |
.5 |
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Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1) |
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24 |
.1* |
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Powers of Attorney (contained on the signature page) |
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99 |
.1 |
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Consent of Nominee for Director |
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99 |
.2 |
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Consent of Nominee for Director |
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99 |
.3 |
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Consent of Nominee for Director |
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99 |
.4 |
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Consent of Nominee for Director |
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Portions of this exhibit have been omitted pursuant to a request
for confidential treatment. |
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(b) |
Financial Statement Schedules. |
DCP MIDSTREAM PARTNERS PREDECESSOR
SCHEDULE II COMBINED VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES
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Charged to | |
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Credit to |
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Balance at | |
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Combined | |
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Combined |
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Beginning of | |
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Statements of | |
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Deductions/ | |
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Statements of |
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Balance at End | |
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Period | |
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Operations | |
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Other | |
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Operations |
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of Period | |
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($ in millions) | |
September 30, 2005
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Allowance for doubtful accounts
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$ |
0.2 |
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$ |
0.1 |
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$ |
(0.1 |
) |
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$ |
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$ |
0.2 |
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Environmental
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|
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
Other (a)
|
|
|
1.3 |
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.5 |
|
|
$ |
0.3 |
|
|
$ |
(1.2 |
) |
|
$ |
|
|
|
$ |
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.2 |
|
|
Environmental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (a)
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
II-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to | |
|
|
|
Credit to | |
|
|
|
|
Balance at | |
|
Combined | |
|
|
|
Combined | |
|
|
|
|
Beginning of | |
|
Statements of | |
|
Deductions/ | |
|
Statements of | |
|
Balance at End | |
|
|
Period | |
|
Operations | |
|
Other | |
|
Operations | |
|
of Period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ in millions) | |
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
0.2 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.2 |
|
|
Environmental
|
|
|
|
|
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
Other (a)
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.2 |
|
|
$ |
1.4 |
|
|
$ |
(0.1 |
) |
|
$ |
|
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$ |
0.6 |
|
|
$ |
|
|
|
$ |
(0.3 |
) |
|
$ |
(0.1 |
) |
|
$ |
0.2 |
|
|
Environmental
|
|
|
0.1 |
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.7 |
|
|
$ |
|
|
|
$ |
(0.4 |
) |
|
$ |
(0.1 |
) |
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Principally consists of other contingency liabilities which are
included in Other current liabilities. |
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective. |
|
|
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. |
The registrant undertakes to send to each limited partner at
least on an annual basis a detailed statement of any
transactions with DCP Midstream GP, LP or its affiliates, and of
fees, commissions, compensation and other benefits paid, or
accrued to DCP Midstream GP, LP or its affiliates for the fiscal
year completed, showing the amount paid or accrued to each
recipient and the services performed.
The registrant undertakes to provide to the limited partners the
financial statements required by Form 10-K for the first
full fiscal year of operations of the partnership.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver, State of
Colorado, on November 17, 2005.
|
|
|
DCP Midstream Partners, LP |
|
|
|
|
By: |
DCP Midstream GP, LLC |
|
|
|
|
By: |
/s/ Michael J. Bradley |
|
|
|
|
|
Name: Michael J. Bradley |
|
Title: President and Chief
Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
|
/s/ Michael J. Bradley
Michael
J. Bradley
President and Chief Executive Officer |
|
Chief Executive Officer
(Principal Executive Officer) |
|
November 17, 2005 |
|
*
Thomas
E. Long
Vice President and Chief Financial Officer |
|
Chief Financial Officer
(Principal Financial Officer) |
|
November 17, 2005 |
|
*
Patrick
J. Welch
Vice President and Controller |
|
Controller
(Principal Accounting Officer) |
|
November 17, 2005 |
|
*
Jim
W. Mogg |
|
Director |
|
November 17, 2005 |
|
*By |
|
/s/ Michael J. Bradley
Michael
J. Bradley
Attorney-in-Fact |
|
|
|
|
II-4
INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description |
|
|
|
|
|
|
1 |
.1 |
|
|
|
Form of Underwriting Agreement |
|
3 |
.1* |
|
|
|
Certificate of Limited Partnership of DCP Midstream
Partners, LP |
|
3 |
.2 |
|
|
|
Form of Amended and Restated Limited Partnership Agreement of
DCP Midstream Partners, LP (included as Appendix A to
the Prospectus and including specimen unit certificate for the
common units) |
|
3 |
.3* |
|
|
|
Certificate of Limited Partnership of DCP Midstream GP, LP |
|
3 |
.4 |
|
|
|
Form of First Amended and Restated Limited Partnership Agreement
of DCP Midstream GP, LP |
|
3 |
.5 |
|
|
|
Certificate of Formation of DCP Midstream GP, LLC |
|
3 |
.6 |
|
|
|
Form of Amended and Restated Limited Liability Agreement of DCP
Midstream GP, LLC |
|
5 |
.1 |
|
|
|
Opinion of Vinson & Elkins L.L.P. as to the legality of the
securities being registered |
|
8 |
.1 |
|
|
|
Opinion of Vinson & Elkins L.L.P. relating to tax matters |
|
10 |
.1 |
|
|
|
Form of Credit Agreement |
|
10 |
.2 |
|
|
|
Form of DCP Midstream Partners, LP Long-Term Incentive Plan |
|
10 |
.3 |
|
|
|
Form of Contribution, Conveyance and Assumption Agreement |
|
10 |
.4 |
|
|
|
Form of Omnibus Agreement |
|
10 |
.5 |
|
|
|
Natural Gas Gathering Agreement dated June 1, 1987, as
amended, between DEFS Asset Holding, LP, successor to the
interest of Cornerstone Natural Gas Company and Conoco Phillips,
successor to the interest of Phillips Petroleum Company |
|
21 |
.1 |
|
|
|
List of Subsidiaries of DCP Midstream Partners, LP |
|
23 |
.1 |
|
|
|
Consent of Deloitte & Touche LLP |
|
23 |
.2 |
|
|
|
Consent of Deloitte & Touche LLP |
|
23 |
.3 |
|
|
|
Consent of Deloitte & Touche LLP |
|
23 |
.4 |
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1) |
|
23 |
.5 |
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1) |
|
24 |
.1* |
|
|
|
Powers of Attorney (contained on the signature page) |
|
99 |
.1 |
|
|
|
Consent of Nominee for Director |
|
99 |
.2 |
|
|
|
Consent of Nominee for Director |
|
99 |
.3 |
|
|
|
Consent of Nominee for Director |
|
99 |
.4 |
|
|
|
Consent of Nominee for Director |
|
|
|
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment. |
exv1w1
Exhibit 1.1
9,000,000 Common Units
DCP MIDSTREAM PARTNERS, LP
Representing Limited Partner Interests
UNDERWRITING AGREEMENT
, 2005
Lehman Brothers Inc.
Citigroup Global Markets Inc.
As Representatives of the several
Underwriters named in Schedule 1 hereto
c/o Lehman Brothers Inc.
745 Seventh Avenue
New York, New York 10019
Ladies and Gentlemen:
DCP Midstream Partners, LP, a Delaware limited partnership (the Partnership), proposes to
sell 9,000,000 common units (the Firm Units), each representing a limited partner interest in the
Partnership (the Common Units). In addition, the Partnership proposes to grant to the
Underwriters named in Schedule 1 hereto (the Underwriters) an option to purchase up to an
additional 1,350,000 Common Units on the terms and for the purposes set forth in Section 2 (the
Option Units). The Firm Units and the Option Units, if purchased, are hereinafter collectively
called the Units. This is to confirm the agreement with you (the Representatives) and the
other several Underwriters on whose behalf you are acting concerning the purchase of the Units from
the Partnership by the Underwriters.
It is understood and agreed to by all parties that the Partnership was formed to own, operate,
acquire and develop a diversified portfolio of complementary midstream energy assets that
historically have been owned and operated directly or indirectly by Duke Energy Field Services,
LLC, a Delaware limited liability company (DEFS), as described more particularly in the
Prospectus (as defined in Section 1(a) hereof). It is further understood and agreed to by all
parties that at the time of each Delivery Date (as defined in Section 4 hereof), (i) DCP Midstream
GP, LP, a Delaware limited partnership (the General Partner), will be the sole general partner of
the Partnership, (ii) DCP Midstream GP, LLC, a Delaware limited liability company and direct wholly
owned subsidiary of DEFS (DCP Midstream GP, LLC), will be the sole general partner of the General
Partner and DEFS will be the sole limited partner of the General Partner, (iii) the Partnership
will operate its business through DCP Midstream Operating, LP, a Delaware limited partnership (the
Operating Partnership), (iv) DCP Midstream Operating, LLC, a Delaware limited liability company
and direct wholly owned subsidiary of the Partnership (the OLP GP), will be the sole general
partner of the Operating Partnership and the Partnership will be the sole limited partner of the
Operating Partnership, and
(v) each of the entities listed on Schedule 2 hereto (collectively, the Operating
Subsidiaries and each individually an Operating Subsidiary) will be wholly owned, directly or
indirectly, by the Operating Partnership (except as otherwise indicated on Schedule 2 hereto).
DEFS, the Partnership, the General Partner, DCP Midstream GP, LLC and the Operating Partnership are
hereinafter collectively referred to as the DCP Parties. The Partnership, the General Partner,
DCP Midstream GP, LLC, the Operating Partnership, the OLP GP and the Operating Subsidiaries are
herein collectively referred to as the Partnership Entities.
Furthermore, as of the date hereof:
(a) DEFS, either directly or indirectly through one or more wholly owned subsidiaries, owns
all of the outstanding partnership interests in DCP Assets Holdings, LP, a Delaware limited
partnership (DCP Assets Holdings);
(b) DCP Assets Holdings owns (i) all of the outstanding capital stock or member interests, as
applicable, of Associated Louisiana Intrastate Pipe Line, LLC, a Delaware limited liability company
(Associated), Duke Energy Intrastate Pipeline, LLC, a Delaware limited liability company
(Intrastate), and PanEnergy Louisiana Intrastate LLC, a Delaware limited liability company
(PanEnergy), and (ii) certain assets relating to the Minden natural gas processing plant and
gathering system (collectively, Minden), the Ada natural gas processing plant and gathering
system (collectively, Ada), the PanEnergy Louisiana Intrastate pipeline system (PELICO), and
the Seabreeze natural gas liquids pipeline;
(c) Associated owns certain assets relating to Minden;
(d) Intrastate owns certain assets relating to Minden;
(e) PanEnergy owns certain assets relating to PELICO;
(f) DEFS indirectly owns all of the outstanding partnership interests in Duke Energy NGL
Services, LP, a Delaware limited partnership (DENGL);
(g) DENGL owns a 50% equity interest in Black Lake Pipe Line Company, a Texas general
partnership (Black Lake) and directly owns all of the outstanding membership interest in DCP
Black Lake Holdings, LLC, a Delaware limited liability company (Black Lake Holding).
Furthermore, on or prior to the First Delivery Date (as defined below), DEFS, the General
Partner, the Partnership, the Operating Partnership and certain other parties will enter into a
Contribution and Conveyance Agreement (the Contribution Agreement) pursuant to which the
following transactions will occur as set forth in the Contribution Agreement:
(a) DCP Assets Holdings will distribute to DEFS the stock and member interests in certain
subsidiaries of DCP Assets Holdings that are not intended to be contributed to the Partnership;
(b) DCP Assets Holdings and all remaining subsidiaries of DCP Assets Holdings will distribute
all their cash and accounts receivable to DEFS;
2
(c) DEFS
Holdings 2, LLC, a Delaware limited liability company (DEFS Holdings 2), will
convey its 0.5% general partner interest in DCP Assets Holdings to DCP Assets Holdings GP, LLC, a
Delaware limited liability company (DCP Assets Holdings GP), as a capital contribution.
(d) DENGL will convey a 45% partnership interest in Black Lake to Black Lake Holding.
(e) DENGL will distribute its member interest in Black Lake Holding to DEFS Holdings 1, LLC, a
Delaware limited liability company (DEFS Holdings 1), and DEFS Holdings 2, on a pro rata basis
based on their respective ownership interests in DENGL (99.5% and 0.5% for DEFS Holdings 1 and DEFS
Holdings 2, respectively); and DEFS Holdings 1 will distribute all of its interest in Black Lake
Holding to DEFS; and DEFS and DEFS Holdings 2 will convey all of their respective interests in
Black Lake Holding to DCP Assets Holdings as a capital contribution.
(f) DEFS will convey a limited partner interest in DCP Assets Holdings (the
Interest) plus the amount of any cash distributed to the General Partner by the
Partnership as a capital contribution (of which 0.001% of such contribution will be made to DEFS on
behalf of DCP Midstream GP, LLC).
(g) DEFS will convey its remaining limited partner interest in DCP Assets Holdings to DCP LP
Holdings, LP, a Delaware limited partnership (DCP LP Holdings), as a capital contribution.
(h) DEFS Holdings 2 will convey its membership interests in DCP Assets Holdings GP to DCP LP
Holdings as a capital contribution and in exchange for a limited partner interest in DCP LP
Holdings.
(i) The General Partner will contribute the Interest to the Partnership in exchange for (i)
357,143 general partner units representing a continuation of its 2% general partner interest in the
Partnership, (ii) the Incentive Distribution Rights (as defined in the Partnership Agreement (as
defined herein)) (the Incentive Distribution Rights), (iii) the right to receive $[8.4] million
to reimburse the General Partner for certain capital expenditures, and (iv) the right to receive
$[171.0] million from the net proceeds of borrowings under the Credit Agreement (as defined below);
(j) DCP LP Holdings will contribute to the Partnership all of (i) its limited partner interest
in DCP Assets Holdings and (ii) all of its member interest in DCP Assets Holdings GP in exchange
for (x) 1,357,143 Common Units, (y) 7,142,857 subordinated units (the Subordinated Units), and
(z) the right to receive $[8.4] million to reimburse it for certain capital expenditures;
(k) The public, through the Underwriters, will contribute $ million in cash to the
Partnership, less the Underwriters discount of $ million, in exchange for 9,000,000
Common Units; and
3
(l) The Partnership will (i) pay transaction expenses, estimated to be $[4.7] million, (ii)
distribute $[8.4] million to the General Partner to reimburse it for certain capital expenditures,
(iii) distribute $[62.5] million to DCP LP Holdings to reimburse it for certain capital
expenditures, (iv) contribute $[62.5] million in the aggregate to DCP Assets Holdings (.001% on
behalf of DCP Assets Holdings GP) to replenish working capital, and (v) contribute $[95.0] million
in cash and its interests in DCP Assets Holdings GP and DCP Assets Holdings to the Operating
Partnership as a capital contribution (.001% on behalf of the OLP GP).
The transactions described directly above in clauses (a)-(l) of the immediately preceding
paragraph or otherwise provided for in the Contribution Documents (as defined below) are referred
to collectively as the Transactions. In connection with the Transactions, the parties to the
Transactions entered or will enter into various bills of sale, assignments, conveyances,
contribution agreements and related documents (collectively, with the Contribution Agreement, the
Contribution Documents).
In addition, on or before the First Delivery Date, the Operating Partnership and ___________will
have entered into a Credit Agreement, dated as of ___________, 2005, and related financing documents
(collectively, the Credit Agreement) providing for a $400 million credit facility consisting of
up to a $175 million term loan facility and up to a $250 million revolving credit facility.
1. Representations, Warranties and Agreements of the DCP Parties. Each of the DCP Parties,
jointly and severally, represents, warrants and agrees that:
(a) Definitions; No Stop Order. A registration statement on Form S-1 (File No.
333-128378) with respect to the Units has (i) been prepared by the Partnership in conformity
with the requirements of the Securities Act of 1933, as amended (the Securities Act), and
the rules and regulations (the Rules and Regulations) of the Securities and Exchange
Commission (the Commission) thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies of such
registration statement and each of the amendments thereto have been delivered by the
Partnership to you. As used in this Agreement, Effective Time means the date and the time
as of which such registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission; Effective Date means the date
of the Effective Time; Preliminary Prospectus means each prospectus included in such
registration statement, or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the Partnership with the
consent of the Representatives pursuant to Rule 424(a) of the Rules and Regulations;
Registration Statement means such registration statement, as amended at the Effective
Time, including all information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations and deemed to be a part of the
registration statement as of the Effective Time pursuant to Rule 430A of the Rules and
Regulations; and Prospectus means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. If
the Partnership has filed an abbreviated registration statement to register additional
Common Units pursuant to Rule 462(b) under the Rules and Regulations (the
4
Rule 462 Registration Statement), then any reference herein to the term Registration
Statement shall be deemed to include such Rule 462 Registration Statement. The Commission
has not issued any order preventing or suspending the use of any Preliminary Prospectus or
Prospectus or suspending the effectiveness of the Registration Statement, and no proceeding
for such purpose has been instituted or, to the knowledge of DCP Parties, threatened by the
Commission.
(b) No Material Misstatements or Omissions. The Registration Statement conforms, and
the Prospectus and any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the Commission and on the
applicable Delivery Date, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not and will not, as
of the applicable Effective Date (as to the Registration Statement and any amendment
thereto) and as of the applicable filing date and as of the applicable Delivery Date (as to
the Prospectus and any amendment or supplement thereto) contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (in the case of the Prospectus, in light of the
circumstances under which the statements were made); and each of the statements made by the
Partnership in the Registration Statement, and to be made in the Prospectus and any further
amendments or supplements to the Registration Statement or Prospectus within the coverage of
Rule 175(b) of the rules and regulations under the Act, including (but not limited to) any
statements with respect to projected results of operations, estimated available cash, and
future cash distributions of the Partnership, and any statements made in support thereof or
related thereto under the heading Our Cash Distribution Policy and Restrictions on
Distributions or the anticipated ratio of taxable income to distributions was made or will
be made with a reasonable basis and in good faith. Notwithstanding the foregoing, no
representation or warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in conformity with information
furnished to the Partnership in writing by or on behalf of any Underwriter through the
Representatives expressly for inclusion therein, which information consists solely of the
information specified in Section 8(e).
(c) Formation and Qualification of DEFS, the Partnership, the General Partner, the
Operating Partnership, DCP Midstream GP, LLC, the OLP GP and the Operating Subsidiaries.
DEFS has been duly formed and is validly existing in good standing as a limited liability
company under the laws of the State of Delaware with full limited liability company power
and authority necessary to enter into and perform its obligations under this Agreement.
Each of the Partnership, the General Partner, the Operating Partnership, DCP Midstream GP,
LLC and the OLP GP, and each of the Operating Subsidiaries has been duly formed or
incorporated and is validly existing in good standing as a limited partnership, limited
liability company or corporation under the laws of the State of Delaware with full
partnership, limited liability company or corporate power and authority, as the case may be,
necessary to own or lease its properties currently owned or leased or to be owned or leased
at each Delivery Date, to assume the liabilities assumed or to be assumed by it pursuant to
the Contribution Documents and to conduct its business as currently conducted or to be
conducted at each Delivery Date, in
5
each case in all material respects as described in the Registration Statement and the
Prospectus, and each of them is, or at each Delivery Date will be, duly registered or
qualified to do business and is in good standing as a foreign limited partnership, limited
liability company or corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its businesses requires such registration or qualification,
except where the failure so to register or qualify would not, individually or in the
aggregate, (i) have a material adverse effect on the condition (financial or otherwise),
partners equity, stockholders equity, members equity, results of operations, properties,
business or prospects of the Partnership Entities taken as a whole (a Material Adverse
Effect) or (ii) subject the limited partners of the Partnership to any material liability
or disability.
(d) Power and Authority to Act as a General Partner. The General Partner has, and as
of each Delivery Date will have, full limited partnership power and authority to act as
general partner of the Partnership in all material respects as described in the Registration
Statement and Prospectus. DCP Midstream GP, LLC has, and as of each Delivery Date will
have, full limited liability company power and authority to act as general partner of the
General Partner in all material respects as described in the Registration Statement and
Prospectus.
(e) Ownership of the General Partner Interest in the Partnership. At each Delivery
Date, after giving effect to the Transactions, the General Partner will be the sole general
partner of the Partnership and, at the First Delivery Date, will have a 2.0% general partner
interest in the Partnership; such general partner interest will be duly authorized and
validly issued in accordance with the partnership agreement of the Partnership (as the same
may be amended or restated at or prior to each Delivery Date, the Partnership Agreement);
and the General Partner will own such general partner interest free and clear of all liens,
encumbrances, security interests, charges and other claims (collectively, Liens) (except
restrictions on transferability as described in the Prospectus or the Partnership
Agreement).
(f) Ownership of the Sponsor Units and the Incentive Distribution Rights. Assuming no
purchase by the Underwriters of Option Units on the First Delivery Date, at the First
Delivery Date, after giving effect to the Transactions, DCP LP Holdings will own 1,357,143
Common Units and 7,142,857 Subordinated Units (collectively, the Sponsor Units), and the
General Partner will own 100% of the Incentive Distribution Rights. All of such Sponsor
Units and Incentive Distribution Rights and the limited partner interests represented
thereby will be duly authorized and validly issued in accordance with the Partnership
Agreement, and will be fully paid (to the extent required under the Partnership Agreement)
and nonassessable (except as such nonassessability may be affected by matters described in
the Prospectus under the caption The Partnership AgreementLimited Liability); and DCP LP
Holdings will own such Sponsor Units, and the General Partner will own such Incentive
Distribution Rights, free and clear of all Liens except restrictions on transferability
described in the Prospectus or contained in the Partnership Agreement.
(g) Valid Issuance of the Units. At the First Delivery Date, there will be issued to
the Underwriters the Firm Units (assuming no purchase by the Underwriters
6
of Option Units on the First Delivery Date); at the First Delivery Date or the Second
Delivery Date (as defined in Section 4 hereof), as the case may be, the Firm Units and the
Option Units, as the case may be, and the limited partner interests represented thereby,
will be duly and validly authorized by the Partnership Agreement and, when issued and
delivered against payment therefor in accordance with this Agreement, will be duly and
validly issued, fully paid (to the extent required under the Partnership Agreement) and
non-assessable (except as such nonassessability may be affected by matters described in the
Prospectus under the caption The Partnership AgreementLimited Liability). Other than
the Sponsor Units and the Incentive Distribution Rights, the Units will be the only limited
partner interests of the Partnership issued and outstanding at each Delivery Date.
(h) Ownership of the General Partner. At each Delivery Date, after giving effect to
the Transactions, DCP Midstream GP, LLC will be the sole general partner of the General
Partner and DEFS will be the sole limited partner of the General Partner; such partnership
interests will be duly authorized and validly issued in accordance with the partnership
agreement of the General Partner (as the same may be amended or restated at or prior to each
Delivery Date, the GP Partnership Agreement) and, with respect to DCP LP Holdings limited
partnership interest in the General Partner, will be fully paid (to the extent required
under the GP Partnership Agreement) and nonassessable (except as such nonassessability may
be affected by Section 17-607 of the Delaware Revised Uniform Limited Partnership Act (the
Delaware LP Act)); and DCP Midstream GP, LLC and DEFS shall each own their respective
partnership interests free and clear of all Liens (except restrictions on transferability as
described in the Prospectus or contained in the GP Partnership Agreement).
(i) Ownership of DCP Midstream GP, LLC. DEFS is the sole member of DCP Midstream GP,
LLC with a 100% membership interest in DCP Midstream GP, LLC; such membership interest has
been duly authorized and validly issued in accordance with the limited liability company
agreement of DCP Midstream GP, LLC (as the same may be amended or restated at or prior to
each Delivery Date, the DCP Midstream GP, LLC Limited Liability Company Agreement) and is
fully paid (to the extent required by the DCP Midstream GP, LLC Limited Liability Company
Agreement) and nonassessable (except as such nonassessability may be affected by Section
18-607 of the Delaware Limited Liability Company Act (the Delaware LLC Act)); and DEFS
owns such member interest free and clear of all Liens (except restrictions on
transferability contained in the DCP Midstream GP, LLC Limited Liability Company Agreement).
(j) Ownership of the OLP GP. The Partnership is the sole member of the OLP GP with a
100% membership interest in the OLP GP; such membership interest has been duly authorized
and validly issued in accordance with the limited liability company agreement of the OLP GP
(as the same may be amended or restated at or prior to each Delivery Date, the OLP GP
Limited Liability Company Agreement) and is fully paid (to the extent required by the OLP
GP Limited Liability Company Agreement) and nonassessable (except as such nonassessability
may be affected by Section 18-607 of
7
the Delaware LLC Act); and the Partnership owns such member interest free and clear of
all Liens (except for restrictions on transferability contained in the OLP GP Limited
Liability Company Agreement).
(k) Ownership of the Operating Partnership. At each Delivery Date, after giving effect
to the Transactions, the OLP GP will be the sole general partner of the Operating
Partnership and the Partnership will be the sole limited partner of the Operating
Partnership; such partnership interests will be duly authorized and validly issued in
accordance with the partnership agreement of the Operating Partnership (as the same may be
amended or restated at or prior to each Delivery Date, the OLP Partnership Agreement) and,
with respect to the Partnerships limited partner interest in the Operating Partnership,
will be fully paid (to the extent required under the OLP Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by Section 17-607 of the
Delaware LP Act); and the OLP GP and the Partnership shall each own their respective
partnership interests free and clear of all Liens (except restrictions on transferability as
described in the Prospectus or the OLP Partnership Agreement and Liens created pursuant to
the Credit Agreement).
(l) Ownership of the Operating Subsidiaries. At each Delivery Date, after giving
effect to the Transactions, the Operating Partnership will directly or indirectly own 100%
of the outstanding capital stock, membership interests or partnership interests, as the case
may be, of each of the Operating Subsidiaries other than Black Lake; all such stock,
membership interests or partnership interests, will be duly authorized and validly issued in
accordance with the certificate of incorporation and bylaws, certificate of formation and
limited liability company agreement or certificate of limited partnership and partnership
agreement of each Operating Subsidiary, as the case may be (collectively, the Operating
Subsidiaries Operative Documents and, as to each individual Operating Subsidiary, the
Operating Subsidiary Operative Document) and will be fully paid (to the extent required in
the applicable Operating Subsidiaries Operative Documents) and nonassessable (except as such
nonassessability may be affected by Section 18-607 of the Delaware LLC Act or Section 17-607
of the Delaware LP Act, as the case may be); at each Delivery Date, after giving effect to
the Transactions, the Operating Partnership will directly or indirectly own 45% of the
partnership interests of Black Lake; and the owners of the Operating Subsidiaries will own
all such stock, membership interests or partnership interests listed on Schedule 2 free and
clear of all Liens, except for Liens created pursuant to the Credit Agreement.
(m) No Other Subsidiaries. Other than its ownership of its 2.0% general partner
interest in the Partnership and the Incentive Distribution Rights, the General Partner does
not own, and at each Delivery Date will not own, directly or indirectly, any equity or
long-term debt securities of any corporation, partnership, limited liability company, joint
venture, association or other entity. Other than (i) the Partnerships ownership of a
99.999% limited partnership interest in the Operating Partnership and a 100% membership
interest in the OLP GP, (ii) the Operating Partnerships 100% direct or indirect ownership
of the outstanding capital stock membership interest or partnership interest in each
Operating Subsidiary other than Black Lake, and (iii) the Operating Partnerships direct or
indirect ownership of a 45% interest
8
in Black Lake, neither the Partnership nor the Operating Partnership owns, and at each
Delivery Date, neither will own, directly or indirectly, any equity or long-term debt
securities of any corporation, partnership, limited liability company, joint venture,
association or other entity.
(n) No Preemptive Rights, Registration Rights or Options. Except as described in the
Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of any equity securities of, any of the
Partnership Entities. Neither the filing of the Registration Statement nor the offering or
sale of the Units as contemplated by this Agreement gives rise to any rights for or relating
to the registration of any Units or other securities of any of the Partnership Entities
other than as provided in the Prospectus and the Partnership Agreement or as have been
waived. Except as described in the Prospectus, there are no outstanding options or warrants
to purchase (A) any Common Units, Subordinated Units or other interests in the Partnership,
(B) any partnership interests in the General Partner or the Operating Partnership, (C) any
membership interests in DCP Midstream GP, LLC or the OLP GP, or (D) any shares of stock,
membership interests or partnership interests, as applicable, in any Operating Subsidiary.
(o) Capitalization. As of September 30, 2005, the Partnership would have had, on the
consolidated pro forma basis indicated in the Prospectus (and any amendment or supplement
thereto), a capitalization as set forth therein.
(p) Authority and Authorization. The Partnership has all requisite partnership power
and authority to issue, sell and deliver (i) the Units, in accordance with and upon the
terms and conditions set forth in this Agreement and the Partnership Agreement, and (ii) the
Sponsor Units and Incentive Distribution Rights, in accordance with and upon the terms and
conditions set forth in the Partnership Agreement and the Contribution Agreement. At each
Delivery Date, all corporate, partnership and limited liability company action, as the case
may be, required to be taken by the Partnership Entities or any of their stockholders,
members or partners for the authorization, issuance, sale and delivery of the Units, the
Sponsor Units and the Incentive Distribution Rights, the execution and delivery by the
Partnership Entities of the Operative Agreements (as defined in Section 1(r) hereof) and the
consummation of the transactions (including the Transactions) contemplated by this Agreement
and the Operative Agreements, shall have been validly taken.
(q) Authorization of this Agreement. This Agreement has been duly authorized and
validly executed and delivered by each of the DCP Parties.
(r) Enforceability of Other Agreements. At or before the First Delivery Date:
(i) the Partnership Agreement will have been duly authorized, executed and
delivered by the General Partner and the Organizational Limited Partner (as defined
in the Partnership Agreement) and will be a valid and legally binding agreement of
the General Partner and the Organizational Limited Partner,
9
enforceable against the General Partner and the Organizational Limited Partner
in accordance with its terms;
(ii) the GP Partnership Agreement will have been duly authorized, executed and
delivered by DCP Midstream GP, LLC and DEFS and will be a valid and legally binding
agreement of DCP Midstream GP, LLC and DEFS, enforceable against DCP Midstream GP,
LLC and DEFS in accordance with its terms;
(iii) the OLP Partnership Agreement will have been duly authorized, executed
and delivered by the OLP GP and the Partnership and will be a valid and legally
binding agreement of the OLP GP and the Partnership, enforceable against the
Partnership in accordance with its terms;
(iv) the DCP Midstream GP, LLC Limited Liability Company Agreement has been
duly authorized, executed and delivered by DEFS and is a valid and legally binding
agreement of DEFS, enforceable against DEFS in accordance with its terms;
(v) the OLP GP Limited Liability Company Agreement has been duly authorized,
executed and delivered by the Partnership and is a valid and legally binding
agreement of the Partnership, enforceable against the Partnership in accordance with
its terms;
(vi) each of the Operating Subsidiaries Operative Documents will have been duly
authorized, executed and delivered by the Operating Partnership and any other
necessary parties, as applicable, and will be a valid and legally binding agreement
of the respective parties, enforceable against the respective parties in accordance
with its terms;
(vii) the Omnibus Agreement will have been duly authorized, executed and
delivered by each of the General Partner, the Partnership, the Operating
Partnership, OLP GP and DEFS and will be a valid and legally binding agreement of
each of them, enforceable against each of them in accordance with its terms;
(viii) the Credit Agreement will have been duly authorized, executed and
delivered by [the Partnership Entities] and will be a valid and legally binding
agreement of [the Partnership Entities], enforceable against [the Partnership
Entities], in accordance with its terms;
(ix) the Contribution Documents will have been duly authorized, executed and
delivered by the parties thereto and will be valid and legally binding agreements of
such parties thereto, enforceable against such parties thereto in accordance with
their respective terms;
provided that, with respect to each agreement described in this Section 1(r) the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
10
transfer, reorganization, moratorium and similar laws relating to or affecting
creditors rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
provided further; that the indemnity, contribution and exoneration provisions
contained in any of such agreements may be limited by applicable laws and public
policy.
The Partnership Agreement, the GP Partnership Agreement, the OLP Partnership
Agreement, the DCP Midstream GP, LLC Limited Liability Company Agreement, the OLP GP
Limited Liability Company Agreement, and the Operating Subsidiaries Operative
Documents, in each case, as they may be amended or restated at or prior to the First
Delivery Date, the Omnibus Agreement, the Credit Agreement, and the Contribution
Documents are herein collectively referred to as the Operative Agreements.
(s) No Conflicts. None of the offering, issuance and sale by the Partnership of the
Units and the application of the net proceeds therefrom as described under Use of Proceeds
in the Prospectus, the execution, delivery and performance of this Agreement and the
Operative Agreements by the Partnership Entities, that are parties hereto and thereto, and
the consummation of the transactions contemplated hereby and thereby (including the
Transactions) (i) conflicts or will conflict with or constitutes or will constitute a
violation of the certificate of partnership or agreement of limited partnership, certificate
of formation or limited liability company agreement, certificate of incorporation or bylaws,
or other organizational documents of any of the Partnership Entities, (ii) conflicts or will
conflict with or constitutes or will constitute a breach or violation of, or a default under
(or an event which, with notice or lapse of time or both, would constitute such a default),
any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which any of the Partnership Entities is a party or by which any of them or
any of their respective properties may be bound, (iii) violates or will violate any statute,
law or regulation or any order, judgment, decree or injunction of any court or governmental
agency or body directed to any of the Partnership Entities or any of their properties in a
proceeding to which any of them or their property is or was a party, or (iv) results or will
result in the creation or imposition of any Lien upon any property or assets of any of the
Partnership Entities (other than Liens created pursuant to the Credit Agreement), which
conflicts, breaches, violations, defaults or Liens, in the case of clauses (ii), (iii) or
(iv), would have, individually or in the aggregate, a Material Adverse Effect.
(t) No Consents. Except for (i) the registration of the Units under the Securities
Act, (ii) such consents, approvals, authorizations, registrations or qualifications as may
be required under the Securities Exchange Act of 1934, as amended (the Exchange Act) and
applicable state securities laws in connection with the purchase and distribution of the
Units by the Underwriters, (iii) such consents that have been, or prior to each Delivery
Date will be, obtained, or, if not obtained, would not result in a Material Adverse Effect
and (iv) as disclosed in the Prospectus, no consent, approval, authorization or order of, or
filing or registration with, any court or governmental agency or body having jurisdiction
over the Partnership Entities or any of their respective
11
properties is required in connection with the offering, issuance and sale by the
Partnership of the Units and the application of the net proceeds therefrom as described
under Use of Proceeds in the Prospectus, the execution, delivery and performance of this
Agreement and the Operative Agreements by the Partnership Entities and the consummation of
the transactions contemplated hereby and thereby (including the Transactions).
(u) No Default. None of the Partnership Entities (i) is in violation of its
certificate or agreement of limited partnership, limited liability company agreement,
certificate of incorporation or bylaws or other organizational documents, (ii) is in
default, and no event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any term, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound or to which any of
its properties or assets is subject, or (iii) is in violation of any law, statute,
ordinance, administrative or governmental rule or regulation applicable to it or of any
order, judgment, decree or injunction of any court or governmental agency or body having
jurisdiction over it, or which default, violation or failure in the case of clause (ii) or
(iii) would, if continued, have a Material Adverse Effect, or could materially impair the
ability of any of the Partnership Entities to perform their obligations under this Agreement
or the Operative Agreements. To the knowledge of the DCP Parties, no third party to any
indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which
any of the Partnership Entities is a party or by which any of them is bound or to which any
of their properties is subject, is in default under any such agreement, which default would,
if continued, have a Material Adverse Effect.
(v) Conformity to Description of Units, Sponsor Units and Incentive Distribution
Rights. The Units, when issued and delivered in accordance with the terms of the
Partnership Agreement against payment therefor as provided herein, the Sponsor Units and the
Incentive Distribution Rights, when issued and delivered in accordance with the terms of the
Partnership Agreement, will conform in all material respects to the descriptions thereof
contained in the Prospectus.
(w) No Material Adverse Change. No Partnership Entity has sustained, since the date of
the latest audited financial statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action, order,
investigation or decree, otherwise than as set forth or contemplated in the Prospectus; and,
since such date, there has not been any material change in the capitalization or long-term
debt of any Partnership Entity or any material adverse change, or any development involving,
or which may reasonably be expected to involve, individually or in the aggregate, a
prospective material adverse change in or affecting the general affairs, properties,
management, condition (financial or otherwise), stockholders equity, partners equity,
members equity, results of operations, properties business or prospects of the Partnership
Entities, taken as a whole, otherwise than as set forth or contemplated in the Prospectus.
Since the date of the latest audited financial statements included in the Prospectus, none
of the Partnership Entities has incurred any
12
liability or obligation, direct, indirect or contingent, or entered into any
transactions, not in the ordinary course of business, that, individually or in the
aggregate, is material to the Partnership Entities, taken as a whole otherwise than as set
forth or contemplated in the Prospectus.
(x) Financial Statements. The historical financial statements (including the related
notes and supporting schedules) filed as part of the Registration Statement or included in
the Prospectus (and any amendment or supplement thereto) comply in all material respects
with the applicable requirements under the Securities Act and present fairly in all material
respects the financial condition, results of operations and cash flows of the entities
purported to be shown thereby on the basis stated therein, at the dates and for the periods
indicated, and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods involved. The summary
historical and pro forma financial and operating information set forth in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) under the caption
Summary Summary Historical and Pro Forma Financial and Operating Data and the selected
historical and pro forma financial and operating information set forth under the caption
Selected Historical and Pro Forma Financial and Operating Data is accurately presented in
all material respects and prepared on a basis consistent with the audited and unaudited
historical financial statements and pro forma financial statements, as applicable, from
which it has been derived. The pro forma financial statements of the Partnership (excluding
the table captioned DCP Midstream Partners, LP Unaudited Pro Forma Available Cash under
the caption Our Cash Distribution Policy and Restrictions on Distributions Unaudited Pro
Forma Available Cash for Year Ended December 31, 2004 and Twelve Months Ended June 30,
2005) included in the Registration Statement and Prospectus (and any amendment or
supplement thereto) (i) comply as to form in all material respects with the applicable
requirements of Regulation S-X, (ii) have been prepared in accordance with the Commissions
rules and guidelines with respect to pro forma financial statements and (iii) have been
properly computed on the bases described therein. The assumptions used in the preparation
of such pro forma financial statements are reasonable, and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to therein. The
other historical financial and statistical information and data included in the Prospectus
are, in all material respects, fairly presented.
(y) Independent Public Accountants. Deloitte & Touche LLP, who has certified or shall
certify certain financial statements of the Partnership Entities and the Partnerships
predecessor, whose report appears in the Prospectus and who has delivered the letters
referred to in Section 7(h) hereof, were the independent public accountants as required by
the Securities Act and the Rules and Regulations during the periods covered by the financial
statements on which they reported.
(z) Title to Properties. At each Delivery Date, the Operating Partnership and the
Operating Subsidiaries will have good and marketable title to all real property and good
title to all personal property (excluding easements or rights-of-way) described in the
Prospectus to be owned by the Operating Partnership and the Operating
13
Subsidiaries, in each case free and clear of all Liens except (i) as described, and
subject to the limitations contained, in the Prospectus, (ii) that arise under the Credit
Agreement, and (iii) as do not materially affect the value of such property taken as a whole
and do not materially interfere with the use of such properties taken as a whole as they
have been used in the past and are proposed to be used in the future as described in the
Prospectus; provided that, with respect to any real property and buildings held under lease
by the Operating Partnership and the Operating Subsidiaries, such real property and
buildings are held under valid and subsisting and enforceable leases with such exceptions as
do not materially interfere with the use of the properties of the Partnership Entities taken
as a whole as they have been used in the past as described in the Prospectus and are
proposed to be used in the future as described in the Prospectus.
(aa) Rights-of-Way. Following consummation of the Transactions and at each Delivery
Date, each of the Partnership Entities will have such easements or rights-of-way from each
person (collectively, rights-of-way) as are necessary to conduct its business in the
manner described, and subject to the limitations contained, in the Prospectus, except for
(i) qualifications, reservations and encumbrances as may be set forth in the Prospectus that
would not have a Material Adverse Effect and (ii) such rights-of-way that, if not obtained,
would not have, individually or in the aggregate, a Material Adverse Effect; other than as
set forth, and subject to the limitations contained, in the Prospectus, each of the
Partnership Entities has, or at the time of purchase following consummation of the
Transactions will have, fulfilled and performed all its material obligations with respect to
such rights-of-way and no event has occurred that allows, or after notice or lapse of time
would allow, revocation or termination thereof or would result in any impairment of the
rights of the holder of any such rights-of-way, except for such revocations, terminations
and impairments that would not have a Material Adverse Effect; and, except as described in
the Prospectus, none of such rights-of-way contains any restriction that is materially
burdensome to the Partnership Entities, taken as a whole.
(bb) Insurance. DEFS maintains insurance covering the properties, operations,
personnel and businesses of the Partnership Entities against such losses and risks and in
such amounts as is reasonably adequate for the conduct of their respective businesses and
the value of their respective properties and generally consistent with the insurance
coverage maintained by DEFS with respect to its businesses and properties. Neither DEFS nor
any of the Partnership Entities has received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will have to be made in
order to continue such insurance (including after giving effect to the Transactions), and
all such insurance is outstanding and duly in force on the date hereof and will be
outstanding and duly in force on each Delivery Date.
(cc) Intellectual Property. Each of the Partnership Entities owns or possesses
adequate rights to use all material patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations, copyrights, licenses and
know-how (including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary for the conduct of their
respective businesses and have no reason to believe that the
14
conduct of their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any such rights of others.
(dd) Legal Proceedings or Contracts to be Described or Filed. There are no legal or
governmental proceedings pending or, to the knowledge of the DCP Parties, threatened against
any of the Partnership Entities, or to which any of the Partnership Entities is a party, or
to which any of their respective properties is subject, that are required to be described in
the Registration Statement or Prospectus and are not described as required; and there are no
agreements, contracts, indentures, leases or other instruments that are required to be
described in the Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations that have not
been described in the Registration Statement or Prospectus as required or filed as exhibits
to the Registration Statement as required.
(ee) Certain Relationships and Related Transactions. No relationship, direct or
indirect, exists between or among any Partnership Entity on the one hand, and the directors,
officers, stockholders, affiliates, customers or suppliers of any Partnership Entity on the
other hand that is required to be described in the Prospectus and is not so described.
(ff) Sarbanes-Oxley Act of 2002. On and after the First Delivery Date, the Partnership
will be in compliance in all material respects with all applicable provisions of the
Sarbanes-Oxley Act of 2002, the Rules and Regulations thereunder and the rules of the New
York Stock Exchange (the NYSE) that are effective and applicable to the Partnership.
(gg) Loans to Directors and Officers. The Partnership Entities have provided true,
correct and complete copies of all documentation pertaining to any extension of credit in
the form of a personal loan made, directly or indirectly, by any of the Partnership Entities
to any director or executive officer of any of the Partnership Entities or to any family
member or affiliate of any director or executive officer of any of the Partnership Entities.
(hh) Statistical Data. Any statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from sources that the
Partnership believes to be reliable and accurate, and the Partnership has obtained the
written consent to the use of such data from such sources to the extent required.
(ii) No Labor Dispute. No labor dispute with the employees of DEFS or its affiliates
or any Partnership Entity exists or, to the knowledge of each DCP Party, is imminent or
threatened and none of the DCP Parties is aware of any existing, imminent or threatened
labor disturbance by the employees of any of its lessors that would, individually or in the
aggregate, be reasonably likely to result in a Material Adverse Effect.
(jj) Tax Returns. Each of the Partnership Entities has filed (or has obtained
extensions with respect to) all material federal, state and local income and
15
franchise tax returns required to be filed through the date of this Agreement, which
returns are correct and complete in all material respects, and has timely paid all taxes due
thereon, other than those (i) that are being contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting principles
or (ii) that, if not paid, would not have a Material Adverse Effect.
(kk) Books and Records. Each Partnership Entity (i) makes and keeps books and records
which, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of assets and (ii) maintains internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with managements general or
specific authorization, (B) transactions are recorded as necessary to permit preparation of
its financial statements in conformity with generally accepted accounting principles and to
maintain accountability for its assets, (C) access to its assets is permitted only in
accordance with managements general or specific authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(ll) Foreign Corrupt Practices Act, Etc. No Partnership Entity, nor, to the knowledge
of the DCP Parties, any director, officer, agent, employee or other person associated with
or acting on behalf of any Partnership Entity, has used any partnership, limited liability
company or corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from partnership, limited
liability company or corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other payment in violation of law.
(mm) Environmental Compliance. Except as disclosed in the Prospectus, the Partnership
Entities (i) are in compliance with any and all applicable federal, state and local laws and
regulations relating to the protection of human health and safety and the environment or
imposing liability or standards of conduct concerning any Hazardous Materials (as defined
below) (Environmental Laws), (ii) have received all permits required of them under
applicable Environmental Laws to conduct their respective businesses, (iii) are in
compliance with all terms and conditions of any such permits and (iv) do not have any
liability in connection with the release into the environment of any Hazardous Material,
except where such noncompliance with Environmental Laws, failure to receive required
permits, failure to comply with the terms and conditions of such permits or liability would
not, individually or in the aggregate, have a Material Adverse Effect. The term Hazardous
Material means (A) any hazardous substance as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, (B) any hazardous waste as
defined in the Resource Conservation and Recovery Act, as amended, (C) any petroleum or
petroleum product, (D) any polychlorinated biphenyl, and (E) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law.
16
(nn) Effect of Environmental Laws. In the ordinary course of business, each
Partnership Entity periodically reviews the effect of Environmental Laws on its business
operations and properties, in the course of which it identifies and evaluates associated
costs and liabilities (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental Laws or any
permits, license or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review, each Partnership
Entity has reasonably concluded that such associated costs and liabilities would not,
individually or in the aggregate, have a Material Adverse Effect.
(oo) Sufficiency of the Contribution Documents. The Contribution Documents were or
will be legally sufficient to transfer or convey to the Partnership, the Operating
Partnership and to the Operating Subsidiaries satisfactory title to, or valid rights to use
or manage, all properties not already held by them that are, individually or in the
aggregate, required to enable the Partnership, the Operating Partnership and the Operating
Subsidiaries to conduct their operations (in all material respects as contemplated by the
Prospectus), subject to the conditions, reservations and limitations contained in the
Contribution Documents and those set forth in the Prospectus, and all third party consents
required to effect such transfers and conveyances have been obtained or will be obtained by
the First Delivery Date other than any consent which, if not obtained, would not have a
Material Adverse Effect. The Partnership, the Operating Partnership and each Operating
Subsidiary, as the case may be, upon execution and delivery of the Contribution Documents,
succeeded or will succeed in all material respects to the business, assets, properties,
liabilities and operations reflected by the pro forma financial statements of the
Partnership included in the Prospectus, except as disclosed in the Prospectus and the
Contribution Documents.
(pp) Permits. Each of the Partnership Entities has, or at each Delivery Date will
have, such permits, consents, licenses, franchises, certificates and authorizations of
governmental or regulatory authorities (permits) as are necessary to own or lease its
properties and to conduct its business in the manner described in the Prospectus, subject to
such qualifications as may be set forth in the Prospectus and except for such permits that,
if not obtained, would not, individually or in the aggregate, have a Material Adverse
Effect; each of the Partnership Entities has, or at each Delivery Date will have, fulfilled
and performed all its material obligations with respect to such permits which are or will be
due to have been fulfilled and performed by such date and no event has occurred that would
prevent the permits from being renewed or reissued or which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any impairment of the
rights of the holder of any such permit, except for such non-renewals, non-issues,
revocations, terminations and impairments that would not, individually or in the aggregate,
have a Material Adverse Effect; and none of such permits contains, or at each Delivery Date
will contain, any restriction that is materially burdensome to the Partnership Entities
considered as a whole.
(qq) ERISA. As of each Delivery Date, and after giving effect to the Transactions,
each Partnership Entity will be in compliance in all material respects with all presently
applicable provisions of the Employee Retirement Income Security Act of
17
1974, as amended, including the regulations and published interpretations thereunder
(ERISA); no reportable event (as defined in ERISA) has occurred with respect to any
pension plan (as defined in ERISA) for which any Partnership Entity (after giving effect
to the Transactions) would have any liability, excluding any reportable event for which a
waiver could apply; no Partnership Entity (after giving effect to the Transactions) expects
to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal
from, any pension plan or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations
thereunder (the Code);
and each pension plan for which any Partnership Entity would have any liability that is
intended to be qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified and nothing has occurred, whether by action or
by failure to act, which could reasonably be expected to cause the loss of such
qualification.
(rr) Private Placement. The sale and issuance of the Sponsor Units to DCP LP Holdings
and the Incentive Distribution Rights to the General Partner are exempt from the
registration requirements of the Securities Act, the Rules and Regulations and the
securities laws of any state having jurisdiction with respect thereto, and none of the
Partnership Entities has taken or will take any action that would cause the loss of such
exemption.
(ss) No Distribution of Other Offering Materials. The Partnership Entities have not
distributed and, prior to the later to occur of (i) the First Delivery Date and (ii)
completion of the distribution of the Units, will not distribute, any prospectus (as defined
under the Securities Act) in connection with the offering and sale of the Units other than
the Registration Statement, any Preliminary Prospectus, the Prospectus or other materials,
if any, permitted by the Securities Act, including Rule 134 of the Rules and Regulations.
(tt) NYSE Listing. The Units have been approved for listing on the NYSE, subject only
to official notice of issuance.
(uu) Investment Company; Public Utility Holding Company. None of the Partnership
Entities is now, and after the sale of the Units to be sold by the Partnership hereunder and
the application of the net proceeds from such sale as described in the Prospectus under the
caption Use of Proceeds will be, (i) an investment company or a company controlled by
an investment company within the meaning of the Investment Company Act of 1940, as amended
or (ii) a public utility company, a holding company or a subsidiary company of a
holding company or an affiliate thereof, under the Public Utility Holding Company Act of
1935, as amended.
(vv) Directed Unit Sales. None of the Directed Units distributed in connection with
the Directed Unit Program (each as defined in Section 3 hereof) will be offered or sold
outside the United States. The DCP Parties have not offered, or caused the Underwriters to
offer, Units to any person pursuant to the Directed Unit Program with the specific intent to
unlawfully influence (i) a customer or supplier of the DCP Parties, to alter the customers
or suppliers level or type of business with the DCP Parties, or (ii)
18
a trade journalist or publication to write or publish favorable information about the
DCP Parties or their operations.
(ww) Brokers. Except for this Agreement and any engagement letters with the
Representatives, there are no contracts, agreements or understandings between any DCP Party
and any person that would give rise to a valid claim against any DCP Party or any
Underwriter for a brokerage commission, finders fee or other like payment in connection
with this offering of the Units.
(xx) NASD Affiliations. To the Partnerships knowledge, there are no affiliations or
associations between any member of the National Association of Securities Dealers, Inc.
(NASD) and any of the General Partners or DCP Midstream GP, LLCs officers or directors,
or the Partnerships 5% or greater securityholders, except as set forth in the Prospectus.
(yy) Market Stabilization. The Partnership has not taken, directly or indirectly, any
action designed to or that would constitute or that might reasonably be expected to cause or
result in, under the Exchange Act or otherwise, stabilization or manipulation of the price
of any security of the Partnership to facilitate the sale or resale of the Units.
2. Purchase of the Units by the Underwriters. On the basis of the representations and
warranties contained in, and subject to the terms and conditions of, this Agreement, the
Partnership agrees to sell Firm Units to the several Underwriters, and each of Underwriters,
severally and not jointly, agrees to purchase the number of Firm Units set forth opposite that
Underwriters name in Schedule 1 hereto. The respective purchase obligations of the Underwriters
with respect to the Firm Units shall be rounded among the Underwriters to avoid fractional Units,
as the Representatives may determine.
In addition, the Partnership grants to the Underwriters an option to purchase up to 1,350,000
Option Units. Such option is exercisable in the event that the Underwriters sell more than the
number of Firm Units in the offering and is exercisable as provided in Section 4 hereof. Each
Underwriter agrees, severally and not jointly, to purchase the number of Option Units (subject to
such adjustments to eliminate fractional units as the Representatives may determine) that bears the
same proportion to the total number of Option Units to be sold on such Delivery Date as the number
of Firm Units set forth in Schedule 1 hereto opposite the name of such Underwriter bears to the
total number of Firm Units.
The
price of both the Firm Units and any Option Units shall be
$ per Common Unit.
The Partnership shall not be obligated to deliver any of the Units to be delivered on any
Delivery Date, except upon payment for all the Units to be purchased on such Delivery Date as
provided herein.
3. Offering of Units by the Underwriters. Upon authorization by the Representatives of the
release of the Firm Units, the several Underwriters propose to offer the Firm Units for sale upon
the terms and conditions set forth in the Prospectus.
19
As part of the offering contemplated by this Agreement, Citigroup Global Markets Inc. has
agreed to reserve out of the Firm Units set forth opposite its name on Schedule 1 to this
Agreement, up to ___Firm Units, for sale to the employees, officers, and directors of the
Partnership Entities and other parties associated with the Partnership Entities (collectively, the
Directed Unit Participants), as described in the Prospectus under the heading Underwriting (the
Directed Unit Program). The Firm Units to be sold by Citigroup Global Markets Inc. pursuant to
the Directed Unit Program (the Directed Units) will be sold by Citigroup Global Markets Inc.
pursuant to this Agreement at the public offering price. Any Directed Units not orally confirmed
for purchase by any Directed Unit Participants by [8:00 A.M.] New York City time on the business
day following the date on which this Agreement is executed will be offered to the public by
Citigroup Global Markets Inc. upon the terms and conditions set forth in the Prospectus. Under no
circumstances will Citigroup Global Markets Inc. or any Underwriter be liable to the DCP Parties or
to any Directed Unit Participants for any action taken or omitted in good faith in connection with
such Directed Unit Program. It is further understood that any Firm Units which are not purchased
by Directed Unit Participants will be offered by Citigroup Global Markets Inc. to the public upon
the terms and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Units. Delivery of and payment for the Firm Units shall be
made at the offices of Vinson & Elkins L.L.P., 2300 First City Tower, 1001 Fannin Street, Houston,
Texas 77002-6760, at 10:00 A.M., New York City time, on ___________, 2005 or at such other date or
place as shall be determined by agreement between the Representatives and the Partnership. This
date and time are sometimes referred to as the First Delivery Date. Delivery of Firm Units shall
be made to Lehman Brothers Inc. for the account of each Underwriter against payment by the several
Underwriters through Lehman Brothers Inc. of the respective aggregate purchase prices of the Firm
Units being sold by the Partnership to or upon the order of the Partnership by wire transfer in
immediately available funds to the account specified by the Partnership. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Delivery of Firm Units shall be made
through the facilities of The Depository Trust Company (DTC) unless Lehman Brothers Inc. shall
otherwise instruct.
The option granted in Section 2 will expire 30 days after the date of this Agreement and may
be exercised in whole or in part from time to time by written notice being given to the Partnership
by the Representatives; provided that if such date falls on a day that is not a business day, the
option granted in Section 2 will expire on the next succeeding business day. Such notice shall set
forth the aggregate number of Option Units as to which the option is being exercised, the names in
which the Option Units are to be registered, the denominations in which the Option Units are to be
issued and the date and time, as determined by the Representatives, when the Option Units are to be
delivered; provided, however, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option shall have been
exercised nor later than the fifth business day after the date on which the option shall have been
exercised. The date and time the Option Units are delivered are sometimes referred to as a Second
Delivery Date and the First Delivery Date and any Second Delivery Date are sometimes each referred
to as a Delivery Date.
20
Delivery of and payment for the Option Units shall be made at the place specified in the first
sentence of the first paragraph of this Section 4 (or at such other place as shall be determined by
agreement between the Representatives and the Partnership) at 10:00 A.M., New York City time, on
such Second Delivery Date. Delivery of the Option Units shall be made to Lehman Brothers Inc. for
the account of each Underwriter against payment by the several Underwriters through Lehman Brothers
Inc. of the respective aggregate purchase prices of the Option Units being sold by the Partnership
to or upon the order of the Partnership by wire transfer in immediately available funds to the
account specified by the Partnership. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder. Delivery of Option Units shall be made through the facilities of DTC unless
Lehman Brothers Inc. shall otherwise instruct.
5. Further Agreements of the DCP Parties. Each of the DCP Parties, jointly and severally,
covenants and agrees to cause the Partnership:
(a) Preparation of Prospectus and Registration Statement. To prepare the Prospectus in
a form approved by the Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commissions close of business on the second
business day following the execution and delivery of this Agreement or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or to the Prospectus prior
to the last Delivery Date except as permitted herein; to advise the Representatives,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the Representatives with
copies thereof; to advise the Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Units for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly commercially reasonable efforts to obtain
its withdrawal.
(b) Signed Copies of Registration Statements. To furnish promptly to the Underwriters
and to counsel for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith.
(c) Copies of Documents to Underwriters. To deliver promptly to the Underwriters such
number of the following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the Commission and
each amendment thereto (in each case excluding exhibits) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus; and, if the delivery
of a prospectus is required at any time after the Effective
21
Time in connection with the offering or sale of the Units and if at such time any
events shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Securities Act, to notify the Representatives and, upon their
request, to file such document and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the Representatives may from time to time
reasonably request of an amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance.
(d) Filing of Amendment or Supplement. To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Partnership or the Representatives, be required
by the Securities Act or requested by the Commission. Prior to filing with the Commission
any amendment to the Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to
the Underwriters and counsel for the Underwriters and obtain the consent of the
Representatives to the filing.
(e) Reports to Security Holders. As soon as practicable after the Effective Date, to
make generally available to the Partnerships security holders and to deliver to the
Underwriters an earnings statement of the Partnership and its subsidiaries (which need not
be audited) complying with Section 11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Partnership, Rule 158).
(f) Copies of Reports. For a period of two years following the Effective Date, to
furnish or to make available to the Underwriters via the Commissions Electronic Data
Gathering, Analysis and Retrieval (EDGAR) System or on its website a copy of all materials
furnished by the Partnership to its security holders (excluding any periodic income tax
reporting materials) and all public reports and all reports and financial statements
furnished by the Partnership to the principal national securities exchange or national
securities association upon which the Common Units may be listed pursuant to requirements of
or agreements with such exchange or association or to the Commission pursuant to the
Exchange Act or any rule or regulation of the Commission thereunder.
(g) Qualifications. Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Units for offering and sale under the
securities laws of such jurisdictions as the Representatives may reasonably request and to
comply with such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of the Units;
provided that in connection therewith the Partnership shall not be required to qualify as a
foreign limited partnership or to file a general consent to service of process in any
jurisdiction in which it is not otherwise subject.
22
(h) Lock-up Period; Lock-up Letters. For a period commencing on the date hereof and
ending on the 180th day after the date of the Prospectus (such 180-day period, the Lock-Up
Period), not to, directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future of) any
Common Units or securities convertible into or exchangeable for Common Units (other than the
Units and any Common Units issued pursuant to any employee benefit plans, qualified unit
option plans or other employee compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or grant options, rights or
warrants with respect to any Common Units or securities convertible into or exchangeable for
Common Units (other than the grant of any options pursuant to any option plans existing on
the date hereof), (2) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of ownership of such
Common Units, whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Units or other securities, in cash or otherwise, (3) make a
demand for or exercise any right to cause, or otherwise attempt to cause, to be filed a
registration statement with respect to the registration of any Common Units or securities
convertible, exercisable or exchangeable into Common Units or any other securities of the
Partnership or (4) publicly disclose the intention to do any of the foregoing in each case
without the prior written consent of the Representatives, on behalf of the Underwriters, and
to cause DEFS, and each executive officer and director of the General Partner and DCP
Midstream GP, LLC to furnish to the Underwriters, prior to the First Delivery Date, a letter
or letters, substantially in the form of Exhibit A hereto, and to cause each of the Directed
Unit Participants to furnish to Citigroup Global Markets Inc., prior to the First Delivery
Date, a letter or letters, substantially in the form of Exhibit A hereto.
Notwithstanding the foregoing paragraph, if (1) during the last 17 days of the Lock-Up
Period, the Partnership issues an earnings release or material news or a material event
relating to the Partnership occurs or (2) prior to the expiration of the Lock-Up Period, the
Partnership announces that it will release earnings results during the 16-day period
beginning on the last day of the Lock-Up Period, then the restrictions imposed in the
preceding paragraph shall continue to apply until the expiration of the 18-day period
beginning on the issuance of the earnings release or the announcement of the material news
or the occurrence of the material event, unless the Representatives, on behalf of the
Underwriters, waives such extension in writing.
(i) NYSE Listing. To apply for the listing of the Units on the NYSE, and to use its
best efforts to effect that listing, subject only to official notice of issuance, prior to
the First Delivery Date.
(j) Application of Proceeds. To apply the net proceeds from the sale of the Units as
set forth in the Prospectus.
(k) Investment Company. To use its best efforts to ensure that no Partnership Entity,
nor any subsidiary thereof, shall become an investment company as defined in the
Investment Company Act of 1940, as amended and the rules and
23
regulations of the Commission thereunder for a period of five years after the latest
Delivery Date.
(l) Directed Unit Program. The Partnership agrees to pay (i) all fees and
disbursements of counsel incurred by the Underwriters in connection with the Directed Unit
Program, (ii) all costs and expenses incurred by the Underwriters in connection with the
printing (or reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of copies of the Directed Unit Program materials and (iii) all
stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters
in connection with the Directed Unit Program. In connection with the Directed Unit Program,
to ensure that the Directed Units will be restricted to the extent required by the NASD or
the rules of such association from sale, transfer, assignment, pledge or hypothecation for a
period of 180 days following the date of the Prospectus, and Citigroup Global Markets Inc.
will notify the Partnership as to which Directed Unit Participants will need to be so
restricted. At the request of Citigroup Global Markets Inc., the Partnership will direct
the transfer agent to place stop transfer restrictions upon such securities for such period
of time.
(m) Rule 463. To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Securities Act.
Furthermore, the DCP Parties covenant with the Underwriters that the DCP Parties will comply
with all applicable securities and other applicable laws, rules and regulations in each foreign
jurisdiction in which the Directed Units are offered in connection with the Directed Unit Program.
6. Expenses. Each of the DCP Parties covenants and agrees, whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated, that the
Partnership will pay or cause to be paid all costs, expenses, fees and taxes incident to and in
connection with (a) the authorization, issuance, sale and delivery of the Units and any taxes
payable in that connection; (b) the preparation, printing and filing under the Securities Act of
the Registration Statement and any amendments and exhibits thereto, any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus; (c) the distribution of the
Registration Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus
and any amendment or supplement to the Prospectus, all as provided in this Agreement; (d) the
preparation, printing, authentication, issuance and delivery of certificates for the Units,
including any stamp or transfer taxes in connection with the original issuance and sale of the
Units; (e) services provided by the transfer agent or registrar; (f) the production and
distribution of this Agreement, any supplemental agreement among the Underwriters and any other
related documents in connection with the offering, purchase, sale and delivery of the Units; (g)
any required review by the NASD of the terms of sale of the Units; (h) the listing of the Units on
the NYSE; (i) the qualification of the Units under the securities laws of the several jurisdictions
as provided in Section 5(g) and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of counsel to the Underwriters); (j) the investor
presentations on any road show undertaken in connection with the marketing of the Units,
including, without limitation, expenses associated with any Internet road show, travel
24
and lodging expenses of the representatives and officers of the appropriate DCP Parties and
the cost of any aircraft chartered in connection with the road show; and (k) all other costs and
expenses incident to the performance of the obligations of the DCP Parties under this Agreement;
provided that, except as provided in this Section 6 and in Section 11, the Underwriters shall pay
their own costs and expenses, including the costs and expenses of their counsel, any transfer taxes
on the Units which they may sell and the expenses of advertising any offering of the Units made by
the Underwriters. The Underwriters will reimburse the Partnership for expenses that are incurred
by the Partnership in connection with transactions contemplated hereby in an amount of up to 0.25%
of the gross proceeds from the sale of Units (including from the sale of any Option Units.) Such
reimbursement may be made by wire transfer of immediately available funds to such account or
accounts designated by the Partnership or such other method as agreed to by the Parties following
delivery of reasonably satisfactory documentation of the expenses to the Representatives.
7. Conditions of Underwriters Obligations. The respective obligations of the Underwriters
hereunder are subject to the accuracy, when made and on each Delivery Date, of the representations
and warranties of the DCP Parties contained herein, to the performance by the DCP Parties of their
obligations hereunder, and to each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in accordance with
Section 5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and any request of the Commission
for inclusion of additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to any of the DCP Parties on or
prior to such Delivery Date that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement of a fact which, in the opinion
of Baker Botts L.L.P., counsel for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required to be stated therein or
is necessary to make the statements therein not misleading.
(c) All corporate, partnership and limited liability company proceedings and other
legal matters incident to the authorization, form and validity of this Agreement, the
Operative Agreements, the Common Units, the Subordinated Units, the Registration Statement
and the Prospectus, and all other legal matters relating to this Agreement, the transactions
contemplated hereby and the Transactions shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the DCP Parties shall have furnished to such
counsel all documents and information that they may reasonably request to enable them to
pass upon such matters.
(d) Vinson & Elkins L.L.P. shall have furnished to you, as Representatives of the
Underwriters, their written opinions, as special counsel to the Partnership Entities,
addressed to the Underwriters and dated such Delivery Date, in form
25
and substance satisfactory to the Representatives to the effect set forth on Exhibit B
hereto.
(e) Brent Backes, Vice President, General Counsel and Secretary of DEFS, shall have
furnished to you, as Representatives of the Underwriters, his written opinion, addressed to
the Underwriters and dated such Delivery Date, in form and substance satisfactory to the
Representatives to the effect set forth on Exhibit C hereto.
(f) Kantrow Spaht Weaver & Blitzer (A Professional Law Corporation), special Louisiana
counsel for the Partnership Entities, shall have furnished to you, as Representatives of the
Underwriters, their written opinion regarding matters involving the law of Louisiana,
addressed to you, as Representatives of the Underwriters, and dated such Delivery Date, in
form and substance satisfactory to the Representatives, substantially to the effect set
forth on Exhibit D hereto.
(g) You shall have received from Baker Botts L.L.P., counsel for the Underwriters, such
opinion or opinions, dated such Delivery Date, with respect to the issuance and sale of the
Units, the Registration Statement, the Prospectus and other related matters as you may
reasonably require, and the DCP Parties shall have furnished to such counsel such documents
as they reasonably request for the purpose of enabling them to pass upon such matters.
(h) At the time of execution of this Agreement, the Underwriters shall have received
from Deloitte & Touche LLP a letter or letters, in form and substance satisfactory to the
Representatives, addressed to you, as Representatives of the Underwriters, and dated the
date hereof (i) confirming that they are independent public accountants within the meaning
of the Securities Act and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the Commission and (ii)
stating, as of the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than three days prior to the date hereof), the
conclusions and findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants comfort letters to underwriters in connection
with registered public offerings.
(i) With respect to the letter or letters of Deloitte & Touche LLP referred to in the
preceding paragraph and delivered to the Underwriters concurrently with the execution of
this Agreement (the initial letters), the Partnership shall have furnished to the
Underwriters a letter (the bring-down letter) of such accountants, addressed to you, as
Representatives of the Underwriters, and dated such Delivery Date (i) confirming that they
are independent public accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the
bring-down letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the Prospectus, as
of a date not more than three days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to
26
the financial information and other matters covered by the initial letters and (iii)
confirming in all material respects the conclusions and findings set forth in the initial
letters.
(j) The DCP Parties shall have furnished to the Underwriters a certificate, dated such
Delivery Date, signed on behalf of the Partnership by the Chief Executive Officer and Chief
Financial Officer of DCP Midstream GP, LLC, stating that:
(i) the representations, warranties and agreements of the DCP Parties in
Section 1 are true and correct on and as of such Delivery Date, and the DCP Parties
have complied with all their agreements contained herein and satisfied all the
conditions on their part to be performed or satisfied hereunder at or prior to such
Delivery Date;
(ii) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or, to the
knowledge of such officers, threatened;
(iii) no event contemplated by Subsection (k) of this Section 7 in respect of
the Partnership Entities shall have occurred; and
(iv) they have carefully examined the Registration Statement and the Prospectus
and, in their opinion (A) the Registration Statement, as of the Effective Time, and
the Prospectus, as of its date and as of such Delivery Date, did not and do not
contain any untrue statement of a material fact and did not and do not omit to state
a material fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in the light of the circumstances under
which they were made) not misleading, and (B) since the Effective Time no event has
occurred that should have been set forth in a supplement or amendment to the
Registration Statement or the Prospectus that has not been so set forth.
(k) Since the date of the latest audited financial statements included in the
Prospectus (A) none of the Partnership Entities shall have sustained any loss or
interference with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action, order,
investigation or decree, otherwise than as set forth or contemplated in the Prospectus, or
shall have become a party to or the subject of any litigation, court or governmental action,
investigation, order or decree that is materially adverse to the Partnership Entities, taken
as a whole, and (B) there shall not have been any change in the capitalization or long-term
debt of any of the Partnership Entities or any change, or any development involving a
prospective change, in or affecting the general affairs, management, condition (financial or
otherwise), stockholders equity, partners equity, members equity, results of operations,
properties, business or prospects of the Partnership Entities, other than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described in clause
(A) or (B), is, in the judgment of the Representatives, so material and adverse as to make
it impracticable or inadvisable to proceed with the public offering or
27
the delivery of the Units being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement there shall not have
occurred any of the following: (i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the over-the-counter market, or trading in any
securities of the Partnership on any exchange or in the over-the-counter market, shall have
been suspended or materially limited or the settlement of such trading generally shall have
been materially disrupted or minimum prices shall have been established on any such exchange
or such market by the Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium shall have been
declared by federal or state authorities, (iii) the United States shall have become engaged
in hostilities, there shall have been an escalation in hostilities involving the United
States or there shall have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse change in general domestic
or international economic, political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be such), including, without
limitation, as a result of terrorist activities after the date hereof, as to make it, in the
judgment of the Representatives, impracticable or inadvisable to proceed with the public
offering or delivery of the Units being delivered on such Delivery Date on the terms and in
the manner contemplated in the Prospectus.
(m) The NYSE shall have approved the Units for listing, subject only to official notice
of issuance.
(n) The Underwriters shall have received evidence satisfactory to them that each of the
Transactions shall have occurred or will occur as of the First Delivery Date, including the
concurrent closing of the new credit facility pursuant to the Credit Agreement, in each case
as described in the Prospectus without modification, change or waiver, except for such
modifications, changes or waivers as have been specifically identified to the
Representatives and which, in the judgment of the Representatives, do not make it
impracticable or inadvisable to proceed with the offering and delivery of the Units on the
First Delivery Date on the terms and in the manner contemplated in the Prospectus.
(o) All opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof only if they
are in form and substance reasonably satisfactory to counsel for the Underwriters.
(p) The lock-up letters referred to in Section 5(h) hereof shall have been delivered to
the Underwriters on or before the date of this Agreement and shall be in full force and
effect each such Delivery Date.
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8. Indemnification and Contribution.
(a) The DCP Parties, jointly and severally, shall indemnify and hold harmless each
Underwriter, its directors, officers and employees and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Units), to which that Underwriter, director, officer, employee or
controlling person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any materials or information provided to investors by, or with
the approval of, the DCP Parties in connection with the marketing of the offering of the
Units, including any road show or investor presentations made to investors by the
Partnership (whether in person or electronically) (the Marketing Materials); (ii) the
omission or alleged omission to state in the Registration Statement, or in any amendment or
supplement thereto, any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) the omission or alleged omission to state in any
Preliminary Prospectus or the Prospectus, or in any amendment or supplement thereto, or in
any Marketing Materials any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iv) any act or
failure to act or any alleged act or failure to act by any Underwriter in connection with,
or relating in any manner to, the Units or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or action arising
out of or based upon matters covered by clause (i), (ii) or (iii) above (provided that the
DCP Parties shall not be liable under this clause (iv) to the extent that it is determined
in a final judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or willful misconduct),
and, subject to Section 8(c), shall reimburse each Underwriter and each such director,
officer, employee or controlling person promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter, director, officer, employee or controlling person
in connection with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided, however, that
the DCP Parties shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or supplement, in
reliance upon and in conformity with written information concerning such Underwriter
furnished to the Partnership by or on behalf of any Underwriter specifically for inclusion
therein which information consists solely of the information specified in Section 8(e); and
provided further, that this paragraph (a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter on account of any loss, claim, damage, liability
or action arising from the sale of Units to any person by such Underwriter if such
Underwriter failed to send or give a copy of the Prospectus, as the same may be amended
29
or supplemented, to such person within the time required by the Securities Act and the
Rules and Regulations, and the untrue or alleged untrue statement of a material fact or
omission or alleged omission of a material fact in the Preliminary Prospectus was corrected
in the Prospectus, unless such failure resulted from non-compliance by the Partnership with
Section 5(c) hereof. The foregoing indemnity agreement is in addition to any liability
which the DCP Parties may otherwise have to any Underwriter or to any director, officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the
DCP Parties, their respective officers and employees, each of their respective directors and
managers, and each person, if any, who controls any DCP Party within the meaning of Section
15 of the Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the DCP Party or any such director,
manager, officer, employee or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or
is based upon, (i) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the Prospectus or in
any amendment or supplement thereto, (ii) the omission or alleged omission to state in the
Registration Statement, or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements therein not misleading, or
(iii) the omission or alleged omission to state in any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, or in any Marketing Materials any
material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, but in each case only to the extent that the
untrue statement or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information concerning such Underwriter
furnished to the Partnership by Lehman Brothers Inc. on behalf of that Underwriter
specifically for inclusion therein, which information is limited to the information set
forth in Section 8(e), and, subject to Section 8(c), shall reimburse the DCP Party and any
such director, manager, officer, employee or controlling person for any legal or other
expenses reasonably incurred by the DCP Party or any such director, manager, officer,
employee or controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the DCP Parties or any such director, manager, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section 8 of notice of
any claim or the commencement of any action, the indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this Section 8, notify
the indemnifying party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 8. If any such claim or action
30
shall be brought against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate therein and, to the
extent that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the indemnified party.
After notice from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than reasonable costs
of investigation; provided, however, that Lehman Brothers Inc. shall have the right to
employ counsel to represent jointly Lehman Brothers Inc. and the other Underwriters and
their respective directors, officers, employees and controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be sought by the
Underwriters against the DCP Parties under this Section 8 if, (i) the DCP Parties and the
Underwriters shall have so mutually agreed; (ii) the DCP Parties have failed within a
reasonable time to retain counsel reasonably satisfactory to the Underwriters; (iii) the
Underwriters or any of their respective directors, officers, employees and controlling
persons shall have reasonably concluded that there may be legal defenses available to them
that are different from or in addition to those available to the DCP Parties; or (iv) the
named parties in any such proceeding (including any impleaded parties) include both the
Underwriters or their respective directors, officers, employees or controlling persons, on
the one hand, and any of the DCP Parties, on the other hand, and representation of both sets
of parties by the same counsel would be inappropriate due to actual or potential differing
interests between them, and in any such event the fees and expenses of such separate counsel
shall be paid by the DCP Parties. Notwithstanding anything contained herein to the
contrary, if indemnity may be sought pursuant to Section 8(a), then in addition to such
separate firm for the indemnified parties, the indemnifying party shall be liable for the
fees and expenses of not more than one separate firm (in addition to any local counsel) for
the Citigroup Entities (as defined in Section 8(f)) for the defense of any loss, claim,
damage, liability or action arising out of the Directed Unit Program. No indemnifying party
shall (i) without the prior written consent of the indemnified parties (which consent shall
not be unreasonably withheld), settle or compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding and does not
include any findings of fact or admissions of fault or culpability as to the indemnified
party, or (ii) be liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement.
(d) If the indemnification provided for in this Section 8 shall for any reason be
unavailable to or insufficient to hold harmless an indemnified party under Section 8(a),
8(b) or 8(f) in respect of any loss, claim, damage or liability, or any action
31
in respect thereof, referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits
received by the DCP Parties on the one hand and the Underwriters on the other from the
offering of the Units or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of the DCP
Parties on the one hand and the Underwriters on the other with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative benefits
received by the DCP Parties on the one hand and the Underwriters on the other with respect
to such offering shall be deemed to be in the same proportion as the total net proceeds from
the offering of the Units purchased under this Agreement (before deducting expenses)
received by the Partnership, as set forth in the table on the cover page of the Prospectus,
on the one hand, and the total underwriting discounts and commissions received by the
Underwriters with respect to the Units purchased under this Agreement, on the other hand,
bear to the total gross proceeds from the offering of the Units under this Agreement, as set
forth in the table on the cover page of the Prospectus, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact relates to information supplied by the DCP
Parties or the Underwriters, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission. The DCP
Parties and the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section 8(d) shall be
deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the total price at
which the Units underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise paid or become liable
to pay by reason of any untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters obligations to contribute as provided in
this Section 8(d) are several in proportion to their respective underwriting obligations and
not joint.
(e) The Underwriters severally confirm and the DCP Parties acknowledge that the
statements with respect to the public offering of the Units by the Underwriters set forth on
the cover page of the Prospectus, the [statements in the table
32
following the first paragraph and the concession and reallowance figures in the fourth
paragraph and the statements in the twelfth, sixteenth, nineteenth and twenty-second
paragraphs] appearing under the caption Underwriting in the Prospectus are correct and
constitute the only information concerning such Underwriters furnished in writing to the DCP
Parties by or on behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
(f) The DCP Parties, jointly and severally, agree to indemnify and hold harmless
Citigroup Global Markets Inc., the directors, officers, employees and agents of Citigroup
Global Markets Inc. and each person, who controls Citigroup Global Markets Inc. within the
meaning of either the Securities Act or the Exchange Act (collectively, the Citigroup
Entities), from and against any and all losses, claims, damages and liabilities to which
they may become subject under the Securities Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or investigating
any such action or claim), insofar as such losses, claims damages or liabilities (or actions
in respect thereof) (i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any material prepared by or with the
approval of any DCP Party for distribution to Directed Unit Participants in connection with
the Directed Unit Program or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein not
misleading; (ii) caused by the failure of any Directed Unit Participant to pay for and
accept delivery of the Directed Units which immediately following the Effective Date of the
Registration Statement, were subject to a properly confirmed agreement to purchase; or (iii)
related to, arising out of, or in connection with the Directed Unit Program, except that
this clause (iii) shall not apply to the extent that such loss, claim, damage or liability
is finally judicially determined to have resulted primarily from the gross negligence or
willful misconduct of the Citigroup Entities.
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the performance of its obligations
under this Agreement, the remaining non-defaulting Underwriters shall be obligated to purchase the
Units which the defaulting Underwriter agreed but failed to purchase on such Delivery Date in the
respective proportions which the number of Firm Units set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of Firm Units set
opposite the names of all the remaining non-defaulting Underwriters in Schedule 1 hereto; provided,
however, that the remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Units on such Delivery Date if the total number of Units which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the total number of Units
to be purchased on such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of Units which it agreed to purchase on such
Delivery Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them,
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all the Units to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase on such Delivery Date, this
Agreement (or, with respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Partnership to sell, the Option Units) shall terminate without liability on
the part of any non-defaulting Underwriter or the DCP Parties, except that the Partnership will
continue to be liable for the payment of expenses to the extent set forth in Sections 6 and 11. As
used in this Agreement, the term Underwriter includes, for all purposes of this Agreement unless
the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Units which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have
to the Partnership for damages caused by its default. If other Underwriters are obligated or agree
to purchase the Units of a defaulting or withdrawing Underwriter, either the non-defaulting
Underwriters or the Partnership may postpone the Delivery Date for up to seven full business days
in order to effect any changes that in the opinion of counsel for the Partnership or counsel for
the Underwriters may be necessary in the Registration Statement, the Prospectus or in any other
document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may be terminated by the
Representatives by notice given to and received by the Partnership prior to delivery of and payment
for the Firm Units if, prior to that time, any of the events described in Sections 7(k) or 7(l),
shall have occurred or if the Underwriters shall decline to purchase the Units for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters Expenses. If the sale of the Units provided for herein is
not consummated because any condition to the obligations of the Underwriters set forth in Section 7
hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the DCP Parties to perform any agreement herein or
comply with any provision hereof other than by reason of a default by any of the Underwriters, the
DCP Parties covenant and agree that the Partnership will reimburse the Underwriters severally
through the Representatives on demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by the Underwriters in connection with the
proposed purchase and sale of the Units. If this Agreement is terminated pursuant to Section 9 by
reason of the default of one or more Underwriters, the DCP Parties shall not be obligated to
reimburse any defaulting Underwriter on account of those expenses.
12. Research Independence. In addition, the DCP Parties acknowledge that the Underwriters
research analysts and research departments are required to be independent from their respective
investment banking divisions and are subject to certain regulations and internal policies, and that
such Underwriters research analysts may hold and make statements or investment recommendations
and/or publish research reports with respect to the Partnership and/or the offering of the Units
that differ from the views of its investment bankers. The DCP Parties hereby waive and release, to
the fullest extent permitted by law, any claims that the DCP Parties may have against the
Underwriters with respect to any conflict of interest that may arise from the fact that the views
expressed by their independent research analysts and research
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departments may be different from or inconsistent with the views or advice communicated to the
DCP Parties by such Underwriters investment banking divisions. The DCP Parties acknowledge that
each of the Underwriters is a full service securities firm and as such from time to time, subject
to applicable securities laws, may effect transactions for its own account or the account of its
customers and hold long or short positions in debt or equity securities of the Partnership or DEFS.
13. No Fiduciary Duty. Each of the DCP Parties acknowledges and agrees that in connection
with this offering, sale of the Units or any other services the Underwriters may be deemed to be
providing hereunder, notwithstanding any preexisting relationship, advisory or otherwise, between
the parties or any oral representations or assurances previously or subsequently made by the
Underwriters: (i) no fiduciary or agency relationship between any of the DCP Parties and any other
person, on the one hand, and the Underwriters, on the other, exists; (ii) the Underwriters are not
acting as advisors, expert or otherwise, to any of the DCP Parties including, without limitation,
with respect to the determination of the public offering price of the Units, and such relationship
between the DCP Parties, on the one hand, and the Underwriters, on the other, is entirely and
solely commercial, based on arms-length negotiations; (iii) any duties and obligations that the
Underwriters may have to any of the DCP Parties shall be limited to those duties and obligations
specifically stated herein; and (iv) the Underwriters and their respective affiliates may have
interests that differ from those of the DCP Parties. Each of the DCP Parties hereby waives any
claims that any of the DEFS Parties may have against the Underwriters with respect to any breach or
alleged breach of fiduciary duty in connection with the Offering of the Units.
14. Notices, Etc. All statements, requests, notices and agreements hereunder shall be in
writing, and:
(a) if to any of the DCP Parties, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Partnership set forth in the Registration
Statement, Attention: ___;
(b) if to the Underwriters, shall be (i) delivered or sent by mail, telex or facsimile
transmission to Lehman Brothers Inc., 745 Seventh Avenue, New York, New York 10019,
Attention: Syndicate Registration (Fax: 646.497.4815), with a copy, in the case of any
notice pursuant to Section 8(c), to the Director of Litigation, Office of the General
Counsel, Lehman Brothers Inc., 399 Park Avenue, 10th Floor, New York, New York 10022, and
(ii) mailed, delivered or telefaxed to Citigroup Global Markets Inc. General Counsel (Fax
No.: 212.816.7912) and confirmed to the General Counsel, Citigroup Global Markets Inc., at
388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address set forth
in its acceptance telex to Lehman Brothers Inc., which address will be supplied to any other
party hereto by Lehman Brothers Inc. upon request. Any such statements, requests, notices
or agreements shall take effect at the time of receipt thereof. The DCP Parties shall be
entitled to act and rely upon any request, consent, notice or agreement given or made on
behalf of the Underwriters by Lehman Brothers Inc.
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15. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of
and be binding upon the Underwriters, the DCP Parties, and their respective successors. This
Agreement and the terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of the DCP Parties
contained in this Agreement shall also be deemed to be for the benefit of the directors, officers
and the person or persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act, and (B) the indemnity agreement of the Underwriters contained in Section 8(b)
of this Agreement shall be deemed to be for the benefit of directors and managers of the DCP
Parties, officers of the DCP Parties who have signed the Registration Statement and any person
controlling the DCP Parties within the meaning of Section 15 of the Securities Act. Nothing in
this Agreement is intended or shall be construed to give any person, other than the persons
referred to in this Section 15, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations, warranties and agreements of the
DCP Parties and the Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Units
and shall remain in full force and effect, regardless of any investigation made by or on behalf of
any of them or any person controlling any of them.
17. Definition of the Terms Business Day and Subsidiary. For purposes of this Agreement,
(a) business day means each Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by law or executive
order to close and (b) subsidiary has the meaning set forth in Rule 405 of the Rules and
Regulations.
18. Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of New York.
19. Counterparts. This Agreement may be executed in one or more counterparts and, if executed
in more than one counterpart, the executed counterparts shall each be deemed to be an original but
all such counterparts shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of reference only and are not
intended to be part of, or to affect the meaning or interpretation of, this Agreement.
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If the foregoing correctly sets forth the agreement between the DCP Parties and the
Underwriters, please indicate your acceptance in the space provided for that purpose below.
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Very truly yours,
Duke Energy Field Services, LLC
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DCP Midstream Partners, LP
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DCP Midstream GP, LP its general partner
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DCP Midstream GP, LLC its general partner
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DCP Midstream GP, LP
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DCP Midstream GP, LLC its general partner
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DCP Midstream GP, LLC
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DCP Midstream Operating, LP
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Accepted:
Lehman Brothers Inc.
Citigroup Global Markets Inc.
As Representatives of the several
Underwriters named in Schedule 1 hereto,
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Lehman Brothers Inc.
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Arlene Salmonson |
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Vice President |
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By: |
Citigroup Global Markets Inc.
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By: |
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[Name] |
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[Title] |
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SCHEDULE 1
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Number of Firm Units |
Underwriter |
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to Be Purchased |
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Lehman Brothers Inc. |
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Citigroup Global Markets Inc. |
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UBS Securities, LLC |
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Wachovia Capital Markets, LLC |
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A.G. Edwards & Sons, Inc. |
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KeyBanc Capital Markets, a Division of |
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McDonald Investments Inc. |
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TOTAL: |
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9,000,000 |
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SCHEDULE 2
DCP Assets Holdings GP, LLC
DCP Black Lake Holdings, LLC
Black Lake Pipe Line Company1
DCP Assets Holdings, LP
Associated Louisiana Intrastate Pipe Line, LLC
Duke Energy Intrastate Pipeline, LLC
PanEnergy Louisiana Intrastate LLC
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1 |
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DCP Black Lake Holdings, LLC will own a 45% interest in Black Lake Pipe Line Company at the time of each Delivery Date. |
Exhibit A
LOCK-UP LETTER AGREEMENT
Lehman Brothers Inc.
Citigroup Global Markets Inc.
As Representatives of the several
Underwriters named in Schedule 1
c/o Lehman Brothers Inc.
745 Seventh Avenue
New York, New York 10019
Ladies and Gentlemen:
The undersigned understands that you (the Representatives) and certain other firms propose
to enter into an Underwriting Agreement (the Underwriting Agreement) providing for the purchase
by you and such other firms (the Underwriters) of common units (the Common Units) representing
limited partner interests in DCP Midstream Partners, LP, a Delaware limited partnership (the
"Partnership), and that the Underwriters propose to reoffer the Common Units to the public (the
"Offering).
In consideration of the execution of the Underwriting Agreement by the Representatives on
behalf of the Underwriters and for other good and valuable consideration, the undersigned hereby
irrevocably agrees that, without the prior written consent of the Representatives, on behalf of the
Underwriters, the undersigned will not, directly or indirectly, (1) offer for sale, sell, pledge,
or otherwise dispose of (or enter into any transaction or device that is designed to, or could be
expected to, result in the disposition by any person at any time in the future of) any Common Units
(including, without limitation, Common Units that may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and Exchange Commission
and Common Units that may be issued upon exercise of any option or warrant) or securities
convertible into or exchangeable for Common Units owned by the undersigned on the date of execution
of this Lock-Up Letter Agreement or on the date of the completion of the Offering, or (2) enter
into any swap or other derivatives transaction that transfers to another, in whole or in part, any
of the economic benefits or risks of ownership of such Common Units, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common Units or other
securities, in cash or otherwise, (3) make a demand for or exercise any right to cause, or
otherwise attempt to cause, to be filed a registration statement with respect to the registration
of any Common Units or securities convertible, exercisable or exchangeable into Common Units or any
other securities of the Partnership or (4) publicly disclose the intention to do any of the
foregoing, for a period commencing on the date hereof and ending on the 180th day after the date of
the final prospectus relating to the Offering (such 180-day period, the Lock-Up Period);
provided, however, that the foregoing shall not apply to any Common Units acquired through the
Directed Unit Program (as defined in the
A-1
Underwriting Agreement), which Common Units will be the subject of a separate letter
agreement.
Notwithstanding the foregoing, if (1) during the last 17 days of the Lock-Up Period, the
Partnership issues an earnings release or material news or a material event relating to the
Partnership occurs or (2) prior to the expiration of the Lock-Up Period, the Partnership announces
that it will release earnings results during the 16-day period beginning on the last day of the
Lock-Up Period, then the restrictions imposed by this Lock-Up Letter Agreement shall continue to
apply until the expiration of the 18-day period beginning on the issuance of the earnings release
or the announcement of the material news or the occurrence of the material event, unless the
Representatives waive such extension in writing. The undersigned hereby further agrees that, prior
to engaging in any transaction or taking any other action that is subject to the terms of this
Lock-Up Letter Agreement during the period from the date of this Lock-Up Letter Agreement to and
including the 34th day following the expiration of the Lock-Up Period, it will give notice thereof
to the Partnership and will not consummate such transaction or take any such action unless it has
received written confirmation from the Partnership that the Lock-Up Period (as such may have been
extended pursuant to this paragraph) has expired.
In furtherance of the foregoing, the Partnership and its transfer agent are hereby authorized
to decline to make any transfer of securities if such transfer would constitute a violation or
breach of this Lock-Up Letter Agreement.
It is understood that, if the Partnership notifies you that it does not intend to proceed with
the Offering, if the Underwriting Agreement does not become effective, or if the Underwriting
Agreement (other than the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Common Units, the undersigned will be released
from his obligations under this Lock-Up Letter Agreement.
The undersigned understands that the Partnership and the Underwriters will proceed with the
Offering in reliance on this Lock-Up Letter Agreement.
Whether or not the Offering actually occurs depends on a number of factors, including market
conditions. Any Offering will only be made pursuant to an Underwriting Agreement, the terms of
which are subject to negotiation between the Partnership and the Underwriters.
The undersigned hereby represents and warrants that the undersigned has full power and
authority to enter into this Lock-Up Letter Agreement and that, upon request, the undersigned will
execute any additional documents necessary in connection with the enforcement hereof. Any
obligations of the undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
A-2
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Very truly yours,
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By: |
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Name: |
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Dated: , 2005 |
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Title: |
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A-3
Exhibit B
Opinion of Vinson & Elkins L.L.P.
1. Formation and Qualification of the Partnership, the General Partner, the Operating
Partnership, DCP Midstream GP, LLC, the OLP GP and the Operating Subsidiaries. Each of the
Partnership, the General Partner, the Operating Partnership, DCP Midstream GP, LLC and the OLP GP,
and each of the Operating Subsidiaries has been duly formed or incorporated and is validly existing
in good standing as a limited partnership, limited liability company or corporation under the laws
of the State of Delaware with full partnership, limited liability company or corporate power and
authority, as the case may be, necessary to own or lease its properties currently owned or leased
or to be owned or leased at each Delivery Date, to assume the liabilities assumed or to be assumed
by it pursuant to the Contribution Documents and to conduct its business as currently conducted or
to be conducted at each Delivery Date, in each case in all material respects as described in the
Registration Statement and the Prospectus, and each of them is duly registered or qualified to do
business and is in good standing as a foreign limited partnership, limited liability company or
corporation in each jurisdiction set forth under its name on Annex 1 to this opinion.
2. Ownership of the General Partner Interest in the Partnership. The General Partner is the
sole general partner of the Partnership with a 2.0% general partner interest in the Partnership;
such general partner interest has been duly authorized and validly issued in accordance with the
Partnership Agreement; and the General Partner owns such general partner interest free and clear of
all Liens (except restrictions on transferability as described in the Prospectus or the Partnership
Agreement), (i) in respect of which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the General Partner as debtor is on file as of a recent date in the office
of the Secretary of State of the State of Delaware or (ii) otherwise known to such counsel, without
independent investigation, other than those created by or arising under the Delaware LP Act or
contained in the Partnership Agreement.
3. Ownership of the Sponsor Units and the Incentive Distribution Rights. The Sponsor Units,
the Incentive Distribution Rights and the limited partner interests represented thereby have been
duly authorized and validly issued in accordance with the Partnership Agreement, and are fully paid
(to the extent required under the Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by Section 17-607 of the Delaware LP Act and otherwise by matters
described in the Prospectus under the caption The Partnership AgreementLimited Liability); and
DCP LP Holdings owns 1,357,143 Common Units and 7,142,857 Subordinated Units and the General
Partner owns 100% of the Incentive Distribution Rights, in each case, free and clear of all Liens
(except restrictions on transferability as described in the Prospectus, (i) in respect of which a
financing statement under the Uniform Commercial Code of the state of organization of DCP LP
Holdings or the General Partner naming any of them as debtor is on file as of a recent date in the
applicable office of the respective states of their organization, or (ii) otherwise known to such
counsel, without independent investigation, other than those created by or arising under the
Delaware LP Act or contained in the Partnership Agreement.
B-1
4. Valid Issuance of the Units. The Units to be issued and sold to the Underwriters by the
Partnership pursuant to this Agreement and the limited partner interests represented thereby have
been duly and validly authorized by the Partnership Agreement and, when issued and delivered to the
Underwriters against payment therefor in accordance with the terms of this Agreement, will be
validly issued, fully paid (to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by Section 17-607 of the Delaware LP
Act and otherwise by matters described in the Prospectus under the caption The Partnership
AgreementLimited Liability); and, other than the Sponsor Units owned by DCP LP Holdings and the
Incentive Distribution Rights owned by the General Partner, the Units will be the only limited
partner interests of the Partnership issued and outstanding at the applicable Delivery Date.
5. Ownership of the General Partner. DCP Midstream GP, LLC is the sole general partner of the
General Partner with a 0.001% general partner interest in the General Partner; such general partner
interest has been duly authorized and validly issued in accordance with the GP Partnership
Agreement; and DCP Midstream GP, LLC owns such general partner interest free and clear of all Liens
(except restrictions on transferability as described in the Prospectus or contained in the Omnibus
Agreement or the GP Partnership Agreement), (i) in respect of which a financing statement under the
Uniform Commercial Code of the state of Delaware, naming it as debtor is on file as of a recent
date in the office of the Secretary of State of the State of Delaware or (ii) otherwise known to
such counsel, without independent investigation, other than those created by or arising under the
Delaware LP Act or contained in the GP Partnership Agreement. DEFS is the sole limited partner of
the General Partner with a 99.999% limited partner interest in the General Partner; such limited
partner interest has been duly authorized and validly issued in accordance with the GP Partnership
Agreement and is fully paid (to the extent required under the GP Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by Section 17-607 of the Delaware LP
Act and otherwise by matters described in the Prospectus under the caption The Partnership
Agreement Limited Liability); and DEFS owns such limited partner interest free and clear of all
Liens (except restrictions on transferability as described in the Prospectus or contained in the
Omnibus Agreement or the GP Partnership Agreement), (i) in respect of which a financing statement
under the Uniform Commercial Code of the state of Delaware, naming it as debtor is on file as of a
recent date in the office of the Secretary of State of the State of Delaware or (ii) otherwise
known to such counsel, without independent investigation, other than those created by or arising
under the Delaware LP Act or pursuant to the GP Partnership Agreement.
6. Ownership of the Operating Partnership. The OLP GP is the sole general partner of the
Operating Partnership with a 0.001% general partner interest in the Operating Partnership; such
general partner interest has been duly authorized and validly issued in accordance with the OLP
Partnership Agreement; and the OLP GP owns such general partner interest free and clear of all
Liens (except restrictions on transferability as described in the Prospectus or contained in the
Omnibus Agreement or the OLP Partnership Agreement), (i) in respect of which a financing statement
under the Uniform Commercial Code of the state of Delaware, naming it as debtor is on file as of a
recent date in the office of the Secretary of State of the State of Delaware or (ii) otherwise
known to such counsel, without independent investigation, other than those created by or arising
under the Delaware LP Act or pursuant to the OLP Partnership Agreement. The Partnership is the
sole limited partner of the Operating
B-2
Partnership with a 99.999% limited partner interest in the Operating Partnership; such limited
partner interest has been duly authorized and validly issued in accordance with the OLP Partnership
Agreement and is fully paid (to the extent required under the OLP Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by Section 17-607 of the Delaware LP
Act and otherwise by matters described in the Prospectus under the caption The Partnership
Agreement Limited Liability); and the Partnership owns such limited partner interest free and
clear of all Liens (except restrictions on transferability as described in the Prospectus or
contained in the Omnibus Agreement or the OLP Partnership Agreement), (i) in respect of which a
financing statement under the Uniform Commercial Code of the state of Delaware, naming it as debtor
is on file as of a recent date in the office of the Secretary of State of the State of Delaware or
(ii) otherwise known to such counsel, without independent investigation, other than those created
by or arising under the Delaware LP Act or pursuant to the OLP Partnership Agreement.
7. Ownership of DCP Midstream GP, LLC. DEFS is the sole member of DCP Midstream GP, LLC with
a 100% membership interest in DCP Midstream GP, LLC; such membership interest has been duly
authorized and validly issued in accordance with the DCP Midstream GP, LLC Limited Liability
Company Agreement and is fully paid (to the extent required by the DCP Midstream GP, LLC Limited
Liability Company Agreement) and nonassessable (except as such nonassessability may be affected by
Section 18-607 of the Delaware LLC Act); and DEFS owns such member interest free and clear of all
Liens (i) in respect of which a financing statement under the Uniform Commercial Code of the state
of Delaware, naming it as debtor is on file as of a recent date in the office of the Secretary of
State of the State of Delaware or (ii) otherwise known to such counsel, without independent
investigation other than those created by or arising under the Delaware LLC Statute or pursuant to
the DCP Midstream GP, LLC Limited Liability Company Agreement.
8. Ownership of the OLP GP. The Partnership is the sole member of the OLP GP with a 100%
membership interest in the OLP GP; such membership interest has been duly authorized and validly
issued in accordance with the OLP GP Limited Liability Company Agreement and is fully paid (to the
extent required by the OLP GP Limited Liability Company Agreement) and nonassessable (except as
such nonassessability may be affected by Section 18-607 of the Delaware LLC Act); and the
Partnership owns such member interest free and clear of all Liens (i) in respect of which a
financing statement under the Uniform Commercial Code of the state of Delaware, naming it as debtor
is on file as of a recent date in the office of the Secretary of State of the State of Delaware or
(ii) otherwise known to such counsel, without independent investigation other than those created by
or arising under the Delaware LLC Statute or pursuant to the OLP GP Limited Liability Company
Agreement.
9. Ownership of the Operating Subsidiaries. The Operating Partnership directly or indirectly
owns 100% of the outstanding capital stock, membership interests or partnership interests of each
Operating Subsidiary, as the case may be; all such stock, membership interests or partnership
interests have been duly authorized and validly issued in accordance with the respective Operating
Subsidiaries Operative Documents and are fully paid (to the extent required under the applicable
Operating Subsidiaries Operative Documents) and nonassessable (except as such nonassessability may
be affected by Section 18-607 of the Delaware LLC Act or Section 17-607 of the Delaware LP Act, as
applicable); and the owners
B-3
own all such stock, membership interests or partnership interests free and clear of all Liens
(i) in respect of which a financing statement under the Uniform Commercial Code of the State of
Delaware naming the Operating Partnership as debtor is on file as of a recent date in the office of
the Secretary of State of the State of Delaware [(except for any such financing statements filed
pursuant to the Credit Agreement)] or (ii) otherwise known to such counsel, without independent
investigation[, other than those created pursuant to the Credit Agreement] other than those created
by or arising under the Delaware LP Act or the Delaware LLC Act, as applicable, or pursuant to the
applicable Operating Subsidiaries Operative Documents.
10. No Preemptive Rights, Registration Rights or Options. Except as described in the
Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of any equity securities of any of the Partnership Entities
or the Operating Subsidiaries, in each case pursuant to the Partnership Agreement, the GP
Partnership Agreement, the OLP Partnership Agreement, the DCP Midstream GP, LLC Limited Liability
Company Agreement, the OLP GP Limited Liability Company Agreement or the Operating Subsidiaries
Operative Documents or, to the knowledge of such counsel, any other agreement or instrument listed
as an exhibit to the Registration Statement to which the Partnership, the General Partner, the
Operating Partnership, DCP Midstream GP, LLC, the OLP GP or the Operating Subsidiaries is a party
or by which any of them may be bound. To the knowledge of such counsel, neither the filing of the
Registration Statement nor the offering or sale of the Units as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any Units or other securities of
the Partnership, the General Partner, the Operating Partnership, DCP Midstream GP, LLC, the OLP GP
or the Operating Subsidiaries, other than as described in the Prospectus, provided in the
Partnership Agreement or as have been waived. To such counsels knowledge, except as described in
the Prospectus, there are no outstanding options or warrants to purchase (A) any Common Units,
Subordinated Units or other interests in the Partnership, (B) any partnership interests in the
General Partner or the Operating Partnership, (C) any membership interests in DCP Midstream GP, LLC
or the OLP GP, or (D) any shares of stock, membership interests or partnership interests, as
applicable, in any Operating Subsidiary.
11. Authority. The Partnership has all requisite partnership power and authority to issue,
sell and deliver (i) the Units, in accordance with and upon the terms and conditions set forth in
this Agreement and the Partnership Agreement, and (ii) the Sponsor Units and the Incentive
Distribution Rights, in accordance with and upon the terms and conditions set forth in the
Partnership Agreement and the Contribution Agreement. All corporate, partnership and limited
liability company action, as the case may be, required to be taken by the Partnership Entities or
any of their stockholders, members or partners for the authorization, issuance, sale and delivery
of the Units, the Sponsor Units and the Incentive Distribution Rights, the execution and delivery
by the Partnership Entities of the Operative Agreements and the consummation of the transactions
(including the Transactions) contemplated by this Agreement and the Operative Agreements, has been
validly taken.
12. Authorization, Execution and Delivery of Agreement. This Agreement has been duly
authorized, executed and delivered by each of the Partnership, the General Partner, DCP Midstream
GP, LLC and the Operating Partnership.
B-4
13. Enforceability of Other Agreements.
(a) The Partnership Agreement has been duly authorized, executed and delivered
by the General Partner and, assuming due authorization execution and delivery by the
Organizational Limited Partner (as defined in the Partnership Agreement), is a valid
and legally binding agreement of the General Partner, enforceable against the
General Partner in accordance with its terms;
(b) the GP Partnership Agreement has been duly authorized, executed and
delivered by DCP Midstream GP, LLC and is a valid and legally binding agreement of
DCP Midstream GP, LLC, enforceable against DCP Midstream GP, LLC in accordance with
its terms;
(c) the OLP Partnership Agreement has been duly authorized, executed and
delivered by the OLP GP and the Partnership and is a valid and legally binding
agreement of the OLP GP and the Partnership, enforceable against the OLP GP and the
Partnership in accordance with its terms;
(e) the OLP GP Limited Liability Company Agreement has been duly authorized,
executed and delivered by the Partnership and is a valid and legally binding
agreement of the Partnership, enforceable against the Partnership in accordance with
its terms;
(f) the Operating Subsidiaries Operative Documents have been duly authorized,
executed and delivered by the Operating Partnership and any other necessary parties,
as applicable, and is a valid and legally binding agreement of the respective
parties, enforceable against the respective parties in accordance with its terms;
(g) the Omnibus Agreement has been duly authorized, executed and delivered by
each of the General Partner, the Partnership, the Operating Partnership, OLP GP and
DEFS and is a valid and legally binding agreement of each of them, enforceable
against each of them in accordance with its terms;
(h) the Credit Agreement have been duly authorized, executed and delivered by
the [Partnership Entities] and, assuming due authorization, execution and delivery
by the other parties thereto, is a valid and legally binding agreement of [the
Partnership Entities], enforceable against each of them in accordance with its
terms; and
(i) the Contribution Documents have been duly authorized, executed and
delivered by and the Partnership Entities that are parties
thereto and, assuming due authorization, execution and delivery by the other parties
thereto, the Contribution Documents that are governed by Delaware or New York law
are valid and legally binding obligations of and each of the
Partnership Entities, enforceable against each of them in accordance with their
terms;
B-5
provided that, with respect to each agreement described in this paragraph 13, the
enforceability thereof may be limited by (A) bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws relating to or affecting
creditors rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law) and
(B) public policy, applicable law relating to fiduciary duties and indemnification
and contribution and an implied covenant of good faith and fair dealing.
14. No Conflicts. None of the offering, issuance and sale by the Partnership of the Units
being delivered at such Delivery Date, the execution, delivery and performance of this Agreement or
the Operative Agreements by the Partnership Entities that are parties hereto or thereto, or the
consummation of the transactions contemplated hereby and thereby (including the Transactions) will
conflict with, result in a breach, default or violation (and no event has occurred that, with
notice or lapse of time or otherwise, would constitute such an event) or imposition of any Lien
upon any property or assets of the Partnership Entities pursuant to, (i) the certificate of limited
partnership, agreement of limited partnership, certificate of formation, limited liability company
agreement, certificate of incorporation or bylaws of each of the Partnership Entities, (ii) the
Operative Agreements or any other agreement filed as an exhibit to the Registration Statement or
(iii) the Delaware LP Act, the Delaware LLC Act, the Delaware General Corporation Law (the DGCL),
the laws of the State of Texas or federal law, which breaches, violations defaults or Liens, in the
case of clauses (ii) or (iii), would reasonably be expected to have a material adverse effect,
could materially impair the ability of any of the Partnership Entities to perform their obligations
under this Agreement or the Operative Agreements; provided, however, that no opinion is expressed
pursuant to this paragraph 14 with respect to securities and other anti-fraud statutes, rules or
regulations.
15. No Consents. No consent, approval, authorization, order, registration, notice, filing or
qualification (consent) with any governmental authority under the Delaware LP Act, the Delaware
LLC Act, the DGCL, Texas law, or federal law is required in connection with the offering, issuance
and sale by the Partnership of the Units, the execution, delivery and performance of this Agreement
and the Operative Agreements by the Partnership Entities that are parties hereto and thereto or the
consummation by the Partnership Entities of the transactions contemplated hereby and thereby
(including the Transactions) or for the conveyance of the properties located in the State of Texas
purported to be conveyed by the Contribution Documents, except (i) for such consents required under
the Securities Act, the Exchange Act and state securities or Blue Sky laws, as to which such
counsel need not express any opinion, (ii) for such consents that have been obtained or made, (iii)
for such consents that (A) are of a routine or administrative nature, (B) are not customarily
obtained or made prior to the consummation of transactions such as those contemplated by this
Agreement or the Operative Agreements and (C) are expected in the reasonable judgment of the
General Partner to be obtained or made in the ordinary course of business subsequent to the
consummation of the Transactions (other than those contemplated by the Credit Agreement), (iv) for
such consents that, if not obtained, would not, individually or in the aggregate, have a Material
Adverse Effect, or (v) as disclosed in the Prospectus.
16. Descriptions and Summaries. The statements in the Registration Statement and Prospectus
under the captions Risk Factors Risks Related to Our Business
B-6
A change in the jurisdictional characterization of some of our assets by federal, state or
local regulatory agencies or a change in policy by those agencies may result in increased
regulation of our assets, which may cause our revenues to decline and operating expenses to
increase, Our Cash Distribution Policy and Restrictions on Distributions, Provisions of Our
Partnership Agreement Relating to Cash Distributions, Managements Discussion and Analysis of
Financial Condition and Results of Operations Capital Requirements Description of Credit
Agreement, Business Regulation of Operations, Business Environmental Matters,
Management Long-Term Incentive Plan, Certain Relationships and Related Party Transactions,
Conflicts of Interest and Fiduciary Duties, Description of the Common Units, The Partnership
Agreement and Investment in DCP Midstream Partners, LP by Employee Benefit Plans, insofar as
they constitute descriptions of agreements or refer to statements of law or legal conclusions are
accurate and complete in all material respects; and the Common Units, the Subordinated Units and
the Incentive Distribution Rights conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus under the captions Summary The
Offering, Our Cash Distribution Policy and Restrictions on Distributions, Provisions of Our
Partnership Agreement Relating to Cash Distributions, Description of the Common Units and The
Partnership Agreement.
17. Legal Proceedings or Contracts to be Described or Filed. To the knowledge of such
counsel, (i) there are no legal or governmental proceedings pending or threatened to which any of
the Partnership Entities is a party or to which any of their respective properties is subject that
are required to be described in the Registration Statement or the Prospectus but are not so
described as required, and (ii) there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or filed as required by
the Securities Act.
18. Tax Opinion. The opinion of Vinson & Elkins L.L.P. that is filed as Exhibit 8.1 to the
Registration Statement is confirmed, and the Underwriters may rely upon such opinion as if it were
addressed to them.
19. Effectiveness of Registration Statement. The Registration Statement was declared
effective under the Securities Act on , 2005; to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement [or the Rule 462(b) Registration
Statement] has been issued and no proceedings for that purpose have been instituted or threatened
by the Commission; and any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by such Rule.
20. Form of Registration Statement and Prospectus. The Registration Statement and the
Prospectus and any further amendments and supplements thereto made by the Partnership prior to such
Delivery Date (except for the financial statements and the notes and schedules thereto, and other
financial and statistical data included in the Registration Statement or the Prospectus, as to
which such counsel need not express any opinion) comply as to form in all material respects with
the requirements of the Securities Act and the Rules and Regulations.
21. Investment Company; Public Utility Holding Company. None of the Partnership Entities is
an investment company within the meaning of the Investment Company
B-7
Act of 1940, as amended, or a public utility company or a holding company as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended.
In addition, such counsel shall state that they have participated in conferences with officers
and other representatives of the DCP Parties, representatives of the independent public accountants
of the Partnership, and representatives of the Underwriters, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and although such counsel
did not independently verify, is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Registration Statement and
Prospectus (except to the extent specified in paragraph 16 above), on the basis of the foregoing,
no facts have come to the attention of such counsel which lead them to believe that the
Registration Statement (other than (i) the financial statements included therein, including the
notes and schedules thereto and the independent registered public accounting firms reports thereon
(ii) the other financial and statistical data included therein, as to which such counsel need
express no belief) at the time it became effective contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than (i) the financial statements
included therein, including the notes and schedules thereto and the independent registered public
accounting firms reports thereon, and (ii) the other financial and statistical data included
therein, as to which such counsel need express no belief) as of its issue date and as of such
Delivery Date contained or contains an untrue statement of a material fact or omitted or omits to
state a material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon
certificates of officers and employees of the DCP Parties and upon information obtained from public
officials, (B) assume that all documents submitted to them as originals are authentic, that all
copies submitted to them conform to the originals thereof, and that the signatures on all documents
examined by them are genuine, (C) state that their opinion is limited to federal laws, the Delaware
LP Act, the Delaware LLC Act, the DGCL, and the laws of the State of Texas, (D) with respect to the
opinions expressed in paragraph 1 above as to the due qualification or registration as a foreign
limited partnership, limited liability company or corporation, as the case may be, of the
Partnership, the General Partner, the Operating Partnership, DCP Midstream GP, LLC, the OLP GP and
the Operating Subsidiaries, state that such opinions are based upon certificates of foreign
qualification or registration provided by the Secretary of State of the states listed on Annex I
(each of which will be dated not more than fourteen days prior to such Delivery Date and shall be
provided to the Underwriters), (E) state that they express no opinion with respect to any permits
to own or operate any real or personal property, (F) state that they express no opinion with
respect to the title of any of the Partnership Entities to any of their respective real or personal
property purported to be transferred by the Contribution Documents nor with respect to the accuracy
or descriptions of real or personal property, (G) state that they express no opinion with respect
to state or local taxes or tax statutes to which any of the limited partners of the Partnership or
any of the Partnership Entities may be subject, and (H) rely on a certificate of an officer of the
General Partner certifying that certain financial covenants in the Credit Agreement have been met
in rendering their opinions expressed in paragraph 13.
B-8
Exhibit C
Opinion of Brent Backes
1. Formation of DEFS. DEFS has been duly formed and is validly existing in good standing as a
limited liability company under the laws of the State of Delaware with full limited liability
company power and authority to enter into and perform its obligations under this Agreement.
2. Authorization, Execution and Delivery of Agreement. This Agreement has been duly
authorized, executed and delivered by DEFS.
3. Enforceability of Certain Agreements.
(a) The GP Partnership Agreement has been duly authorized, executed and delivered by
DEFS and, assuming due authorization, execution and delivery by the other parties thereto,
is a valid and legally binding agreement of DEFS, enforceable against DEFS in accordance
with its terms;
(b) The DCP Midstream GP, LLC Limited Liability Company Agreement has been duly
authorized, executed and delivered by DEFS and is a valid and legally binding agreement of
DEFS, enforceable against DEFS in accordance with its terms;
(c) The Omnibus Agreement has been duly authorized, executed and delivered by DEFS and,
assuming due authorization, execution and delivery by the other parties thereto, is a valid
and legally binding agreement of DEFS, enforceable against DEFS in accordance with its
terms; and
(d) The Contribution Documents to which DEFS or any of its affiliates (other than any
Partnership Entity) are a party have been duly authorized, executed and delivered by DEFS
and any of its affiliates (other than any Partnership Entity), as applicable, and, assuming
due authorization, execution and delivery by the other parties thereto, are valid and
legally binding agreements of DEFS and its affiliates (other than any Partnership Entity)
enforceable against each of them in accordance with their terms.
provided that, with respect to each agreement described in this paragraph 3, the
enforceability thereof may be limited by (A) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws relating to or affecting creditors rights
generally and by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (B) public policy, applicable law
relating to fiduciary duties and indemnification and contribution and an implied covenant of
good faith and fair dealing.
4. Sufficiency of Contribution Documents. Each of the Contribution Documents is in a form
legally sufficient as between the parties thereto to convey to the transferee thereunder all of the
right, title and interest of the transferor named therein in and to the properties located in the
State of Texas as described in such Contribution Documents, subject
C-1
to the conditions, reservations and limitations contained in the Contribution Documents,
except for motor vehicles or other property requiring conveyance of certificated title as to which
the Contribution Documents are legally sufficient to compel delivery of such certificated title.
5. No Conflicts. None of the execution, delivery and performance by DEFS of this Agreement or
the Operative Agreements to which DEFS is a party, or the consummation by DEFS of the transactions
contemplated hereby and thereby (including the Transactions) will conflict with, result in a
breach, default or violation (and no event has occurred that, with notice or lapse of time or
otherwise, would constitute such an event) or imposition of any Lien upon any property or assets of
the Partnership Entities pursuant to, (i) the certificate of formation and limited liability
company agreement of DEFS, (ii) the Operative Agreements or any other agreement filed as an exhibit
to the Registration Statement or (iii) the Delaware LP Act, the Delaware LLC Act, the DGCL, or
federal law, which breaches, violations, defaults or Liens, in the case of clauses (ii) or (iii),
would reasonably be expected to have a Material Adverse Effect, or could materially impair the
ability of any of DEFS or any of the Partnership Entities to perform their obligations under this
Agreement or the Operative Agreements; provided, however, that no opinion is expressed pursuant to
this paragraph 4 with respect to securities and other anti-fraud statutes, rules or regulations.
None of the offering, issuance and sale by the Partnership of the Units being delivered at such
Delivery Date, the execution, delivery and performance of this Agreement, the Contribution
Documents or the Credit Agreement by DEFS or any of the Partnership Entities that are parties
thereto and the consummation of the transactions contemplated hereby and thereby (including the
Transactions) will conflict with, result in a breach, default (and no event has occurred that, with
notice or lapse of time or otherwise, would constitute such an event) or violation or imposition of
any Lien (other than those arising under the Credit Agreement) upon any property or assets of the
Partnership Entities pursuant to, (i) any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument known to such counsel (excluding the Operative Agreements and any
other agreements and instruments listed as exhibits to the Registration Statement) to which any of
DEFS or the Partnership Entities or their properties may be bound, or (ii) any order, judgment,
decree or injunction known to such counsel of any court or governmental agency or body to which
DEFS or any of the Partnership Entities or any of their properties is subject, which breaches,
violations or defaults would reasonably be expected to have a Material Adverse Effect, could
materially impair the ability of any of DEFS or any of the Partnership Entities to perform their
obligations under this Agreement or the Operative Agreements; or subject the limited partners of
the Partnership to any material liability or disability.
6. No Preemptive Rights, Registration Rights or Options. Except as described in the
Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of any equity securities of any of the Partnership Entities
or the Operating Subsidiaries, in each case pursuant to any agreement or instrument to which DEFS
or any of its affiliates (other than any Partnership Entity) is a party or by which DEFS or any of
its affiliates (other than any Partnership Entity) may be bound (other than the GP Partnership
Agreement, the Partnership Agreement, the Operating Partnership Agreement, the Operating
Subsidiaries Operative Documents and those agreements and instruments listed as exhibits to the
Registration Statement). To the knowledge of such counsel, neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any
C-2
Units or other securities of the Partnership, the General Partner, the Operating Partnership,
DCP Midstream GP, LLC, the OLP GP or the Operating Subsidiaries, other than as described in the
Prospectus, provided in the Partnership Agreement or as have been waived. To such counsels
knowledge, except as described in the Prospectus, there are no outstanding options or warrants to
purchase (A) any Common Units, Subordinated Units or other interests in the Partnership, (B) any
partnership interests in the General Partner or the Operating Partnership, (C) any membership
interests in DCP Midstream GP, LLC or the OLP GP, or (D) any shares of stock, membership interests
or partnership interests, as applicable, in any Operating Subsidiary.
7. Litigation. Except as described in the Prospectus, to the knowledge of such counsel, there
is no litigation, proceeding or governmental investigation pending or threatened against any of the
Partnership Entities or to which any of the Partnership Entities is a party or to which any of
their respective operations, assets or properties (as described in the prospectus) are subject,
which, if adversely determined, would reasonably be expected to have a Material Adverse Effect.
In addition, such counsel shall state that he has participated in conferences with officers
and other representatives of the DCP Parties, representatives of the independent public accountants
of the Partnership, and representatives of the Underwriters, at which the contents of the
Registration Statement and Prospectus and related matters were discussed, and although such counsel
did not independently verify, is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the Registration Statement and
Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel
which lead him to believe that the Registration Statement (other than (i) the financial statements
included therein, including the notes and schedules thereto and the independent registered public
accounting firms reports thereon and (ii) the other financial and statistical data included
therein, as to which such counsel need express no belief) at the time it became effective contained
an untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the Prospectus (other
than (i) the financial statements included therein, including the notes and schedules thereto and
the independent registered public accounting firms reports thereon, and (ii) the other financial
and statistical data included therein, as to which such counsel need express no belief) as of its
issue date and as of such Delivery Date contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon
certificates of officers and employees of the DCP Parties and upon information obtained from public
officials, (B) assume that all documents submitted to them as originals are authentic, that all
copies submitted to them conform to the originals thereof, and that the signatures on all documents
examined by them are genuine, (C) state that their opinion is limited to Federal laws, the Delaware
LP Act, the Delaware LLC Act, the DGCL and the laws of the State of Colorado, (D) state that they
express no opinion with respect to the title of any of the DCP Parties to any of their respective
real or personal property purported to be transferred by the Contribution Documents nor with
respect to the accuracy or descriptions of real or personal property, and (E)
C-3
state that they express no opinion with respect to state or local taxes or tax statutes to
which any of the limited partners of the Partnership or any of the Partnership Entities may be
subject.
C-4
Exhibit D
Form of Local Counsel Opinion
[Letterhead of Local Counsel]
1. Qualification of the General Partner, the Partnership, DCP Midstream GP, LLC, the OLP GP
and the Operating Partnership. The General Partner, the Partnership, DCP Midstream GP, LLC, the
OLP GP and the Operating Partnership are each qualified and registered as a foreign limited
partnership or foreign limited liability company, as applicable, in the State.
2. Power and Authority. Each of the Partnership Entities has all limited partnership, limited
liability company or corporate, as applicable, power and authority under the laws of the State
necessary to own or lease its properties and to conduct its business in the State, in each case in
all material respects as described in the Prospectus.
3. Limited Liability. Upon the consummation of the Transactions, the Partnership will not be
liable under the laws of the State for the liabilities of the Operating Partnership or the
Operating Subsidiaries, and the Unitholders will not be liable under the laws of the State for the
liabilities of the Partnership, the Operating Partnership or the Operating Subsidiaries except in
each case to the same extent as under the laws of the State of Delaware.
4. Enforceability of Contribution Documents. Each of the Contribution Documents governed by
State law or relating to the transfer of property in the State, assuming the due authorization,
execution and delivery thereof by all parties thereto (and in the case of any Contribution Document
that is governed by the laws of any jurisdiction other than the State, to the extent that such
Contribution Document is a validly and legally binding agreement under such law and that such law
applies thereto) is a valid and legally binding agreement of the parties thereto under the laws of
the State, enforceable against such parties in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general
application relating to or affecting creditors rights generally and to general principles of
equity (regardless of whether such enforceability is considered in a proceeding in equity or at
law).
5. Sufficiency of Contribution Documents. Each of the Contribution Documents is in a form
legally sufficient under the laws of the State to convey to the transferee thereunder all of the
right, title and interest of the transferor named therein in and to the properties located in the
State, as described in such Contribution Document, subject to the conditions, reservations and
limitations contained in the Contribution Documents, except for motor vehicles or other property
requiring transfer of certificated title, as to which we render no opinion.
6. No Conflicts. The offering, issuance and sale by the Partnership of the Units being
delivered on any Delivery Date, the execution, delivery and performance of this
D-1
Agreement, the Contribution Documents and the Credit Agreement by each Partnership Entity that
is a party thereto, and the consummation of the transactions (including the Transactions)
contemplated thereby, will not conflict with, result in a breach, default (and no event has
occurred that, with notice or lapse of time or otherwise, would constitute such an event) or
violation or imposition of any Lien upon any property or assets of the Partnership Entities
pursuant to: (a) any order, judgment, decree or injunction known to such counsel of any court or
governmental agency or body of the State to which any of the Partnership Entities or any of their
properties is subject; or (b) any laws of the State (other than any federal or state (including the
State) securities laws or broker/dealer laws, as to which such counsel need express no opinion),
which breaches, violations or defaults would reasonably be expected to have a material adverse
effect on the holders of the Units or the operations conducted in the State by of the Partnership
Entities, taken as a whole.
7. No Consents. No consent, approval, authorization, order, registration, notice, filing or
qualification (Consents) of, with, to or at the direction of the State or any political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to the government (Governmental Authority) of the State
is required in connection with the offering, issuance and sale by the Partnership of the Units,
delivery and performance of this Agreement, the Contribution Documents or the Credit Agreement by
each Partnership Entity that is a party thereto, or the consummation of the Transactions by the
Partnership Entities, except (i) for such Consents required under the federal securities laws or
state (including the State) securities or Blue Sky laws, as to which such counsel need express no
opinion, (ii) for such Consents that have been obtained or made, (iii) for such Consents that (A)
are of a routine or administrative nature, (B) are not customarily obtained or made prior to the
consummation of transactions such as those contemplated by this Agreement, the Contribution
Documents or the Credit Agreement and (C) are expected to be obtained or made in the ordinary
course of business subsequent to the consummation of the Transactions, (iv) for the recording or
filing of deeds of trust, financing statements and other documents as contemplated by the Credit
Agreement, (v) for such Consents that, if not obtained, would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the operations conducted or
to be conducted as described in the Prospectus in State, or (vi) as otherwise provided for or
disclosed in the Prospectus.
In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon
certificates of officers and employees of the DCP Parties and upon information obtained from public
officials, (B) assume that all documents submitted to them as originals are authentic, that all
copies submitted to them conform to the originals thereof, and that the signatures on all documents
examined by them are genuine, (C) state that their opinion is limited to the laws of the State, and
(D) state that they express no opinion with respect to state or local taxes or tax statutes to
which any of the limited partners of the Partnership or any of the Partnership Entities may be
subject.
D-2
exv3w4
Exhibit 3.4
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
DCP MIDSTREAM GP, LP
TABLE OF CONTENTS
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ARTICLE I
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Definitions
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1.1 |
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Definitions |
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1 |
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1.2 |
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Construction |
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1 |
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ARTICLE II
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Organization
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2.1 |
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Formation |
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1 |
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2.2 |
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Name |
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1 |
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2.3 |
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Registered Office; Registered Agent; Principal Office; Other Offices |
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1 |
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2.4 |
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Purpose and Business |
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2 |
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2.5 |
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Powers |
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2 |
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2.6 |
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Power of Attorney |
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2 |
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2.7 |
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Term |
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3 |
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2.8 |
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Title to Partnership Assets |
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3 |
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2.9 |
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Certain Undertakings Relating to the Separateness of the Partnership |
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3 |
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ARTICLE III
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Rights of Limited Partners
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3.1 |
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Limitation of Liability |
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5 |
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3.2 |
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Management of Business |
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5 |
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3.3 |
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Outside Activities of the Limited Partners |
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5 |
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3.4 |
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Rights of Limited Partners |
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5 |
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ARTICLE IV
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Transfer of Partnership Interests
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4.1 |
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Transfer Generally |
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6 |
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4.2 |
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Transfer of General Partner Interest |
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6 |
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4.3 |
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Transfer of a Limited Partners Partnership Interest |
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6 |
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4.4 |
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Restrictions on Transfers |
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6 |
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ARTICLE V
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Capital Contributions and Issuance of Partnership Interests
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5.1 |
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Prior Contributions |
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7 |
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5.2 |
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Continuation of General Partner and Limited Partner Interests; Contributions by the General Partner |
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7 |
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5.3 |
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Interest and Withdrawal |
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7 |
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5.4 |
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Issuances of Additional Partnership Interests |
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7 |
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5.5 |
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Limited Preemptive Right |
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8 |
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5.6 |
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Fully Paid and Non-Assessable Nature of Limited Partner Interests |
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8 |
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ARTICLE VI
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Distributions
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6.1 |
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Requirement and Characterization of Distributions; Distributions to Record Holders |
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ARTICLE VII
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Management and Operation of Business
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7.1 |
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Management |
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9 |
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7.2 |
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Certificate of Limited Partnership |
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10 |
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7.3 |
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Restrictions on General Partners Authority |
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11 |
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7.4 |
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Reimbursement of the General Partner |
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11 |
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7.5 |
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Outside Activities |
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12 |
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7.6 |
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Loans from the General Partner; Loans or Contributions from the Partnership or Group Members |
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12 |
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7.7 |
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Indemnification |
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13 |
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7.8 |
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Liability of Indemnitees |
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14 |
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7.9 |
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Resolution of Conflicts of Interest; Standard of Conduct and Modification of Duties |
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14 |
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7.10 |
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Other Matters Concerning the General Partner |
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16 |
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7.11 |
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Reliance by Third Parties |
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16 |
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ARTICLE VIII
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Books, Records, Accounting and Reports
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8.1 |
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Records and Accounting |
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17 |
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8.2 |
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Fiscal Year |
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17 |
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8.3 |
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Reports |
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17 |
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ARTICLE IX
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Tax Matters
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9.1 |
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Tax Matters |
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17 |
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ARTICLE X
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Admission of Partners
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10.1 |
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Admission of Limited Partners |
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17 |
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10.2 |
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Admission of Successor General Partner |
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18 |
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10.3 |
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Amendment of Agreement and Certificate of Limited Partnership |
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18 |
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ARTICLE XI
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Withdrawal or Removal of Partners
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11.1 |
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Withdrawal of the General Partner |
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18 |
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11.2 |
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Removal of the General Partner |
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19 |
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11.3 |
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Interest of Departing General Partner |
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19 |
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11.4 |
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Withdrawal of Limited Partners |
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20 |
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ARTICLE XII
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Dissolution and Liquidation
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12.1 |
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Dissolution |
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20 |
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12.2 |
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Continuation of the Business of the Partnership After Dissolution |
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21 |
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12.3 |
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Liquidator |
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21 |
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12.4 |
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Liquidation |
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21 |
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12.5 |
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Cancellation of Certificate of Limited Partnership |
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22 |
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12.6 |
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Return of Contributions |
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22 |
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12.7 |
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Waiver of Partition |
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22 |
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ARTICLE XIII
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Amendment of Partnership Agreement; Meetings; Record Date
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13.1 |
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Amendments to be Adopted Solely by the General Partner |
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22 |
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13.2 |
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Amendment Procedures |
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23 |
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13.3 |
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Amendment Requirements |
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23 |
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13.4 |
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Special Meetings |
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24 |
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13.5 |
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Notice of a Meeting |
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24 |
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13.6 |
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Record Date |
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24 |
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13.7 |
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Adjournment |
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24 |
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13.8 |
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Waiver of Notice; Approval of Meeting; Approval of Minutes |
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25 |
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13.9 |
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Quorum and Voting |
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25 |
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13.10 |
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Conduct of a Meeting |
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25 |
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13.11 |
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Action Without a Meeting |
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25 |
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13.12 |
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Voting and Other Rights |
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26 |
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ii
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ARTICLE XIV
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Merger, Consolidation or Conversion
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14.1 |
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Authority |
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26 |
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14.2 |
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Procedure for Merger, Consolidation or Conversion |
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26 |
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14.3 |
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Approval by Limited Partners |
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27 |
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14.4 |
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Certificate of Merger |
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28 |
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14.5 |
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Amendment of Partnership Agreement |
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29 |
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ARTICLE XV
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General Provisions
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15.1 |
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Addresses and Notices |
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29 |
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15.2 |
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Further Action |
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29 |
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15.3 |
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Binding Effect |
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29 |
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15.4 |
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Integration |
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29 |
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15.5 |
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Creditors |
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30 |
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15.6 |
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Waiver |
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30 |
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15.7 |
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Counterparts |
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30 |
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15.8 |
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Applicable Law |
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30 |
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15.9 |
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Invalidity of Provisions |
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30 |
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15.10 |
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Consent of Partners |
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30 |
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15.11 |
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Third-Party Beneficiaries |
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30 |
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Attachment IDefined Terms
iii
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF DCP MIDSTREAM GP, LP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF DCP MIDSTREAM GP, LP dated
effective as of ___, 2005, is entered into by and among DCP Midstream GP, LLC, a
Delaware limited liability company, as the General Partner, together with any other Persons who
become Partners in the Partnership or parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
1.1 Definitions. The definitions listed on Attachment I shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
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; (c) the terms include, includes,
including or words of like import shall be deemed to be followed by the words without
limitation; and (d) the terms hereof, herein or hereunder refer to this Agreement as a whole
and not to any particular provision of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only, and shall not affect in any way the
meaning or interpretation of this Agreement.
ARTICLE II
Organization
2.1 Formation. The Partnership has been previously formed as a limited partnership pursuant to the
provisions of the Delaware Act. The General Partner and the Limited Partners hereby amend and
restate in its entirety the Agreement of Limited Partnership of DCP Midstream GP, LP, dated as of
___, 2005. Subject to the provisions of this Agreement, the General Partner and the
Limited Partners hereby continue the Partnership as a limited partnership pursuant to the
provisions of the Delaware Act. 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.
2.2 Name. The name of the Partnership shall be DCP Midstream GP, LP. The Partnerships business
may be conducted under any other name or names as determined by the General Partner, including the
name of the General Partner. The words Limited Partnership, LP, L.P., Ltd. or similar words
or letters shall be included in the Partnerships name where necessary for the purpose of complying
with the laws of any jurisdiction that so requires. The General Partner 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. The registered office of the Partnership required by the Delaware Act to be maintained in the
State of Delaware shall be the office of the initial registered agent for service of process named
in the Certificate of Limited Partnership or such other office (which need not be a place of
business of the Partnership) as the Board of Directors may designate in the manner provided by law.
The registered agent for service of process of the Partnership in the State of Delaware shall be
the initial registered agent for service of process named in the Certificate of Limited Partnership
or such other Person or Persons as the Board of Directors may designate in the manner provided by
law. The principal office of the Partnership in the United States shall be at such a place as the
Board of Directors may from time to time designate, which need not be in the State of Delaware, and
the Partnership shall maintain records there and shall keep the street address of such principal
office at the registered
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office of the Partnership in the State of Delaware. The Partnership may
have such other offices as the Board of Directors may designate.
2.4 Purpose and Business. The purpose and nature of the business to be conducted by the
Partnership shall be to engage in any business activity that is approved by the General Partner and
that lawfully may be conducted by a limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and powers conferred upon the Partnership
pursuant to the agreements relating to such business activity; provided, however, that the General
Partner shall not cause the Partnership to engage, directly or indirectly in any business activity
that the General Partner determines would cause the Partnership or the MLP to be treated as an
association taxable as a corporation or otherwise taxable as an entity for federal income tax
purposes. To the fullest extent permitted by law, the General Partner shall have no duty or
obligation to propose or approve, and may decline to propose or approve, the conduct by the
Partnership of any business free of any fiduciary duty or obligation whatsoever to the Partnership
or any Limited Partner and, in declining to so propose or approve, shall not be required to act in
good faith or pursuant to any other standard imposed by this Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law, rule or regulation or at equity.
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 hereby constitutes and appoints the General Partner and, if a
Liquidator (other than the General Partner) shall have been selected pursuant to Section
12.3, the Liquidator, severally (and any successor to either thereof 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
determines to be 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 determines to be 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 determines to be 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,
Article X, Article XI or Article XII; (E) all certificates, documents and other
instruments relating to the determination of the rights, preferences and privileges
of any class or series of Partnership Interests issued pursuant to Section 5.6; and
(F) all certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger, consolidation or conversion 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 that the
General Partner or the Liquidator determines to be necessary or appropriate to (A)
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 (B) effectuate the terms or intent of this Agreement;
provided, that when required by Section 13.3 or any other provision of this
Agreement
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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 and the transfer of all or any portion of
such Limited Partners Partnership Interest and shall extend to such Limited Partners
heirs, successors, assigns and personal representatives. Each such Limited Partner 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, 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 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 may request in order to effectuate this Agreement
and the purposes of the Partnership.
2.7 Term. The term of the Partnership commenced upon the filing of the Certificate of Limited
Partnership in accordance with the Delaware Act and shall continue in existence until the
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, 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 or one or more third party 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 third party nominees
shall be held by the General Partner or such third party 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 to the Partnership of record title to
all Partnership assets held by the General Partner, 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.
2.9 Certain Undertakings Relating to the Separateness of the Partnership.
(a) Separateness Generally. The Partnership shall conduct its business and
operations in accordance with this Section 2.9.
(b) Separate Records. The Partnership shall (i) maintain its books and records
and its accounts separate from those of any other Person, (ii) maintain its financial
records, which will be used by it in its ordinary course of business, showing its assets and
liabilities separate and apart from those of any other Person, (iii) not have its assets
and/or liabilities included in a consolidated financial statement of any Affiliate of the
General Partner unless the General Partner shall cause appropriate notation to be made on
such Affiliates consolidated financial statements to indicate the separateness of the
Partnership and the General Partner and
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their assets and liabilities from such Affiliate and
the assets and liabilities of such Affiliate, and to indicate that the assets and
liabilities of the Partnership and the General Partner are not available to satisfy the
debts and other obligations of such Affiliate (except to the extent specified in the
Contribution Agreement), and (iv) file its own tax returns separate from those of any other
Person, except to the extent that the Partnership is treated as a disregarded entity for
tax purposes or is not otherwise required to file tax returns under applicable law or is
required under applicable law to file a tax return which is consolidated with another
Person.
(c) Separate Assets. The Partnership shall not commingle or pool its funds or
other assets with those of any other Person, except the General Partner, and shall maintain
its assets in a manner that is not costly or difficult to segregate, ascertain or otherwise
identify as separate from those of any other Person.
(d) Separate Name. The Partnership shall (i) conduct its business in its own
name or in the name of the General Partner, (ii) use separate stationery, invoices, and
checks, (iii) correct any known misunderstanding regarding its separate identity, and (iv)
generally hold itself out as an entity separate from any other Person (other than the
General Partner).
(e) Separate Credit. The Partnership (i) shall pay its obligations and
liabilities from its own funds (whether on hand or borrowed), (ii) shall maintain adequate
capital in light of its business operations, (iii) shall not pledge its assets for the
benefit of any other Person or guarantee or become obligated for the debts of any other
Person (except to the extent specified in the Contribution Agreement or the Omnibus
Agreement), (iv) shall not hold out its credit as being available to satisfy the obligations
or liabilities of any other Person, (v) shall not acquire obligations or debt securities
(except to the extent specified in the Contribution Agreement or the Omnibus Agreement) of
DEFS or its Affiliates (other than the General Partner) nor the MLP or its Subsidiaries,
(vi) shall not make loans, advances or capital contributions to DEFS or its Affiliates
(other than the MLP or any of its Subsidiaries), and (vii) shall use its commercially
reasonable efforts to cause the operative documents under which the Partnership or the
General Partner borrows money, is an issuer of debt securities, or guarantees any such
borrowing or issuance, to contain provisions to the effect that (A) the lenders or
purchasers of debt securities, respectively, acknowledge that they have advanced funds or
purchased debt securities, respectively, in reliance upon the separateness of the
Partnership and the General Partner from any other Person, including any Affiliate of the
General Partner and (B) the Partnership and the General Partner have assets and liabilities
that are separate from those of other Persons, including any Affiliate of the General
Partner; provided that, the Partnership may engage in any transaction described in clauses
(v) or (vi) of this Section 2.9(e) if prior Special Approval has been obtained for such
transaction and either (A) the Conflicts Committee has determined (by Special Approval) that
the borrower or recipient of the credit support is not then insolvent and will not be
rendered insolvent as a result of
such transaction or (B) in the case of transactions described in clause (v), such
transaction is completed through a public sale or a National Securities Exchange.
(f) Separate Formalities. The Partnership shall (i) observe all partnership
formalities and other formalities required by its organizational documents, the laws of the
jurisdiction of its formation, or other laws, rules, regulations and orders of governmental
authorities exercising jurisdiction over it, (ii) engage in transactions with DEFS and its
Affiliates or the MLP or its Subsidiaries in conformity with the requirements of Section
7.9, and (iii) subject to the terms of the Omnibus Agreement, promptly pay, from its own
funds, and on a current basis, a fair and reasonable share of general and administrative
expenses, capital expenditures, and costs for shared services performed by DEFS or
Affiliates of DEFS (other than the General Partner). Each material contract between the
Partnership or the General Partner, on the one hand, and DEFS or Affiliates of DEFS (other
than the General Partner), on the other hand, shall be in writing.
(g) No Effect. Failure by the General Partner or the Partnership to comply
with any of the obligations set forth above shall not affect the status of the Partnership
as a separate legal entity, with its separate assets and separate liabilities or restrict or
limit the Partnership from engaging, or contracting with DEFS and its Affiliates, for the
provision of services or the purchase or sale of products, whether under the Omnibus
Agreement or otherwise.
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ARTICLE III
Rights of Limited Partners
3.1 Limitation of Liability. The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement or the Delaware Act.
3.2 Management of Business. No Limited Partner, in its capacity as such, shall participate in the
operation, management or control (within the meaning of the Delaware Act) of the Partnerships
business, transact any business in the Partnerships 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, manager, general partner, agent or trustee of the General
Partner or any of its Affiliates, or any officer, director, employee, member, manager, general
partner, agent or trustee of the Partnership or its Subsidiaries, 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 under this
Agreement.
3.3 Outside Activities of the Limited Partners. Subject to the provisions of Section 7.5 and the
Omnibus Agreement, which shall continue to be applicable to the Persons referred to therein,
regardless of whether such Persons shall also be Limited Partners, any Limited Partner shall be
entitled to and may have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities in direct competition with
the Partnership and its Subsidiaries. Neither the Partnership nor any of the other Partners shall
have any rights by virtue of this Agreement in any business ventures of any Limited Partner.
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 Partners
interest as a Limited Partner in the Partnership, upon reasonable written demand
stating the purpose of such demand and at such Limited Partners own expense:
(i) to obtain true and full information regarding the status of the business
and financial condition of the Partnership;
(ii) promptly after its becoming available, to obtain a copy of the
Partnerships state and local income tax returns for each year;
(iii) to obtain a current list of the name and last known business, residence
or mailing address of each Partner;
(iv) to obtain 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 that each Partner has agreed to contribute in the future, and
the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the Partnership
as is just and reasonable.
(b) Notwithstanding any other provision of this Agreement, the General Partner may keep
confidential from the Limited Partners, 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
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disclosure of which the General
Partner in good faith believes (A) is not in the best interests of the Partnership or its
Subsidiaries, (B) could damage the Partnerships or its Subsidiaries business or (C) that
the Partnership or any of its Subsidiaries 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
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 (i) by which the General Partner assigns
its General Partner Interest to another Person and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or
otherwise or (ii) by which the holder of a Limited Partner Interest assigns such Limited
Partner Interest to another Person who is or becomes a Limited Partner, and includes a sale,
assignment, gift, exchange or any other disposition by law or otherwise, including any
transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage.
(b) No Partnership Interest shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this Article IV. Any transfer or
purported transfer of a Partnership Interest not made in accordance with this Article IV
shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a disposition by
any stockholder, member, partner or other owner of the General Partner of any or all of the
issued and outstanding equity interests of the General Partner.
4.2 Transfer of General Partner Interest. No provision of this Agreement shall be construed to
prevent (and the Limited Partners do hereby expressly consent to) (a) the transfer by the General
Partner of all or a portion of its General Partner Interest, which transferred General Partner
Interest, to the extent not transferred to a successor General Partner, shall constitute a Limited
Partner Interest or (b) the transfer by the General Partner, in whole and not in part, of its
General Partner Interest upon (i) its merger, consolidation or other combination into any other
Person or the transfer by it of all or substantially all of its assets to such other Person or (ii)
sale of all or substantially all of the membership interests of the General Partner by its members
if, in the case of a transfer described in either clause (a) or (b) of this sentence, the rights
and duties of the General Partner with respect to the General Partner Interest so transferred are
assumed by the transferee and the transferee agrees to be bound by the provisions of this
Agreement. In the case of a transfer pursuant to this Section 4.2 to a Person proposed as a
successor general partner of the Partnership, the transferee or successor (as the case may be)
shall, subject to compliance with the terms of Section 10.2, be admitted to the Partnership as the
General Partner immediately prior to the transfer of the Partnership Interest, and the business of
the Partnership shall continue without dissolution.
4.3 Transfer of a Limited Partners Partnership Interest. A Limited Partner may transfer all, or a
portion, of its Limited Partner Interest to another Person, and, following any such transfer, such
Person may become a substituted Limited Partner pursuant to Section 10.01.
4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no transfer of any
Partnership Interests shall be made if such transfer would (i) violate the then applicable
federal or state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authority with jurisdiction over such
transfer, (ii) terminate the existence or qualification of the Partnership under the laws of
the jurisdiction of its formation, or (iii) cause the Partnership or the MLP to be treated
as an association taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not already so treated or taxed).
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(b) The General Partner may impose restrictions on the transfer of Partnership
Interests if it reviews an Opinion of Counsel that determines that such restrictions are
necessary to avoid a significant risk of the Partnership or the MLP becoming taxable as a
corporation or otherwise becoming taxable as an entity for federal income tax purposes. The
General Partner may impose such restrictions by amending this Agreement.
ARTICLE V
Capital Contributions and Issuance of Partnership Interests
5.1 Prior Contributions.
(a) In connection with formation of the Partnership, the General Partner made certain
Capital Contributions to the Partnership in exchange for a 0.001% General Partner Interest
in the Partnership and was
admitted as the General Partner of the Partnership, and DEFS made certain Capital
Contributions to the Partnership in exchange for a 99.999% Limited Partner Interest in the
Partnership and was admitted as a Limited Partner of the Partnership.
(b) On the date of this Agreement, DEFS and its Affiliates made additional Capital
Contributions to the Partnership consisting of a limited partner interest in DCP Assets
Holding, LP, a Delaware limited partnership.
5.2 Continuation of General Partner and Limited Partner Interests; Contributions by the
General Partner.
(a) The Interest of the General Partner in the Partnership shall be continued as a
0.001% General Partner Interest, subject to all of the rights, privileges and duties of the
General Partner under this Agreement.
(b) Upon the issuance of any additional Limited Partner Interests by the Partnership,
the General Partner shall maintain its Percentage Interest without any requirement to make
additional Capital Contributions. Except as set forth in Sections 11.3 and 12.2(ii), the
General Partner shall not be obligated to make any additional Capital Contributions to the
Partnership.
5.3 Interest and Withdrawal. No interest shall be paid by the Partnership on Capital
Contributions. No Partner 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 shall have priority over any other Partner 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 agree within the meaning of Section 17-502(b) of the Delaware Act.
5.4 Issuances of Additional Partnership Interests.
(a) The Partnership may issue additional Partnership Interests and options, rights,
warrants and appreciation rights relating to the Partnership Interests 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 the General Partner shall determine, all without the approval of any
Limited Partners.
(b) Each additional Partnership Interest authorized to be issued by the Partnership
pursuant to Section 5.4(a) may be issued in one or more classes, or one or more series of
any such classes, with such designations, preferences, rights, powers and duties (which may
be senior to existing classes and series of Partnership Interests), as shall be fixed by the
General Partner, including (i) the right to share in 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 or shall be required to redeem the Partnership Interest
(including sinking fund provisions); (v) whether such Partnership Interest is issued with
the privilege of conversion or exchange and, if so, the terms and conditions of such
conversion or exchange; (vi) the terms and conditions upon which each Partnership Interest
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will be issued, evidenced by certificates and assigned or transferred; (vii) the method for
determining the Percentage Interest as to such Partnership Interest; and (viii) the right,
if any, of each such Partnership Interest to vote on Partnership matters, including matters
relating to the relative rights, preferences and privileges of such Partnership Interest.
(c) The General Partner is hereby authorized and directed to take all actions that it
determines to be necessary or appropriate in connection with (i) each issuance of
Partnership Interests and options, rights, warrants and appreciation rights relating to
Partnership Interests pursuant to this Section 5.4, (ii) the admission of additional Limited
Partners and (iii) all additional issuances of Partnership Interests. The General Partner
shall determine the relative rights, powers and duties of the holders of the Partnership
Interest or other Partnership Interests 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 that it determines to be necessary or appropriate in connection with any future
issuance of Partnership Interests or in connection with the conversion of the General
Partner Interest into Partnership Interest
pursuant to the terms of this Agreement, including compliance with any statute, rule,
regulation or guideline of any federal, state or other governmental agency.
(d) No fractional Partnership Interest shall be issued by the Partnership.
5.5 Limited Preemptive Right. Except as provided in this Section 5.5 and in Section 5.2, no Person
shall have any preemptive, preferential or other similar right with respect to the issuance of any
Partnership Interest, whether unissued, held in the treasury or hereafter created. The General
Partner shall have the right, which it may from time to time assign in whole or in part to any of
its Affiliates, to purchase Partnership Interests from the Partnership whenever, and on the same
terms that, the Partnership issues Partnership Interests to Persons other than the General Partner
and its Affiliates, to the extent necessary to maintain the Percentage Interests (other than the
General Partner Interest) of the General Partner and its Affiliates equal to that which existed
immediately prior to the issuance of such Partnership Interests.
5.6 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
Distributions
6.1 Requirement and Characterization of Distributions; Distributions to Record Holders.
(a) Within 50 days following the end of each Quarter commencing with the Quarter ending
on December 31, 2005, 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 as of the Record Date selected by the General Partner. 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 shall be applied
and distributed by the Partnership to the Partners solely in accordance with their
respective Percentage Interests.
(c) Each distribution in respect of a Partnership Interest shall be paid by the
Partnership, directly or through a 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
Partnerships liability in respect of such payment, regardless of any claim of any Person
who may have an interest in such payment by reason of an assignment or otherwise.
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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 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 that are granted to the
General Partner under any other provision of this Agreement, the General Partner, subject to
Section 2.9 and Section 7.3, shall have full power and authority to do all things and on
such terms as it determines to be 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 Interests, 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 and Article XIV);
(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; subject to Section 2.9(e) and Section
7.6(a), the lending of funds to other Persons; and the repayment or guarantee of
obligations of the Partnership or the General Partner;
(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,
the Partners and the Indemnitees as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the contribution
of cash or property and the making of loans to, any further limited or general
partnerships, joint ventures, limited liability companies, corporations or other
relationships (including the acquisition of interests in the
9
MLP and the
contributions of cash or property to the MLP from time to time) subject to the
restrictions set forth in Sections 2.4 and 2.9;
(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, arbitration or mediation 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 7.3);
(xiii) the purchase, sale or other acquisition or disposition of Partnership
Interests, or the issuance of options, rights, warrants and appreciation rights
relating to Partnership Interests;
(xiv) the undertaking of any action in connection with the Partnerships
participation in the management of the MLP through its ownership of certain partner
interests in the MLP; and
(xv) the entering into of agreements with any of its Affiliates to render
services to a Group Member in the discharge of its duties as General Partner of the
Partnership.
(b) Notwithstanding any other provision of this 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 Partnership Interests hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of the Contribution Agreement and
the Omnibus Agreement; (ii) agrees that the General Partner (on its own or through any
officer of the Partnership) is authorized to execute, deliver and perform the agreements
referred to in clause (i) of this sentence and the other agreements, acts, transactions and
matters described in or contemplated by the Registration Statement on behalf of the
Partnership without any further act, approval or vote of the Partners or the other Persons
who may acquire an interest in Partnership Interests; and (iii) agrees that the execution,
delivery or performance by the General Partner, the Partnership or any Affiliate of either
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 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 that the General Partner determines to be 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 the General Partner
determines such action to be 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.
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7.3 Restrictions on General Partners Authority.
(a) The General Partner may not, without written approval of the specific act by all
the Limited Partners or by other written instrument executed and delivered by all the
Limited Partners subsequent to the date of this Agreement, take any action in contravention
of this Agreement, including, (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) Without the approval of holders of a majority of Limited Partner Interests, the
General Partner shall not, on behalf of the Partnership except as permitted under Section
4.2, Section 11.1 and Section 11.2, elect or cause the Partnership to elect a successor
general partner of the Partnership.
(c) Without the approval of the Conflicts Committee, the General Partner shall not take
any action that would result in the Partnership engaging in any business or activity or
incurring any debts or liabilities except in connection with or incidental to (i) its
performance as general partner of the Partnership or (ii) the acquiring, owning or disposing
of debt or equity securities in the Partnership.
(d) Without obtaining Extraordinary Approval, the General Partner shall not take any
action to cause either the Partnership or the MLP to (i) make or consent to a general
assignment for the benefit of the Partnerships or the MLPs creditors; (ii) file or consent
to the filing of any bankruptcy, insolvency or reorganization petition for relief under the
United States Bankruptcy Code naming the Partnership or the MLP or otherwise seek, with
respect to the Partnership or the MLP, relief from debts or protection from creditors
generally; (iii) file or consent to the filing of a petition or answer seeking for the
Partnership or the MLP a liquidation, dissolution, arrangement, or similar relief under any
law; (iv) file an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partnership or the MLP in a proceeding of the
type described in clauses (i) (iii) of this Section 7.3(d); (v) seek, consent to or
acquiesce in the appointment of a receiver, liquidator, conservator, assignee, trustee,
sequestrator, custodian or any similar official for the Partnership or the MLP or for all or
any substantial portion of its properties; (vi) sell all or substantially all of its assets;
(vii) dissolve or liquidate, except, with respect to the Partnership only, in accordance
with Article XII; or (viii) merge or consolidate; provided however, that this Section
7.3(d) shall not preclude or limit the General Partners 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, the General
Partner shall not be compensated for its services as general partner of the Partnership.
(b) Subject to any applicable limitations contained in the Omnibus Agreement, the
General Partner shall be reimbursed on a monthly basis, or such other basis as the General
Partner may determine, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including amounts paid by the General Partner to DEFS
under Article IV of the Omnibus Agreement and 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 the General Partner in the discharge of
its duties to the Partnership), and (ii) all other expenses allocable to the Partnership or
otherwise incurred by the General Partner in connection with operating the Partnerships
business (including expenses allocated to the General Partner by its Affiliates). The
General Partner shall determine the expenses that are allocable to the Partnership.
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.
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7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is the general
partner of the Partnership (i) agrees that its sole business will be to act as the general
partner of the Partnership and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Partnership), and (ii) shall not engage in any
business or activity or incur any debts or liabilities except in connection with or
incidental to (A) its performance as general partner of the Partnership or (B) the
acquiring, owning or disposing of debt or equity securities in the Partnership.
(b) Except as specifically restricted by Section 7.5(a), each Indemnitee shall have the
right to engage in businesses of every type and description and other activities for profit
and to engage in and possess an interest in other business ventures of any and every type or
description, whether in businesses engaged in or anticipated to be engaged in by the
Partnership or its Subsidiaries, independently or with others, including business interests
and activities in direct competition with the business and activities of the Partnership or
its Subsidiaries, and none of the same shall constitute a breach of this Agreement or any
duty expressed or implied by law to the Partnership or its Subsidiaries or any Partner.
Neither the Partnership or its Subsidiaries, any Limited Partner nor any other Person shall
have any rights by virtue of this Agreement, the MLP Partnership Agreement or the
partnership relationship established hereby or thereby in any business ventures of any
Indemnitee.
(c) Subject to Section 7.5(a), but otherwise notwithstanding anything to the contrary
in this Agreement, (i) the engaging in competitive activities by any Indemnitees (other than
the General Partner) in accordance with the provisions of this Section 7.5 is hereby
approved by the Partnership and all Partners, (ii) it shall be deemed not to be a breach of
any fiduciary duty or any other obligation of any type whatsoever of any Indemnitee for the
Indemnitees (other than the General Partner) to engage in such business interests and
activities in preference to or to the exclusion of the Partnership and (iii) the General
Partner and the Indemnitees shall have no obligation hereunder or as a result of any duty
expressed or implied by law to present business opportunities to the Partnership.
(d) The General Partner and each of its Affiliates may acquire Partnership Interests in
addition to those acquired on the Closing Date and, except as otherwise provided in this
Agreement, shall be entitled to exercise, at their option, all rights of the General Partner
or Limited Partner, as applicable, relating to such Partnership Interests.
7.6 Loans from the General Partner; Loans or Contributions from the Partnership or Group
Members.
(a) The General Partner or any of its Affiliates may lend to the Partnership or any
Group Member, and the Partnership or any Group Member may borrow from the General Partner or
any of its Affiliates, funds needed or desired by the Partnership 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 arms-length basis (without
reference to the lending partys financial abilities or guarantees), all as determined by
the General Partner. 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.
(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 determined by the General
Partner. No Group Member may lend funds to the General Partner or any of its Affiliates
(other than another Group Member).
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7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the limitations expressly
provided in this Agreement, each Indemnitee shall be indemnified and held harmless by the
Partnership from and against any and all losses, claims, damages, liabilities, joint or
several, expenses (including legal fees and expenses), judgments, fines, 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
such 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 the Indemnitee shall not be
indemnified and held harmless if there has been a final and non-appealable judgment entered
by a court of competent jurisdiction determining that, in respect of the matter for which
the Indemnitee is seeking indemnification pursuant to this Section 7.7, the Indemnitee acted
in bad faith or engaged in fraud, willful misconduct, or in the case of a criminal matter,
acted with knowledge that the Indemnitees conduct was unlawful; provided, further, no
indemnification pursuant to this Section 7.7 shall be available to the General Partner or
its Affiliates (other than the MLP and any Group Member) with respect to its or their
obligations incurred pursuant to the Underwriting Agreement, the Omnibus Agreement or the
Contribution Agreement (other than obligations incurred by the General Partner on behalf of
the Partnership). The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that the Indemnitee acted in a manner contrary to that specified above.
Any indemnification pursuant to this Section 7.7 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 a determination that the Indemnitee is not entitled to
be indemnified, 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 entitled to vote on such matter, as a
matter of law or otherwise, both as to actions in the Indemnitees capacity as an
Indemnitee, and as to actions in any other capacity, 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
Partnerships activities or such Persons 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 the
Indemnitee with respect to any employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the best interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose that is in the best interest
of the Partnership.
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(f) In no event may an Indemnitee subject the Limited Partners to personal liability by
reason of the indemnification provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part under this
Section 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,
provided such Person became an Indemnitee hereunder prior to such amendment, modification or
repeal.
(j) THE PROVISIONS OF THE INDEMNIFICATION PROVIDED IN THIS SECTION 7.7 ARE INTENDED BY
THE PARTIES TO APPLY EVEN IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE INDEMNITEE
FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF SUCH PERSONS NEGLIGENCE, FAULT OR OTHER
CONDUCT.
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 or any other
Persons who have acquired interests in the Partnership Interests, for losses sustained or
liabilities incurred as a result of any act or omission of an Indemnitee unless there has
been a final and non-appealable judgment entered by a court of competent jurisdiction
determining that, in respect of the matter in question, the Indemnitee acted in bad faith or
engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with
knowledge that the Indemnitees conduct was criminal.
(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 Partnerships
business or affairs shall not be liable to the Partnership or to any Partner for any acts or
omissions taken in good faith reliance on the provisions of this Agreement.
(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; Standard of Conduct and Modification of Duties.
(a) Unless otherwise expressly provided in this Agreement, whenever a potential
conflict of interest exists or arises between the General Partner or any of its Affiliates
(other than the Partnership, any Group Member or any Partner), on the one hand, and the
Partnership, any Group Member or any Partner, on the other
14
hand, 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 or 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 in respect of such conflict
of interest is (i) approved by Special Approval, (ii) approved by the vote
of a majority of the Partnership Interests excluding Partnership Interests owned by the
General Partner and its Affiliates, (iii) on terms no less favorable to the Partnership than
those generally being provided to or available from unrelated third parties or (iv) fair and
reasonable 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 shall be authorized but not required
in connection with its resolution of such conflict of interest to seek Special Approval of
such resolution, and the General Partner may also adopt a resolution or course of action
that has not received Special Approval. If Special Approval is not sought and the Board of
Directors of the General Partner determines that the resolution or course of action taken
with respect to a conflict of interest satisfies either of the standards set forth in
clauses (iii) or (iv) above, then it shall be presumed that, in making its decision, the
Board of Directors acted in good faith, and in any proceeding brought by any Limited Partner
or by or on behalf of such Limited Partner or any other Limited Partner or the Partnership
challenging such approval, the Person bringing or prosecuting such proceeding shall have the
burden of overcoming such presumption.
(b) Whenever the General Partner makes a determination or takes or declines to take any
other action, or any of its Affiliates causes it to do so, in its capacity as the general
partner of the Partnership as opposed to in its individual capacity, whether under this
Agreement, or any other agreement contemplated hereby or otherwise, then unless another
express standard is provided for in this Agreement, the General Partner, or such Affiliates
causing it to do so, shall make such determination or take or decline to take such other
action in good faith and shall not be subject to any other or different standards imposed by
this Agreement, any other agreement contemplated hereby or under the Delaware Act or any
other law, rule or regulation or at equity. In order for a determination or other action to
be in good faith for purposes of this Agreement, the Person or Persons making such
determination or taking or declining to take such other action must believe that the
determination or other action is in the best interests of the Partnership.
(c) Whenever the General Partner makes a determination or takes or declines to take any
other action, or any of its Affiliates causes it to do so, in its individual capacity as
opposed to in its capacity as a general partner of the Partnership, whether under this
Agreement or any other agreement contemplated hereby or otherwise, then the General Partner,
or such Affiliates causing it to do so, are entitled to make such determination or to take
or decline to take such other action free of any fiduciary duty or obligation whatsoever to
the Partnership, any Limited Partner, and the General Partner, or such Affiliates causing it
to do so, shall not be required to act in good faith or pursuant to any other standard
imposed by this Agreement, any other agreement contemplated hereby or under the Delaware Act
or any other law, rule or regulation. By way of illustration and not of limitation,
whenever the phrase, at the option of the General Partner, or some variation of that
phrase, is used in this Agreement, it indicates that the General Partner is acting in its
individual capacity. For the avoidance of doubt, whenever the General Partner votes or
transfers its Partnership Interests, or refrains from voting or transferring its Partnership
Interests, it shall be acting in its individual capacity.
(d) Notwithstanding anything to the contrary in this Agreement, the General Partner and
its Affiliates shall have no duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership or its Subsidiaries other than in the
ordinary course of business or (ii) permit the Partnership or its Subsidiaries 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. Any
determination by the General Partner or any of its Affiliates to enter into such contracts
shall be at its option.
(e) Except as expressly set forth in this Agreement, neither the General Partner nor
any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to
the Partnership or any Limited Partner and the provisions of this Agreement, to the extent
that they restrict or otherwise modify the duties and liabilities, including fiduciary
duties, of the General Partner or any other Indemnitee otherwise existing at law or in
equity, are agreed by the Partners to replace such other duties and liabilities of the
General Partner or such other Indemnitee.
15
(f) The holders of Limited Partner Interests hereby authorize the General Partner, on
behalf of the Partnership as a partner of the Partnership, to approve of actions by the
Partnership, in its capacity as the sole member of the Partnership, similar to those actions
permitted to be taken by the General Partner pursuant to this Section 7.9.
(g) 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.
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 Persons 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. Each such
attorney shall, to the extent provided by the General Partner in the power of attorney, have
full power and authority to do and perform each and every act and duty that is permitted or
required to be done by the General Partner hereunder.
(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 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.
(e) Any determination made by the Partnership in its individual capacity, and not in
its representative capacity as the general partner of the MLP, with respect to any matter
related to the MLP or any matter related to the MLP Partnership Agreement shall be
determined by the General Partner in its capacity as the general partner 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 Partnerships 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 (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
16
(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 Partnerships 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 of Partnership Interests, 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 a fiscal year ending December 31.
8.3 Reports. The Partnership shall provide to the Partners such annual or periodic reports related
to its business and financial affairs as may be required under the Delaware Act, other applicable
law, or as otherwise deemed appropriate by the Board of Directors.
ARTICLE IX
Tax Matters
9.1 Tax Matters. The General Partner shall prepare and timely file (on behalf of the Partnership)
all returns of the Partnership that are required for state and local income tax purposes on the
basis of the accrual method and a taxable year ending on December 31. The Partnership and the
Partners acknowledge that for federal income tax purposes, the Partnership will be disregarded as
an entity separate from DEFS pursuant to Treasury Regulation §301.7701-3.
ARTICLE X
Admission of Partners
10.1 Admission of Limited Partners.
(a) By acceptance of the transfer of any Limited Partner Interests in accordance
with this Section 10.1 or the issuance of any Limited Partner Interests in a merger or
consolidation pursuant to Article XIV, each transferee of a Limited Partner Interest
(including any nominee holder or an agent or representative acquiring such Limited Partner
Interests for the account of another Person) (i) shall be admitted to the Partnership as a
Limited Partner with respect to the Limited Partner Interests so transferred to such Person
when any such transfer or admission is reflected in the books and records of the
Partnership, with or without execution of this Agreement, (ii) shall become bound by the
terms of, and shall be deemed to have executed, this Agreement, (iii) shall become the
Record Holder of the Limited Partner Interests so transferred, (iv) represents that the
transferee has the capacity, power and authority to enter into this Agreement, (v) grants
the powers of attorney set forth in this Agreement and (vi) makes the consents and waivers
contained in this Agreement. The transfer of any Limited Partner Interests and the
admission of any new Limited Partner shall not constitute and amendment to this
Agreement. A Person may become a Record Holder of a Limited Partner Interest without the
consent or approval of any of the Partners. A Person may not become a Limited Partner
without acquiring a Limited Partner Interest and until such Person is reflected in the books
and records of the Partnership as the Record Holder of such Limited Partner Interest.
(b) The name and mailing address of each Limited Partner shall be listed on the books
and records of the Partnership maintained for such purpose by the Partnership or the
Transfer Agent. The General Partner
17
shall update the books and records of the Partnership
from time to time as necessary to reflect accurately the information therein (or shall cause
the Transfer Agent to do so, as applicable).
(c) Any transfer of a Limited Partner Interest shall not entitle the transferee to
share in the profits and losses, to receive distributions, to receive allocations of income,
gain, loss, deduction or credit or any similar item or to any other rights to which the
transferor was entitled until the transferee becomes a Limited Partner pursuant to Section
10.1(a).
10.2 Admission of Successor General Partner. A successor General Partner approved pursuant to
Section 11.1 or Section 11.2 or the transferee of or successor to all of the General Partners
Partnership Interest as general partner in the Partnership pursuant to Section 4.2 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 pursuant to
Section 11.1 or Section 11.2 or the transfer of the General Partners Partnership Interest as a
general partner in the Partnership pursuant to Section 4.2; provided, however, that no such
successor shall be admitted to the Partnership until compliance with the terms of Section 4.2 has
occurred and such successor has executed and delivered such other documents or instruments as may
be required to effect such admission. Any such successor shall, subject to the terms hereof, carry
on the business of the Partnership without dissolution.
10.3 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 receiving
Special Approval and giving notice to the other Partners;
(ii) the General Partner transfers all of its rights as General Partner
pursuant to Section 4.2, following the receipt of Special Approval thereof;
(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
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(vi) (A) in the event the General Partner is a corporation, a certificate of
dissolution or its equivalent is filed for the General Partner, or 90 days expire
after the date of notice to the General Partner of revocation of its charter without
a reinstatement of its charter, under the laws of its state of incorporation; (B) in
the event the General Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the General Partner; (C) in the event
the General Partner is acting in such capacity by virtue of being a trustee of a
trust, the termination of the trust; (D) in the event the General Partner is a
natural person, his death or adjudication of incompetency; and (E) otherwise in the
event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B), (C) or (E)
occurs, the withdrawing General Partner shall give notice to the Limited Partners within 30
days after such occurrence. The Partners hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the General Partner from
the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the occurrence of an
Event of Withdrawal shall not constitute a breach of this Agreement under the following
circumstances: (i) at any time during the period beginning on the Closing Date and ending at
12:00 midnight, Eastern Standard Time, on June 30, 2015, 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 receives Special Approval and is approved by Partners holding at least a majority
of the Limited Partner Interests 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 cause the Partnership or the MLP to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not previously treated as such); (ii) at any time after
12:00 midnight, Eastern Standard Time, on December 31, 2015, 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 Limited Partner Interests. If the General Partner gives a
notice of withdrawal pursuant to Section 11.1(a)(i), the holders of a majority of Limited
Partner Interests, may, prior to the effective date of such withdrawal, elect a successor
General Partner. If, prior to the effective date of the General Partners 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 10.2.
11.2 Removal of the General Partner. The General Partner may be removed if such removal receives
Special Approval and is approved by Limited Partners holding at least
662/3% of the Limited Partner
Interests voting as a single class. 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
Limited Partners holding a majority of the Limited Partner Interests voting as a single class. Such
removal shall be effective immediately following the admission of a successor General Partner
pursuant to Section 10.3. The right of the holders of Limited Partner Interests to remove the
General Partner shall not exist or be exercised unless the Partnership has received an opinion
opining as to the matters covered by a Withdrawal Opinion of Counsel. Any successor General Partner
elected in accordance with the terms of this Section 11.2 shall be subject to the provisions of
Section 10.2.
11.3 Interest of Departing General Partner.
(a) The Partnership Interest of the Departing General Partner departing as a result of
withdrawal or removal pursuant to Section 11.1 or Section 11.2 shall be purchased by the
successor to the Departing General
19
Partner for an amount in cash equal to the fair market
value of such Partnership Interest, such amount to be determined and payable as of the
effective date of the Departing General Partners departure. Such purchase shall be a
condition to the admission to the Partnership of the successor as the General Partner. Any
successor General Partner shall indemnify the Departing 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 General Partner.
(b) For purposes of Section 11.3(a), the fair market value of the Departing General
Partners General Partner Interest shall be determined by agreement between the Departing
General Partner and its successor or, failing agreement within 30 days after the effective
date of such Departing General Partners departure, by an independent investment banking
firm or other independent expert selected by the Departing General Partner and its
successor, which, in turn, may rely on other experts, and the determination of which shall
be conclusive as to such matter. If such parties cannot agree upon one independent
investment banking firm or other independent expert within 45 days after the effective date
of such departure, then the Departing General Partner shall designate an independent
investment banking firm or other independent expert, the Departing General Partners
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 General Partner Interest of
the Departing General Partner. In making its determination, such third independent
investment banking firm or other independent expert may consider the value of the
Partnerships assets, the rights and obligations of the Departing General Partner and other
factors it may deem relevant.
(c) The Departing General Partner shall be entitled to receive all reimbursements due
such Departing General 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 General Partner for the benefit of the
Partnership.
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 Partners 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 additional Limited
Partners or by the admission of a successor General Partner in accordance with the terms of this
Agreement. Upon the removal or withdrawal of the General Partner, if a successor General Partner is
elected pursuant to Section 11.1 or 11.2, the Partnership shall not be dissolved and such successor
General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and
(subject to Section 12.2) its affairs shall be wound up, upon:
(a) 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 10.2;
(b) an election to dissolve the Partnership by the General Partner that is approved by
all of the Limited Partners;
(c) the entry of a decree of judicial dissolution of the Partnership pursuant to the
provisions of the Delaware Act; or
(d) at any time there are no Limited Partners, unless the Partnership is continued
without dissolution in accordance with the Delaware Act.
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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 General 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 in interest of the Limited Partners may elect
to continue the business of the Partnership on the same terms and conditions set forth in this
Agreement by appointing as the successor General Partner a Person approved by the holders of a
majority in interest of the Limited Partners. 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 Partnership shall continue without dissolution 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) the successor General Partner shall be admitted to the Partnership as
General Partner, effective as of the Event of Withdrawal, by agreeing in writing to
be bound by this Agreement; provided, that the right of the holders of a majority in
interest of the Limited Partners to approve a successor General Partner 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 (A) the exercise of
the right would not result in the loss of limited liability of any Limited Partner
and (B) none of the Partnership or the MLP 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 (to the extent not already so
treated or taxed).
12.3 Liquidator. Upon dissolution of the Partnership, unless the Partnership is continued pursuant
to Section 12.2, the General Partner shall select one or more Persons to act as Liquidator. The
Liquidator (if other than the General Partner) shall be entitled to receive such compensation for
its services as may be approved by holders of at least a majority in the interest of the Limited
Partners voting as a single class. The Liquidator (if other than the General Partner) shall agree
not to resign at any time without 15 days prior notice and may be removed at any time, with or
without cause, by notice of removal approved by holders of at least a majority in interest of the
Limited Partners voting as a single class. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers
and duties of the original Liquidator) shall within 30 days thereafter be approved by holders of at
least a majority in the interest of the Limited Partners voting as a single class. The right to
approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer
also to any such successor or substitute Liquidator approved in the manner herein provided. Except
as expressly provided in this Article XII, the Liquidator approved in the manner provided herein
shall have and may exercise,
without further authorization or consent of any of the parties hereto, all of the powers conferred
upon the General Partner under the terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of such powers, other than the limitation
on sale set forth in Section 7.3 necessary or appropriate to carry out the duties and functions of
the Liquidator hereunder for and during the period of time required 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
determined by the Liquidator, 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 defer liquidation or distribution of the
21
Partnerships assets for a reasonable time if it determines that an immediate sale or
distribution of all or some of the Partnerships assets would be impractical or would cause
undue loss to the Partners. The Liquidator may distribute the Partnerships 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
the Liquidator as compensation for serving in such capacity (subject to the terms of
Section 12.3) and amounts to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional or unmatured
or is otherwise not yet due and payable, the Liquidator shall either settle such claim for
such amount as it thinks appropriate or establish a reserve of cash or other assets to
provide for its payment. When paid, any unused portion of the reserve shall be distributed
as additional liquidation proceeds.
(c) Liquidation Distributions. All property and all cash in excess of that required to
discharge liabilities as provided in Section 12.4(b) shall be distributed to the Partners in
accordance with their respective Percentage Interests.
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 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.
ARTICLE XIII
Amendment of Partnership Agreement; Meetings; Record Date
13.1 Amendments to be Adopted Solely by the General Partner. Each Partner agrees that the General
Partner, without the approval of any Partner, 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) the admission, substitution, withdrawal or removal of Partners in accordance with
this Agreement;
(c) a change that the General Partner determines to be necessary or appropriate to
qualify or continue the qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability under the laws of any state
or to ensure that neither the Partnership nor the MLP 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 the General Partner determines (i) does not adversely affect the
Limited Partners (including any particular class of Partnership Interests as compared to
other classes of Partnership Interests) in any material respect, (ii) to be necessary or
appropriate 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) or (iii) to be
required to effect the intent of the provisions of this Agreement or is otherwise
contemplated by this Agreement;
22
(e) a change in the fiscal year or taxable year of the Partnership and any other
changes that the General Partner determines to be necessary or appropriate 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, as documented in an Opinion of Counsel, to prevent
the Partnership, the MLP, 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 the General Partner determines to be necessary or appropriate in
connection with the authorization of issuance of any class or series of Partnership
Interests pursuant to Section 5.4;
(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 the General Partner determines to be necessary or appropriate to
reflect, account for 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 Section 13.1 and Section 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 the General Partner; provided, however that the General Partner
shall have no duty or obligation to propose any amendment to this Agreement and may decline to do
so free of any fiduciary duty or obligation whatsoever to the Partnership or any Limited Partner
and, in declining to propose an amendment to the fullest extent permitted by law, shall not be
required to act in good faith or pursuant to any other standard imposed by this Agreement, any
other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation
or at equity. A proposed amendment shall be effective upon its approval by the General Partner and
the holders of a majority in interest of the Limited Partner, 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 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 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. Notwithstanding the provisions of Section 13.1 and Section 13.2, no amendment
of (a) the definitions of Conflicts Committee or Special Approval, (b) Section 2.9, (c) Section
7.3, (d) Section 7.9(a), (e) Section 10.2, (f) Section 14.3, (g) this Section 13.2 or (h) any other
provision of this Agreement requiring that Special Approval or Extraordinary Approval be obtained
as a condition to any action, shall be effective without first obtaining Special Approval or
Extraordinary Approval, respectively.
13.3 Amendment Requirements.
(a) Notwithstanding the provisions of Section 13.1 and Section 13.2, no provision of
this Agreement that establishes a percentage of Limited Partner Interests 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
23
unless such amendment is approved
by the written consent or the affirmative vote of Limited Partners whose aggregate Limited
Partner Interests constitute not less than the voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Section 13.1 and Section 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) or (ii) enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable
to, the General Partner or any of its Affiliates without its consent, which consent may be
given or withheld at its option.
(c) Except as provided in Section 14.3, and without limitation of the General Partners
authority to adopt amendments to this Agreement without the approval of any Partners 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
Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement, except for amendments
pursuant to Section 13.1 and except as otherwise provided by Section 14.3(b), no amendments
shall become effective without the approval of the holders of at least 90% of the Limited
Partner Interests voting as a single class unless the Partnership obtains an Opinion of
Counsel to the effect that such amendment will not affect the limited liability of any
Limited Partner under the Delaware Act.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be amended with
the approval of the holders of at least 90% of the Partnership Interests.
13.4 Special Meetings. All acts of Limited Partners to be taken pursuant to this Agreement shall be taken in the manner
provided in this Article XIII. Special meetings of the Limited Partners may be called by the
General Partner or by Limited Partners owning 20% or more of the outstanding Limited Partner
Interests of the class or classes for which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General Partner one or more requests in writing stating that
the signing Limited Partners wish to call a special meeting and indicating the general or specific
purposes for which the special meeting is to be called. Within 60 days after receipt of such a call
from Limited Partners or within such greater time as may be reasonably necessary for the
Partnership to comply with any statutes, rules, regulations, listing agreements or similar
requirements governing the holding of a meeting or the solicitation of proxies for use at such a
meeting, the General Partner shall send a notice of the meeting to the Limited Partners either
directly or indirectly through a 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
15.1. 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 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
24
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 it had
occurred at a meeting duly held after regular call and notice, if a quorum is present either in
person or by proxy. Attendance of a Limited Partner at a meeting shall constitute a waiver of
notice of the meeting, except when the Limited Partner attends the meeting for the express purpose
of objecting at the beginning of the meeting to 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 and Voting . The holders of a majority of the Limited Partner Interests of the class
or classes for which a meeting has been called represented in person or by proxy shall constitute a
quorum at a meeting of Limited Partners of such class 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 Limited Partner Interests that in the aggregate represent a
majority of the Limited Partner Interests entitled to vote and be present in person or by proxy at
such meeting shall be deemed to constitute the act of all Limited Partners, unless a greater or
different percentage is required with respect to such action under the provisions of this
Agreement, in which case the act of the Limited Partners holding Limited Partner Interests that in
the aggregate represent at least such greater or different percentage shall be required. The
Limited Partners present at a duly called or held meeting at which a quorum is present may continue
to transact business until adjournment, notwithstanding the withdrawal of enough Limited Partners
to leave less than a quorum, if any action taken (other than adjournment) is approved by the
required percentage of Limited Partner Interests 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 Limited Partner Interests 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 Limited Partners or solicitation of approvals in writing,
including the determination of Persons entitled to vote, the existence of a quorum, the
satisfaction of the requirements of Section 13.4, the conduct of voting, the validity and effect of
any proxies and the determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The General Partner shall designate a Person to serve as
chairman of any meeting and shall further designate a Person to take the minutes of any meeting.
All minutes shall be kept with the records of the Partnership maintained by the General Partner.
The General Partner may make such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any meeting of the Limited Partners or
solicitation of approvals in writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and approvals, the submission and
examination of proxies and other evidence of the right to vote, and the revocation of approvals in
writing.
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 Limited Partner Interests that would be necessary to authorize or take such
action at a meeting at which all the Limited Partners were present and voted. Prompt notice of the
taking of action without a meeting shall be given to the Limited Partners who have not approved in
writing. The General Partner may specify that any written ballot submitted to Limited Partners for
the purpose of taking any action without a meeting shall be returned to the Partnership within the
time period, which shall be not less than 20 days, specified by the General Partner. If a ballot
returned to the Partnership does not vote all of the Limited Partner Interests held by the Limited
Partners the Partnership shall be deemed to have failed to receive a ballot for the Limited Partner
Interests that were not voted. If approval of the taking of any action by the Limited Partners is
solicited by any Person other than by or on behalf of the General Partner, the written approvals
shall have no force and effect unless and until (a) they are deposited with the Partnership in care
of the General Partner, (b) approvals sufficient to take the action proposed are dated as of a date
not more than 90 days prior to the date sufficient approvals are deposited with the Partnership and
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(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. Only those Record Holders of the applicable Limited Partner
Interests on the Record Date set pursuant to Section 13.6 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 applicable 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 Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such applicable Limited
Partner Interests.
ARTICLE XIV
Merger, Consolidation or Conversion
14.1 Authority. The Partnership may merge or consolidate with one or more corporations, limited
liability companies, statutory trusts or associations, real estate investment trusts, common law
trusts or unincorporated businesses, including a partnership (whether general or limited (including
a limited liability partnership)) or convert into any such entity, whether such entity is 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) or a written plan
of conversion (Plan of Conversion), as the case may be, in accordance with this Article XIV. The
surviving entity to any such merger, consolidation or conversion is referred to herein as the
Surviving Business Entity.
14.2 Procedure for Merger, Consolidation or Conversion.
(a) Merger, consolidation or conversion of the Partnership pursuant to this Article XIV
requires the prior consent of the General Partner; provided, however, that, to the fullest
extent permitted by law, the General Partner shall have no duty or obligation to consent to
any merger, consolidation or conversion of the Partnership and may decline to do so free of
any fiduciary duty or obligation whatsoever to the Partnership, any Limited Partner and, in
declining to consent to a merger, consolidation or conversion, shall not be required to act
in good faith or pursuant to any other standard imposed by this Agreement, any other
agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation
or at equity.
(b) If the General Partner shall determine to consent to the merger or consolidation,
the General Partner shall approve the Merger Agreement, which shall set forth:
(i) the names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;
(ii) the name and jurisdiction of formation or organization of the Surviving
Business Entity;
(iii) the terms and conditions of the proposed merger or consolidation;
(iv) the manner and basis of exchanging or converting the equity securities of
each constituent business entity for, or into, cash, property or interests, rights,
securities or obligations of the Surviving Business Entity; and (A) 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 interests, rights, securities or
obligations of any general or limited partnership, corporation, trust, limited
liability company, unincorporated business 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
interests, securities or rights, and (B) in the case of securities represented by
certificates, upon the surrender of such certificates, which cash,
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property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity or any general or limited partnership, corporation, trust,
limited liability company, unincorporated business or other entity (other than the
Surviving Business Entity), or evidences thereof, are to be delivered;
(v) 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,
operating agreement or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;
(vi) 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 such
certificate of merger, the effective time shall be fixed at a date or time certain
at or prior to the time of the filing of such certificate of merger and stated
therein); and
(vii) such other provisions with respect to the proposed merger or
consolidation that the General Partner determines to be necessary or appropriate.
(c) If the General Partner shall determine to consent to the conversion, the General
Partner may approve and adopt a Plan of Conversion containing such terms and conditions that
the General Partner determines to be necessary or appropriate.
14.3 Approval by Limited Partners.
(a) The General Partner, upon its approval of the Merger Agreement or Plan of
Conversion, as the case may be, shall direct that the Merger Agreement or the Plan of
Conversion, as applicable, 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 or the Plan of Conversion, as applicable,
shall be included in or enclosed with the notice of a special meeting or the written
consent.
(b) The Merger Agreement or the Plan of Conversion, as applicable, shall be approved
upon receiving the affirmative vote or consent of the holders of a majority in interest of
the Limited Partners.
(c) After such approval by vote or consent of the Limited Partners, and at any time
prior to the filing of the certificate of merger or a certificate of conversion pursuant to
Section 14.4, the merger, consolidation or conversion may be abandoned pursuant to
provisions therefor, if any, set forth in the Merger Agreement or the Plan of Conversion, as
the case may be.
(d) Notwithstanding anything else contained in this Article XIV or in this Agreement,
the General Partner is permitted without Limited Partner approval, to convert the
Partnership or any Group Member into a new limited liability entity, to merge the
Partnership or any Group Member into, or convey all of the Partnerships assets to, another
limited liability entity which shall be newly formed and shall have no assets, liabilities
or operations at the time of such conversion, merger or conveyance 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 the MLP
to be treated as an association taxable as a corporation or otherwise to be taxed as an
entity for federal income tax purposes (to the extent not previously treated as such), (ii)
the sole purpose of such conversion, 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.
(e) Additionally, notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, without Limited Partner approval, to merge
or consolidate the Partnership with or
27
into another entity if (i) the General Partner has
received an Opinion of Counsel that the merger or consolidation, as the case may be, would
not result in the loss of the limited liability of any Limited Partner or cause the
Partnership to be treated as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes (to the extent not previously treated as
such), (ii) the merger or consolidation would not result in an amendment to the Partnership
Agreement, other than any amendments that could be adopted pursuant to Section 13.1, (iii)
the Partnership is the Surviving Business Entity in such merger or consolidation, (iv) each
Partnership Interest outstanding immediately prior to the effective date of the merger or
consolidation is to be an identical Partnership Interest of the Partnership after the
effective date of the merger or consolidation, and (v) the number of Partnership Interests
to be issued by the Partnership in such merger or consolidation do not exceed 20% of the
Partnership Interests immediately prior to the effective date of such merger or
consolidation.
14.4 Certificate of Merger.
(a) Upon the required approval, if any, by the General Partner and the Limited Partners
of a Merger Agreement or a Plan of Conversion, as the case may be, a certificate of merger,
consolidation or conversion, as applicable, shall be executed and filed with the Secretary
of State of the State of Delaware in conformity with the requirements of the Delaware Act.
(b) At the effective time of the certificate of merger or consolidation:
(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.
(c) At the effective time of the certificate of conversion:
(i) the Partnership shall continue to exist, without interruption, but in the
organizational form of the converted entity rather than in its prior organizational
form;
(ii) all rights, title, and interests to all real estate and other property
owned by the Partnership shall continue to be owned by the converted entity in its
new organizational form without reversion or impairment, without further act or
deed, and without any transfer or assignment having occurred, but subject to any
existing liens or other encumbrances thereon;
(iii) all liabilities and obligations of the Partnership shall continue to be
liabilities and obligations of the converted entity in its new organizational form
without impairment or diminution by reason of the conversion;
(iv) all rights of creditors or other parties with respect to or against the
prior interest holders or other owners of the Partnership in their capacities as
such in existence as of the effective
28
time of the conversion will continue in
existence as to those liabilities and obligations and may be pursued by such
creditors and obligees as if the conversion did not occur;
(v) a proceeding pending by or against the Partnership or by or against any of
Partners in their capacities as such may be continued by or against the converted
entity in its new organizational form and by or against the prior partners without
any need for substitution of parties; and
(vi) the Partnership Interests that are to be converted into partnership
interests, shares, evidences of ownership, or other securities in the converted
entity as provided in the Plan of Conversion or certificate of conversion shall be
so converted, and Partners shall be entitled only to the rights provided in the Plan
of Conversion or certificate of conversion.
(d) A merger, consolidation or conversion 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.
14.5 Amendment of Partnership Agreement. Pursuant to Section 17-211(g) of the Delaware Act, an
agreement of merger or consolidation approved in accordance with Section 17-211(b) of the Delaware
Act may (a) effect any amendment to this Agreement or (b) effect the adoption of a new partnership
agreement for a limited partnership if it is the Surviving Business Entity. Any such amendment or
adoption made pursuant to this Section 14.5 shall be effective at the effective time or date of the
merger or consolidation.
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 under this Agreement shall be in writing and shall be
deemed given or made when delivered in person or when sent by first class United States mail or by
other means of written communication to the Partner at the address described below. Any notice,
payment or report to be given or made to a Partner 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 Interests 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 Interests 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 15.1 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 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. 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
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.
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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.
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 or, in the case of a Person acquiring a
Limited Partner Interest pursuant to Section 10.1(a) without execution hereof.
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.
15.11 Third-Party Beneficiaries. Each Partner agrees that any Indemnitee shall be entitled to
assert rights and remedies hereunder as a third-party beneficiary hereto with respect to those
provisions of this Agreement affecting a right, benefit or privilege to such Indemnitee.
30
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
written above.
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GENERAL PARTNER:
DCP MIDSTREAM GP, LLC
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By: |
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LIMITED PARTNER:
DUKE ENERGY FIELD SERVICES, LLC
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By: |
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31
Attachment I
DEFINED TERMS
Affiliate means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with, the
Person in question; provided that, for the avoidance of doubt, the term Affiliate includes any Person that, directly in indirectly, is the
beneficial owner of at least 25% of the equity interests in DEFS or has the right to appoint at
least 25% of the members of the board of directors of DEFS. 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.
Agreement means this First Amended and Restated Agreement of Limited Partnership of DCP
Midstream GP, LP, as it may be amended, supplemented or restated from time to time.
Associate means, when used to indicate a relationship with any Person, (a) any corporation
or organization of which such Person is a director, officer or partner or is, directly or
indirectly, the owner of 20% or more of any class of voting stock or other voting interest; (b) any
trust or other estate in which such Person has at least a 20% beneficial interest or as to which
such Person serves as trustee or in a similar fiduciary capacity; and (c) any relative or spouse of
such Person, or any relative of such spouse, who has the same principal residence as such Person.
Available Cash means, with respect to any Quarter ending prior to the Liquidation Date,
(a) the sum of all cash and cash equivalents of the Partnership on hand at the end of such
Quarter, less
(b) the amount of any cash reserves that is established by the General Partner to (i)
satisfy general, administrative and other expenses and debt service requirements, (ii) permit
the Partnership to make capital contributions to the MLP to maintain its 2% general partner
interest upon the issuance of partnership securities by the MLP, (iii) comply with applicable
law or 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, (iv) provide funds for distributions under Section 6.1 in respect of any one or more of
the next four Quarters; 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 or (v) otherwise provide for the proper
conduct of the business of the Partnership subsequent 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.
Board of Directors means, with respect to the Board of Directors of the General Partner, its
board of directors or managers, as applicable, if a corporation or limited liability company, or if
a limited partnership, the board of directors or board of managers of the general partner of the
General Partner.
Capital Contribution means any cash, cash equivalents or the fair market value of property
that a Partner contributes to the Partnership.
Certificate of Limited Partnership means the Certificate of Limited Partnership of the
Partnership filed with the Secretary of State of the State of Delaware as referenced in Section
2.3, as such Certificate of Limited Partnership may be amended, supplemented or restated from time
to time.
Claim
has the meaning ascribed to such term in the MLP Partnership Agreement.
Closing
Date has the meaning ascribed to such term in the MLP
Partnership Agreement.
Commission means the United States Securities and Exchange Commission.
A-1
Conflicts Committee means a committee of the Board of Directors of the General Partner
composed entirely of three or more directors who meet the independence, qualification and
experience requirements established by the Securities Exchange Act and the rules and regulations of
the Commission thereunder and by the principal National Securities Exchange upon which the common
units of the MLP are then listed or admitted for trading.
Contribution Agreement has the meaning ascribed to such term in the MLP Partnership
Agreement.
DEFS means Duke Energy Field Services, LLC, a Delaware limited liability company.
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 General 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.
Event of Withdrawal has the meaning assigned to such term in Section 11.1(a).
Extraordinary Approval means the written approval of DEFS.
General Partner means DCP Midstream GP, LLC, a Delaware limited liability company, and its
successors and permitted assigns that are admitted to the Partnership as general partner of the
Partnership, in its capacity as general partner of the Partnership (except as the context otherwise
requires).
General Partner Interest means the management and ownership interest, if any, 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 Interests or a combination
thereof or interest therein, and includes any and all benefits to which the General Partner is
entitled as provided in this Agreement, together with all obligations of the General Partner to
comply with the terms and provisions of this Agreement.
Group means a Person that with or through any of its Affiliates or Associates has any
contract, arrangement, understanding or relationship 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), exercising investment power or disposing of
any Partnership Interests with any other Person that beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly, Partnership Interests.
Group Member means a member of the Partnership Group.
Indemnitee means (a) the General Partner, any Departing General Partner and any Person who
is or was an Affiliate of the General Partner or any Departing General Partner, (b) any Person who
is or was a member, director, officer, fiduciary or trustee of the Partnership, (c) any Person who
is or was an officer, member, partner, director, employee, agent or trustee of the General Partner
or any Departing General Partner or any Affiliate of the General Partner or any Departing General
Partner, or any Affiliate of any such Person, (d) any Person who is or was serving at the request
of the General Partner or any Departing General 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 and (e) any Person the General Partner designates as an
Indemnitee for purposes of this Agreement.
Initial Limited Partner means DEFS in its capacity as a Limited Partner.
Limited Partner means, unless the context otherwise requires, each Initial Limited Partner,
each additional Person that becomes a Limited Partner pursuant to the terms of this Agreement, each
additional Limited Partner and any Departing General Partner upon the change of its status from
General Partner to Limited Partner pursuant to Section 11.3, in each case, in such Persons
capacity as a limited partner of the Partnership.
A-2
Limited Partner Interest means the ownership interest of a Limited Partner in the
Partnership and includes any and all benefits to which such Limited Partner is entitled as provided
in this Agreement, together with all obligations of such Limited Partner 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 Partnership
Interests have the right to elect to continue the business of the Partnership 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.
Merger Agreement has the meaning assigned to such term in Section 14.1.
MLP means DCP Midstream Partners, LP, a Delaware limited partnership, and any successors
thereto.
MLP Partnership Agreement means the First Amended and Restated Agreement of Limited
Partnership of the MLP, as it may be amended or restated from time to time.
National
Securities Exchange has the meaning ascribed to such term
in the MLP Partnership Agreement.
Omnibus Agreement means the Omnibus Agreement, dated as of ___, 2005, among the
Partnership, the General Partner and DEFS, as amended or restated from time to time.
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.
Partners means the General Partner and the Limited Partners.
Partnership means DCP Midstream GP, LP, a Delaware limited partnership, and any successors
thereto.
Partnership Group means the Partnership, the MLP and all Subsidiaries of the MLP.
Partnership Interest means an ownership interest in the Partnership, which shall include
General Partner Interests and Limited Partner Interests.
Percentage Interest means 0.001% with respect to the General Partner and 99.99% with respect
to the Limited Partners, in the aggregage.
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.
Quarter means, unless the context requires otherwise, a fiscal quarter of the Partnership,
or with respect to the first fiscal quarter of the Partnership after the Closing Date, the portion
of such fiscal quarter after the Closing Date.
Record Date means the date established by the General Partner for determining (a) the
identity of the Record Holders entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of Partnership action in writing without a
meeting or entitled to exercise rights in respect of any lawful action of Limited Partners or (b)
the identity of Record Holders entitled to receive any report or distribution or to participate in
any offer.
Record Holder means the Person in whose name a Limited Partner Interest is registered on the
books that the Board of Directors has caused the Partnership to be kept as of the close of business
on any Record Date.
Registration Statement has the meaning ascribed to such term in the MLP Partnership
Agreement.
Securities Exchange Act means the Securities Exchange Act of 1934, as amended, supplemented
or restated from time to time, and any successor to such statute.
A-3
Special Approval means approval by a majority of the members of the Conflicts 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 the partnership as a single class) is
owned, directly or indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a
combination thereof, directly or indirectly, at the date of determination, has (i) at least a
majority ownership interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
Surviving Business Entity has the meaning assigned to such term in Section 14.1.
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 any Partnership Interests; provided that, if no Transfer Agent is
specifically designated for any such Partnership Interests, the General Partner shall act in such
capacity.
Underwriting Agreement has the meaning ascribed to such term in the MLP Partnership
Agreement.
U.S. GAAP means United States generally accepted accounting principles consistently applied.
Withdrawal Opinion of Counsel has the meaning assigned to such term in Section 11.1(b).
A-4
exv3w5
Exhibit 3.5
CERTIFICATE OF FORMATION
OF
DCP MIDSTREAM GP LLC
This Certificate of Formation, dated August 4,2005, has been duly executed and is filed
pursuant to Section 18-201 of the Delaware Limited Liability Company Act (the Act) to form a
limited liability company (the Company) under the Act.
1. Name. The name of the Company is: DCP Midstream GP LLC.
2. Registered Office; Registered Agent. The address of the registered office required to be
maintained by Section 18-104 of the Act is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The name and the address of the registered agent for service of process required to be
maintained by Section 18-104 of the Act are:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
EXECUTED as of the date written first above.
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By: |
/s/ Michael J. Bradley
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Name: |
Michael J. Bradley |
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Authorized Person |
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exv3w6
Exhibit 3.6
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DCP MIDSTREAM GP, LLC
A Delaware Limited Liability Company
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DCP MIDSTREAM GP, LLC
A Delaware Limited Liability Company
TABLE OF CONTENTS
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ARTICLE 1
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DEFINITIONS
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1.01 |
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Definitions |
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1 |
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1.02 |
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Construction |
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ARTICLE 2
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ORGANIZATION
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2.01 |
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Formation |
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2.02 |
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Name |
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2.03 |
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Registered Office; Registered Agent; Principal Office; Other Offices |
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2.04 |
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Purpose |
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2.05 |
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Term |
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2.06 |
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No State-Law Partnership; Withdrawal |
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2.07 |
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Certain Undertakings Relating to Separateness |
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ARTICLE 3
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MATTERS RELATING TO MEMBERS
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3.01 |
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Members |
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5 |
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3.02 |
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Creation of Additional Membership Interest |
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3.03 |
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Liability to Third Parties |
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ARTICLE 4
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CAPITAL CONTRIBUTIONS
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4.01 |
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Capital Contributions |
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5 |
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4.02 |
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Loans |
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4.03 |
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Return of Contributions |
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ARTICLE 5
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DISTRIBUTIONS
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5.01 |
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Distributions |
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ARTICLE 6
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MANAGEMENT
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6.01 |
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Management |
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6.02 |
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Board of Directors |
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6.03 |
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Officers |
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6.04 |
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Duties of Officers and Directors |
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6.05 |
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Compensation |
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6.06 |
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Indemnification |
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14 |
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6.07 |
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Liability of Indemnitees |
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6.08 |
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Outside Activities |
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6.09 |
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Resolution of Conflicts of Interest; Standard of Conduct and Modification of Duties |
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16 |
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ARTICLE 7
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TAX MATTERS
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7.01 |
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Tax Returns and Tax Characterization |
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ARTICLE 8
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BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
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8.01 |
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Maintenance of Books |
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8.02 |
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Reports |
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8.03 |
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Bank Accounts |
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ARTICLE 9
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DISSOLUTION, WINDING-UP AND TERMINATION
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9.01 |
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Dissolution |
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9.02 |
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Winding-Up and Termination |
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ARTICLE 10
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MERGER, CONSOLIDATION OR CONVERSION
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10.01 |
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Authority |
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10.02 |
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Procedure for Merger, Consolidation or Conversion |
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10.03 |
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Approval by Members of Merger or Consolidation |
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10.04 |
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Certificate of Merger, Consolidation or Conversion |
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ARTICLE 11
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GENERAL PROVISIONS
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11.01 |
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Notices |
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11.02 |
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Entire Agreement; Supersedure |
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11.03 |
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Effect of Waiver or Consent |
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11.04 |
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Amendment or Restatement |
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11.05 |
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Binding Effect |
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11.06 |
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Governing Law; Severability |
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11.07 |
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Further Assurances |
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11.08 |
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Offset |
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11.09 |
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Counterparts |
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ii
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
DCP Midstream GP, LLC
A Delaware Limited Liability Company
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this Agreement) of DCP
Midstream GP, LLC, a Delaware limited liability company (the Company), executed on ___,
2005 (the Effective Date), is adopted, executed and agreed to, by Duke Energy Field Services,
LLC, a Delaware limited liability company (DEFS), as the sole Member of the Company.
RECITALS
A. DEFS formed the Company on ___, 2005 as the sole member.
B. The Limited Liability Company Agreement of DCP Midstream GP, LLC was executed effective
___, 2005 (the Existing Agreement).
C. DEFS, the sole Member of the Company, deems it advisable to amend and restate the limited
liability company agreement of the Company in its entirety as set forth herein.
AGREEMENTS
For and in consideration of the premises, the covenants and agreements set forth herein and
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged,
DEFS, as the sole Member of the Company, hereby amends and restates the Existing Agreement in its
entirety as follows:
ARTICLE 1
DEFINITIONS
1.01 Definitions. Each capitalized term used herein shall have the meaning given such term in
Attachment I.
1.02 Construction. Unless the context requires otherwise: (a) the gender (or lack of gender) of
all words used in this Agreement includes the masculine, feminine and neuter; (b) references to
Articles and Sections refer to Articles and Sections of this Agreement; (c) references to Laws
refer to such Laws as they may be amended from time to time, and references to particular
provisions of a Law include any corresponding provisions of any succeeding Law; (d) references to
money refer to legal currency of the United States of America; (e) including means including
without limitation and is a term of illustration and not of limitation; (f) all definitions set
forth herein shall be deemed applicable whether the words defined are used herein in the singular
or the plural; and (g) neither this Agreement nor any other agreement, document or instrument
referred
to herein or executed and delivered in connection herewith shall be construed against any Person as
the principal draftsperson hereof or thereof.
ARTICLE 2
ORGANIZATION
2.01 Formation. The Company was organized as a Delaware limited liability company by the filing of
a Certificate of Formation (Organizational Certificate) on ___, 2005 with the Secretary
of State of the State of Delaware under and pursuant to the Delaware Act.
2.02 Name. The name of the Company is DCP Midstream GP, LLC and all Company business must be
conducted in that name or such other names that comply with Law as the Board of Directors may
select.
2.03 Registered Office; Registered Agent; Principal Office; Other Offices. The registered office
of the Company required by the Delaware Act to be maintained in the State of Delaware shall be the
office of the initial registered agent for service of process named in the Organizational
Certificate or such other office (which need not be a place of business of the Company) as the
Board of Directors may designate in the manner provided by Law. The registered agent for service
of process of the Company in the State of Delaware shall be the initial registered agent for
service of process named in the Organizational Certificate or such other Person or Persons as the
Board of Directors may designate in the manner provided by Law. The principal office of the
Company in the United States shall be at such a place as the Board of Directors may from time to
time designate, which need not be in the State of Delaware, and the Company shall maintain records
there and shall keep the street address of such principal office at the registered office of the
Company in the State of Delaware. The Company may have such other offices as the Board of
Directors may designate.
2.04 Purpose. The purposes of the Company are the transaction of any or all lawful business for
which limited liability companies may be organized under the Delaware Act.
2.05 Term. The period of existence of the Company commenced on ___, 2005 and shall end at
such time as a certificate of cancellation is filed in accordance with Section 9.02(c).
2.06 No State-Law Partnership; Withdrawal. It is the intent that the Company shall be a limited
liability company formed under the Laws of the State of Delaware and shall not be a partnership
(including a limited partnership) or joint venture, and that the Members not be a partner or joint
venturer of any other party for any
purposes other than federal and state tax purposes, and this Agreement may not be construed to
suggest otherwise. A Member does not have the right to Withdraw from the Company; provided,
however, that a Member shall have the power to Withdraw at any time in violation of this Agreement.
If a Member exercises such power in violation of this Agreement, (a) such Member shall be liable
to the Company and its Affiliates for all monetary damages suffered by them as a result of such
Withdrawal; and (b) such Member shall not have any rights under Section 18.604 of the Delaware Act.
In no event shall the Company have the right, through specific performance or otherwise, to
prevent a Member from Withdrawing in violation of this Agreement.
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2.07 Certain Undertakings Relating to Separateness.
(a) Separateness Generally. The Company shall, and shall cause DCP GP to, conduct
their respective businesses and operations in accordance with this Section 2.07.
(b) Separate Records. The Company shall, and shall cause DCP GP to, (i) maintain
their respective books and records and their respective accounts separate from those of any other
Person, (ii) maintain their respective financial records, which will be used by them in their
ordinary course of business, showing their respective assets and liabilities separate and apart
from those of any other Person, except their consolidated Subsidiaries, (iii) not have their
respective assets and/or liabilities included in a consolidated financial statement of any
Affiliate of the Company unless appropriate notation shall be made on such Affiliates consolidated
financial statements to indicate the separateness of the Company and DCP GP and their assets and
liabilities from such Affiliate and the assets and liabilities of such Affiliate, and to indicate
that the assets and liabilities of the Company and DCP GP are not available to satisfy the debts
and other obligations of such Affiliate, and (iv) file their respective own tax returns separate
from those of any other Person, except (A) to the extent that the Company or DCP GP (x) is treated
as a disregarded entity for tax purposes or (y) is not otherwise required to file tax returns
under applicable law or (B) as may otherwise be required by applicable law.
(c) Separate Assets. The Company shall not commingle or pool, and shall cause DCP GP
not to commingle or pool, their respective funds or other assets with those of any other Person,
and shall maintain their respective assets in a manner that is not costly or difficult to
segregate, ascertain or otherwise identify as separate from those of any other Person.
(d) Separate Name. The Company shall, and shall cause DCP GP to, (i) conduct their
respective businesses in their respective own names, (ii) use separate stationery, invoices, and
checks, (iii) correct any known misunderstanding regarding their respective separate identities
from that of any other Person (including DEFS and its Subsidiaries other than the Company and DCP
GP), and (iv) generally hold itself out as an entity separate from any other Person (including DEFS
and its Subsidiaries other than the Company and DCP GP).
(e) Separate Credit. The Company shall, and shall cause DCP GP to, (i) pay their
respective obligations and liabilities from their respective own funds (whether on hand or
borrowed), (ii) maintain adequate capital in light of their respective business operations, (iii)
not
guarantee or become obligated for the debts of any other Person, other than the Company and
DCP GP and except to the extent specified in the Contribution Agreement or the Omnibus Agreement,
(iv) not hold out their respective credit as being available to satisfy the obligations or
liabilities of any other Person except to the extent specified in the Contribution Agreement or the
Omnibus Agreement, (v) not acquire debt obligations or debt securities of DEFS or its Affiliates
(other than the Company and DCP GP), (vi) not pledge their assets for the benefit of any Person or
make loans, advances or capital contributions to DEFS or any of its Affiliates (other than the MLP
and its Subsidiaries and, with respect to the Company, other than DCP GP), or (vii) use its
commercially reasonable efforts to cause the operative documents under which DCP GP borrows money,
is an issuer of debt securities, or guarantees any such borrowing or issuance after the Effective
Date, to contain provisions to the effect that (A) the lenders or purchasers of debt securities,
respectively, acknowledge that they have advanced funds or purchased debt securities,
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respectively,
in reliance upon the separateness of the Company and DCP GP from each other and from any other
Persons (including DEFS and its Affiliates, other than the Company and DCP GP) and (B) the Company
and DCP GP have assets and liabilities that are separate from those of other persons (including
DEFS and its Affiliates, other than the Company and DCP GP); provided that the Company and DCP GP
may engage in any transaction described in clauses (v)-(vi) of this Section 2.07(e) if prior
Special Approval has been obtained for such transaction and either (A) the Conflicts Committee has
determined that the borrower or recipient of the credit support is not then insolvent and will not
be rendered insolvent as a result of such transaction or (B) in the case of transactions described
in clause (v), such transaction is completed through a public sale or a National Securities
Exchange.
(f) Separate Formalities. The Company shall, and shall cause DCP GP to, (i) observe
all limited liability company or partnership formalities and other formalities required by their
respective organizational documents, the laws of the jurisdiction of their respective formation, or
other laws, rules, regulations and orders of governmental authorities exercising jurisdiction over
it, (ii) engage in transactions with DEFS and its Affiliates (other than the Company or DCP GP) in
conformity with the requirements of Section 7.9 of the DCP GP Agreement, and (iii) subject to the
terms of the Omnibus Agreement, promptly pay, from their respective own funds and on a timely
basis, their respective allocable shares of general and administrative expenses, capital
expenditures, and costs for services performed by DEFS or Affiliates of DEFS (other than the
Company or DCP GP). Each material contract between the Company or DCP GP, on the one hand, and
DEFS or Affiliates of DEFS (other than the Company or DCP GP), on the other hand, shall be subject
to the requirements of Section 7.9 of the DCP GP Agreement, and must be (x) approved by Special
Approval or (y) on terms objectively demonstrable to be no less favorable to DCP GP than those
generally being provided to or available from unrelated third parties, and in any event must be in
writing.
(g) No Effect. Failure by the Company to comply with any of the obligations set forth
above shall not affect the status of the Company as a separate legal entity, with its separate
assets and separate liabilities or restrict or limit the Company from engaging or contracting with
DEFS and its Affiliates for the provision of services or the purchase or sale of products, whether
under the Omnibus Agreement or otherwise.
ARTICLE 3
MATTERS RELATING TO MEMBERS
3.01 Members. DEFS has previously been admitted as a Member of the Company.
3.02 Creation of Additional Membership Interest. The Company may issue additional Membership
Interests in the Company pursuant to this Section 3.02. The terms of admission or issuance may
provide for the creation of different classes or groups of Members having different rights, powers,
and duties. The creation of any new class or group of Members approved as required herein may be
reflected in an amendment to this Agreement executed in accordance with Section 11.04 indicating
the different rights, powers, and duties thereof. Any such admission is effective only after the
new Member has executed and delivered to the Members an instrument containing the notice address of
the new Member and the new Members ratification of this Agreement and agreement to be bound by it.
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3.03 Liability to Third Parties. No Member or beneficial owner of any Membership Interest shall be
liable for the Liabilities of the Company.
ARTICLE 4
CAPITAL CONTRIBUTIONS
4.01 Capital Contributions.
(a) In exchange for its Membership Interest, DEFS has made certain Capital Contributions.
(b) The amount of money and the fair market value (as of the date of contribution) of any
property (other than money) contributed to the Company by a Member in respect of the issuance of a
Membership Interest to such Member shall constitute a Capital Contribution. Any reference in
this Agreement to the Capital Contribution of a Member shall include a Capital Contribution of its
predecessors in interest.
4.02 Loans. If the Company does not have sufficient cash to pay its obligations, any Member that
may agree to do so may, upon Special Approval, advance all or part of the needed funds for such
obligation to or on behalf of the Company. An advance described in this Section 4.02 constitutes a
loan from the Member to the Company, may bear interest at a rate comparable to the rate the Company
could obtain from third parties, and is not a Capital Contribution.
4.03 Return of Contributions. A Member is not entitled to the return of any part of its Capital
Contributions or to be paid interest in respect of its Capital Contributions. An unrepaid Capital
Contribution is not a liability
of the Company or of any Member. No Member will be required to contribute or to lend any cash or
property to the Company to enable the Company to return any Members Capital Contributions.
ARTICLE 5
DISTRIBUTIONS
5.01 Distributions. Subject to Section 9.02, within 45 days following each Quarter other than any
Quarter in which the dissolution of the Company has commenced (the Distribution Date), the
Company shall distribute to the Members the Companys Available Cash on such Distribution Date.
ARTICLE 6
MANAGEMENT
6.01 Management.
(a) All management powers over the business and affairs of the Company shall be exclusively
vested in a Board of Directors (Board of Directors or Board) and, subject to the direction of
the Board of Directors, the Officers. The Officers and Directors shall each constitute a manager
of the Company within the meaning of the Delaware Act. Except as otherwise specifically provided
in this Agreement, no Member, by virtue of having the status of
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a Member, shall have or attempt to
exercise or assert any management power over the business and affairs of the Company or shall have
or attempt to exercise or assert actual or apparent authority to enter into contracts on behalf of,
or to otherwise bind, the Company. Except as otherwise specifically provided in this Agreement,
the authority and functions of the Board of Directors on the one hand and of the Officers on the
other shall be identical to the authority and functions of the board of directors and officers,
respectively, of a corporation organized under the Delaware General Corporation Law. Except as
otherwise specifically provided in this Agreement, the business and affairs of the Company shall be
managed under the direction of the Board of Directors, and the day-to-day activities of the Company
shall be conducted on the Companys behalf by the Officers, who shall be agents of the Company.
(b) In addition to the powers that now or hereafter can be granted to managers under the
Delaware Act and to all other powers granted under any other provision of this Agreement, except as
otherwise provided in this Agreement, the Board of Directors and the Officers shall have full power
and authority to do all things as are not restricted by this Agreement, the DCP GP Agreement, the
Delaware Act or applicable Law, on such terms as they may deem necessary or appropriate to conduct,
or cause to be conducted, the business and affairs of the Company.
(c) Notwithstanding anything herein to the contrary, without obtaining Extraordinary Approval,
the Company shall not, and shall not take any action to cause either DCP GP or the MLP to, (i) make
or consent to a general assignment for the benefit of its respective creditors; (ii) file or
consent to the filing of any bankruptcy, insolvency or
reorganization petition for relief under the United States Bankruptcy Code naming the Company,
DCP GP or the MLP, as applicable, or otherwise seek, with respect to the Company, DCP GP or the
MLP, relief from debts or protection from creditors generally; (iii) file or consent to the filing
of a petition or answer seeking for the Company, DCP GP or the MLP, as applicable, a liquidation,
dissolution, arrangement, or similar relief under any law; (iv) file an answer or other pleading
admitting or failing to contest the material allegations of a petition filed against the Company,
DCP GP or the MLP, as applicable, in a proceeding of the type described in any of clauses (i)
(iii) of this Section 6.01(c); (v) seek, consent to or acquiesce in the appointment of a receiver,
liquidator, conservator, assignee, trustee, sequestrator, custodian or any similar official for the
Company, DCP GP or the MLP, as applicable, or for all or any substantial portion of either entitys
properties; (vi) sell all or substantially all of the assets of the Company, DCP GP or the MLP;
(vii) dissolve or liquidate, except in the case of DCP GP, in accordance with Article XII of the
DCP GP Agreement; (viii) merge or consolidate; (ix) amend the MLP Partnership Agreement; or (x)
make a material change in the amount of the quarterly distributions made on the MLP Interests or
the payment of any material extraordinary distribution on the MLP Interests.
(d) Notwithstanding anything herein to the contrary, DEFS, as the sole Member of the Company,
shall have exclusive authority over the business and affairs of the Company that do not relate to
management and control of the MLP. The type of matter referred to in the prior sentence where
DEFS, as the sole Member of the Company, shall have exclusive authority shall include, but not be
limited to, (i) the amount and timing of distributions paid by the Company or DCP GP, (ii) the
issuance or repurchase of any equity interests in the Company or DCP GP, (iii) the prosecution,
settlement or management of any claim made directly against
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the Company or DCP GP, (iv) whether to
sell, convey, transfer or pledge any asset of the Company or DCP GP, (v) whether to amend, modify
or waive any rights relating to the assets of the Company or DCP GP (including the decision to
amend or forego distributions in respect of the Incentive Distribution Rights), and (vi) whether to
enter into any agreement to incur an obligation of the Company or DCP GP other than an agreement
entered into for and on behalf of the MLP for which the Company or DCP GP are liable exclusively by
virtue of DCP GPs capacity as general partner of the MLP or of any of its affiliates. Further,
DEFS, as the sole Member of the Company, shall have exclusive authority to cause the Company to
exercise the rights of the Company and those of DCP GP, as general partner of the MLP (or those
exercisable after DCP GP ceases to be the general partner of the MLP), pursuant to the following
provisions of the MLP Partnership Agreement:
(i) Section 2.4 (Purpose and Business), with respect to decisions to propose or approve the
conduct by the MLP of any business;
(ii) Sections 4.6(a) and (b) (Transfer of the General Partners General Partner Interest)
and Section 4.7 (Transfer of Incentive Distribution Rights), solely with respect to the decision
by DCP GP to transfer its general partner interest in the MLP or its Incentive Distribution Rights;
(iii) Section 5.2(b) (Contributions by the General Partner and its Affiliates), solely with
respect to the decision to make additional Capital Contributions to the MLP;
(iv) Section 5.8 (Limited Preemptive Right);
(v) Section 5.11 (Issuance of Class B Units in Connection with Reset of Incentive
Distribution Rights), with respect to any decision by the Company or DCP GP thereunder as a holder
of Incentive Distribution Rights or Class B Units;
(vi) Section 7.5(d) (relating to the right of DCP GP and its Affiliates to purchase Units or
other Partnership Securities and exercise rights related thereto) and Section 7.11 (Purchase and
Sale of Partnership Securities), solely with respect to decisions by the Company or DCP GP to
purchase or otherwise acquire and sell Partnership Securities for their own account;
(vii) Section 7.6(a) (Loans from the General Partner; Loans or Contributions from the
Partnership or Group Members), solely with respect to the decision by the Company or DCP GP to
lend funds to a Group Member, subject to the provisions of Section 7.9 of the MLP Partnership
Agreement;
(viii) Section 7.7 (Indemnification), solely with respect to any decision by the Company or
DCP GP to exercise their respective rights as Indemnitees;
(ix) Section 7.12 (Registration Rights of the General Partner and its Affiliates), solely
with respect to any decision to exercise registration rights and to take actions in connection
therewith;
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(x) Section 11.1 (Withdrawal of the General Partner), solely with respect to the decision by
DCP GP to withdraw as general partner of the MLP and to giving notices required thereunder;
(xi) Section 11.3(a) and (b) (Interest of Departing General Partner and Successor General
Partner); and
(xii) Section 15.1 (Right to Acquire Limited Partner Interests).
(e) Without the approval of the Conflicts Committee of the Board of Directors of the Company,
the Company shall not take any action that would result in either the Company or DCP GP engaging in
any business or activity or incurring any debts or liabilities except in connection with or
incidental to (i) its performance as general partner of DCP GP or (ii) the acquiring, owning or
disposing of debt or equity securities of DCP GP.
6.02 Board of Directors.
(a) Generally. The Board of Directors shall initially consist of five natural persons and, in
the discretion of DEFS, may be increased to consist of up to 10 natural persons. The members of
the Board of Directors shall be appointed by DEFS, provided that (i) at least one member of the
Board of Directors at the time of the closing of the initial public offering of common units
representing limited partner interest of the MLP (the IPO) shall be a natural
person who meets the independence, qualification and experience requirements of the New York
Stock Exchange, the independence, qualification and experience requirements of Section 10A(m)(3) of
the Securities Exchange Act of 1934 (or any successor Law), the rules and regulations of the SEC
and other applicable Law (an Independent Director), (ii) at least two members of the Board of
Directors shall be natural persons who are Independent Directors at all times from and after the
90th day following the effective date of the registration statement related to the IPO and (iii) at
least three members of the Board of Directors shall be natural persons who are Independent
Directors at all times from and after the first anniversary of the effective date of the
registration statement relating to the IPO; provided, however, that if at any time the Board of
Directors does not include the requisite number of Independent Directors as specified above, the
Board of Directors shall still have all powers and authority granted to it hereunder, but DEFS
shall endeavor to appoint one or more additional Independent Directors as necessary to come into
compliance with this Section 6.02(a).
(b) Term; Resignation; Vacancies; Removal. Each Director, other than any Independent
Director, shall hold office until December 31 of the year in which such Director is appointed,
provided however, that in the event a Director, other than an Independent Director, is appointed
during the month of December in any particular year, such Director shall hold office until December
31 of the year following the year in which such Director is appointed. Each Independent Director
shall hold office until his successor is appointed and qualified or until his earlier resignation
or removal. Any Director may resign at any time upon written notice to the Board, the Chairman of
the Board, to the Chief Executive Officer or to any other Officer. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Vacancies and newly created directorships
resulting from any increase in the authorized number of Directors or from
8
any other cause shall be
filled by DEFS. Any Director may be removed, with or without cause, by DEFS at any time, and the
vacancy in the Board caused by any such removal shall be filled by DEFS in accordance with the
provisions of the DEFS LLC Agreement.
(c) Voting; Quorum. Unless otherwise required by the Delaware Act, other Law or the
provisions hereof,
(i) each member of the Board of Directors shall have one vote;
(ii) except for matters requiring Special Approval, the presence at a meeting of a majority of
the members of the Board of Directors shall constitute a quorum at any such meeting for the
transaction of business; and
(iii) except for matters requiring Special Approval, the act of a majority of the members of
the Board of Directors present at a meeting duly called in accordance with Section 6.02(d) at which
a quorum is present shall be deemed to constitute the act of the Board of Directors.
(d) Meetings. Regular meetings of the Board of Directors shall be held at such times and
places as shall be designated from time to time by resolution of the Board of Directors. Special
meetings of the Board of Directors or meetings of any committee thereof may be called by written
request authorized by any member of the Board of Directors or a committee
thereof on at least 48 hours prior written notice to the other members of such Board or
committee. Any such notice, or waiver thereof, need not state the purpose of such meeting, except
as may otherwise be required by law. Attendance of a Director at a meeting (including pursuant to
the last sentence of this Section 6.02(d)) shall constitute a waiver of notice of such meeting,
except where such Director attends the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully called or convened. Any
action required or permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting, without prior notice and without a vote if a consent or
consents in writing, setting forth the action so taken, are signed by at least as many members of
the Board of Directors or committee thereof as would have been required to take such action at a
meeting of the Board of Directors or such committee. Members of the Board of Directors or any
committee thereof may participate in and hold a meeting by means of conference telephone, video
conference or similar communications equipment by means of which all Persons participating in the
meeting can hear each other, and participation in such meetings shall constitute presence in person
at the meeting.
(e) Committees.
(i) Subject to compliance with this Article 6, committees of the Board of Directors shall have
and may exercise such of the powers and authority of the Board of Directors with respect to the
management of the business and affairs of the Company as may be provided in a resolution of the
Board of Directors. Any committee designated pursuant to this Section 6.02(e) shall choose its own
chairman, shall keep regular minutes of its proceedings and report the same to the Board of
Directors when requested, and, subject to Section 6.02(d), shall fix its own rules or procedures
and shall meet at such times and at such place or places as may be
9
provided by such rules or by
resolution of such committee or resolution of the Board of Directors. At every meeting of any such
committee, the presence of a majority of all the members thereof shall constitute a quorum and the
affirmative vote of a majority of the members present shall be necessary for the adoption by it of
any resolution (except for obtaining Special Approval at meetings of the Conflicts Committee, which
requires the affirmative vote of a majority of the members of such committee). The Board of
Directors may designate one or more Directors as alternate members of any committee who may replace
any absent or disqualified member at any meeting of such committee; provided, however, that any
such designated alternate of the Audit Committee or the Conflicts Committee must meet the standards
for an Independent Director. In the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of the absent or disqualified member; provided, however, that any such
replacement member of the Audit Committee or the Conflicts Committee must meet the standards for an
Independent Director.
(ii) In addition to any other committees established by the Board of Directors pursuant to
Section 6.02(e)(i), the Board of Directors shall maintain a Conflicts Committee, which shall be
composed of at least one Independent Director. The Conflicts Committee shall be responsible for
(A) approving or disapproving, as the case may be, any matters regarding the business and affairs
of the Company, DCP GP or the MLP considered by, or submitted to, such Conflicts Committee at the
request of the Board of Directors pursuant to
the terms of the DCP GP Agreement or the MLP Partnership Agreement, (B) approving any material
amendments to the Omnibus Agreement, (C) approving or disapproving, as the case may be, the
entering into of any material transaction with a Member or any Affiliate of a Member, other than
transactions in the ordinary course of business to the extent that the Board of Directors requests
the Conflicts Committee to make such determination, (D) amending (1) Section 2.07, (2) the
definitions of Independent Director in Section 6.02(a) or (3) this Section 6.02(e)(ii),
and (E) performing such other functions as the Board may assign from time to time or as may be
specified in a written charter of the Conflicts Committee. In acting or otherwise voting on the
matters referred to in this Section 6.02(e)(ii), to the fullest extent permitted by law, including
Section 18-1101(c) of the Delaware Act and Section 17-1101(c) of the Delaware Revised Uniform
Limited Partnership Act, as amended from time to time, the Directors constituting the Conflicts
Committee shall consider only the interest of the MLP, including its respective creditors.
(iii) In addition to any other committees established by the Board of Directors pursuant to
Section 6.02(e)(i), the Board of Directors shall maintain an Audit Committee, which shall be
composed of (A) at least one Independent Director at the time of
the closing of the IPO, (B) at
least two Independent Directors at all times from and after the 90th day following the effective
date of the registration statement related to the IPO and (C) at least three Independent
Directors at all times from and after the first anniversary of the effective date of the
registration statement related to the IPO. The Audit Committee shall be responsible for (A)
assisting the Board in monitoring (1) the integrity of the MLPs financial statements, (2) the
qualifications and independence of the MLPs independent accountants, (3) the performance the
internal audit function and independent accountants of the Company, DCP GP and the MLP, and (4) the
MLPs compliance with legal and regulatory requirements and (B) preparing the report
10
required by
the rules of the SEC to be included in the MLPs annual report on Form 10-K. The Audit Committee
shall perform such other functions as the Board may assign from time to time or as may be specified
in a written charter for the Audit Committee adopted by the Board.
(iv) In addition to any other committees established by the Board of Directors pursuant to
Section 6.02(e)(i), the Board of Directors shall maintain an Compensation Committee, which shall
be composed of at least one Independent Director. The Compensation Committee shall be responsible
for setting the compensation for officers of the Company as well as administering any incentive
plans adopted by the Company. The Compensation Committee shall perform such other functions as the
Board may assign from time to time or as may be specified in a written charter for the Compensation
Committee adopted by the Board.
6.03 Officers.
(a) Generally. The Board of Directors, as set forth below, shall appoint officers of the
Company (Officers), who shall (together with the Directors) constitute managers of the Company
for the purposes of the Delaware Act. Unless provided otherwise by resolution of the Board of
Directors, the Officers shall have the titles, power, authority and duties described below in this
Section 6.03.
(b) Titles and Number. The Company may appoint one or more officers including a Chairman of
the Board (unless the Board of Directors provides otherwise), a Chief Executive Officer, a
President, one or more Vice Presidents, a Secretary, the Chief Financial Officer, any Treasurer and
one or more Assistant Secretaries and Assistant Treasurers and a General Counsel. Any person may
hold more then one office.
(c) Appointment and Term of Office. The Officers shall be appointed by the Board of Directors
at such time and for such term as the Board of Directors shall determine. Any Officer may be
removed, with or without cause, only by the Board of Directors. Vacancies in any office may be
filled only by the Board of Directors.
(d) Chairman of the Board. The Chairman of the Board shall preside at all meetings of the
Board of Directors and of the unitholders of the MLP; and he shall have such other powers and
duties as from time to time may be assigned to him by the Board of Directors.
(e)
Chief Executive Officer. Subject to the limitations imposed by this Agreement, any
employment agreement, any employee plan or any determination of the Board of Directors, the Chief
Executive Officer, subject to the direction of the Board of Directors, shall be the chief executive
officer of the Company and shall be responsible for the management and direction of the day-to-day
business and affairs of the Company, its other Officers, employees and agents, shall supervise
generally the affairs of the Company and shall have full authority to execute all documents and
take all actions that the Company may legally take. In the absence of the Chairman of the Board,
the Chief Executive Officer shall preside at all meetings of the unitholders of the MLP and at all
meetings of the Board of Directors provided that he is a director of the Company. The Chief
Executive Officer shall exercise such other powers and perform such other duties as may be assigned
to him by this Agreement or the Board of
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Directors, including any duties and powers provided for in
any employment agreement approved by the Board of Directors.
(f) President. Subject to the limitations imposed by this Agreement, any employment
agreement, any employee plan or any determination of the Board of Directors, the President, subject
to the direction of the Board of Directors, shall be the chief executive officer of the Company in
the absence of a Chief Executive Officer and shall be responsible for the management and direction
of the day-to-day business and affairs of the Company, its other Officers, employees and agents,
shall supervise generally the affairs of the Company and shall have full authority to execute all
documents and take all actions that the Company may legally take. In the absence of the Chairman
of the Board and Chief Executive Officer, the President shall preside at all meetings of the
unitholders of the MLP and at all meetings of the Board of Directors provided that he is a director
of the Company. The President shall exercise such other powers and perform such other duties as
may be assigned to him by this Agreement or the Board of Directors, including any duties and powers
provided for in any employment agreement approved by the Board of Directors.
(g) Vice Presidents. In the absence of a Chief Executive Officer and the President, each Vice
President appointed by the Board of Directors shall have all of the powers and duties conferred
upon the President, including the same power as the President to execute documents on behalf of the
Company. Each such Vice President shall perform such other duties
and may exercise such other powers as may from time to time be assigned to him by the Board of
Directors or the President.
(h) Secretary and Assistant Secretaries. The Secretary shall record or cause to be recorded
in books provided for that purpose the minutes of the meetings or actions of the Board of
Directors, shall see that all notices are duly given in accordance with the provisions of this
Agreement and as required by law, shall be custodian of all records (other than financial), shall
see that the books, reports, statements, certificates and all other documents and records required
by law are properly kept and filed, and, in general, shall perform all duties incident to the
office of Secretary and such other duties as may, from time to time, be assigned to him by this
Agreement, the Board of Directors or the President. The Assistant Secretaries shall exercise the
powers of the Secretary during that Officers absence or inability or refusal to act.
(i) Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of account of the Company and DCP
GP. He shall receive and deposit all moneys and other valuables belonging to the Company in the
name and to the credit of the Company and shall disburse the same and only in such manner as the
Board of Directors or the appropriate Officer of the Company may from time to time determine. He
shall receive and deposit all moneys and other valuables belonging to DCP GP in the name and to the
credit of DCP GP and shall disburse the same and only in such manner as the Board of Directors or
the Chief Executive Officer may require. He shall render to the Board of Directors and the Chief
Executive Officer, whenever any of them request it, an account of all his transactions as Chief
Financial Officer and of the financial condition of the Company, and shall perform such further
duties as the Board of Directors or the Chief Executive Officer may require. The Chief Financial
Officer shall have the same power as the Chief Executive Officer to execute documents on behalf of
the Company.
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(j) Treasurer and Assistant Treasurers. The Treasurer shall have such duties as may be
specified by the Chief Financial Officer in the performance of his duties. The Assistant
Treasurers shall exercise the power of the Treasurer during that Officers absence or inability or
refusal to act. Each of the Assistant Treasurers shall possess the same power as the Treasurer to
sign all certificates, contracts, obligations and other instruments of the Company. If no
Treasurer or Assistant Treasurer is appointed and serving or in the absence of the appointed
Treasurer and Assistant Treasurer, any Vice President, or such other Officer as the Board of
Directors shall select, shall have the powers and duties conferred upon the Treasurer.
(k) General Counsel. The General Counsel, subject to the discretion of the Board of
Directors, shall be responsible for the management and direction of the day-to-day legal affairs of
the Company. The General Counsel shall perform such other duties and may exercise such other
powers as may from time to time be assigned to him by the Board of Directors or the President.
(l) Powers of Attorney. The Company may grant powers of attorney or other authority as
appropriate to establish and evidence the authority of the Officers and other persons.
(m) Delegation of Authority. Unless otherwise provided by resolution of the Board of
Directors, no Officer shall have the power or authority to delegate to any person such Officers
rights and powers as an Officer to manage the business and affairs of the Company.
(n) Tenure. The Board of Directors shall appoint Officers of the Company to serve from the
date hereof until the death, resignation or removal by the Board of Directors with or without cause
of such Officer.
6.04 Duties of Officers and Directors. Except as otherwise specifically provided in this Agreement
or in the MLP Partnership Agreement, the duties and obligations owed to the Company and to the
Board of Directors by the Officers of the Company and by members of the Board of Directors of the
Company shall be the same as the respective duties and obligations owed to a corporation organized
under the Delaware General Corporation Law by its officers and directors, respectively.
6.05 Compensation. The members of the Board of Directors who are neither Officers nor employees of
the Company shall be entitled to compensation as directors and committee members as approved by the
Board and shall be reimbursed for out-of-pocket expenses incurred in connection with attending
meetings of the Board of Directors or committees thereof.
6.06 Indemnification.
(a) To the fullest extent permitted by Law but subject to the limitations expressly provided
in this Agreement, each Indemnitee shall be indemnified and held harmless by the Company from and
against any and all losses, claims, damages, liabilities, joint or several, expenses (including
reasonable legal fees and expenses), judgments, fines, penalties, interest, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, in which any such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of such persons status as an
Indemnitee; provided, however that the Indemnitee shall not be
13
indemnified and held harmless if
there has been a final and non-appealable judgment entered by a court of competent jurisdiction
determining that, in respect of the matter for which the Indemnitee is seeking indemnification
pursuant to this Section 6.06, the Indemnitee acted in bad faith or engaged in fraud, willful
misconduct, or in the case of a criminal matter, acted with knowledge that the Indemnitees conduct
was unlawful; provided, further, no indemnification pursuant to this Section 6.06 shall be
available to the Members or their Affiliates (other than the MLP and any Group Member) with respect
to its or their obligations incurred pursuant to the Underwriting Agreement, the Omnibus Agreement
or the Contribution Agreement. 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 6.06 shall be made only out of the assets of the Company,
it being agreed that the Members shall
not be personally liable for such indemnification and shall have no obligation to contribute
or loan any monies or property to the Company to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including reasonable legal fees and
expenses) incurred by an Indemnitee who is indemnified pursuant to Section 6.06(a) in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by
the Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall be
determined that the Indemnitee is not entitled to be indemnified as authorized in this Section
6.06.
(c) The indemnification provided by this Section 6.06 shall be in addition to any other rights
to which an Indemnitee may be entitled under any agreement, as a matter of law or otherwise, both
as to actions in the Indemnitees capacity as an Indemnitee and as to actions in any other
capacity, 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 Company may purchase and maintain insurance, on behalf of the members of the Board of
Directors, the Officers and such other persons as the Board of Directors shall determine, against
any liability that may be asserted against or expense that may be incurred by such person in
connection with the Companys activities, regardless of whether the Company would have the power to
indemnify such person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.06, the Company shall be deemed to have requested an
Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by the
Indemnitee of such Indemnitees duties to the Company also imposes duties on, or otherwise involves
services by, the Indemnitee to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall
constitute fines within the meaning of Section 6.06(a); and action taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of such Indemnitees duties
for a purpose reasonably believed by such Indemnitee 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 Company.
14
(f) An Indemnitee shall not be denied indemnification in whole or in part under this Section
6.06 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.
(g) The provisions of this Section 6.06 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.
(h) No amendment, modification or repeal of this Section 6.06 or any provision hereof shall in
any manner terminate, reduce or impair either the right of any past,
present or future Indemnitee to be indemnified by the Company or the obligation of the Company
to indemnify any such Indemnitee under and in accordance with the provisions of this Section 6.06
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, provided such
Person became an Indemnitee hereunder prior to such amendment, modification or repeal.
(i) THE PROVISIONS OF THE INDEMNIFICATION PROVIDED IN THIS SECTION 6.06 ARE INTENDED BY THE
PARTIES TO APPLY EVEN IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE INDEMNITEE FROM LEGAL
RESPONSIBILITY FOR THE CONSEQUENCES OF SUCH PERSONS NEGLIGENCE, FAULT OR OTHER CONDUCT.
6.07 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall
be liable for monetary damages to the Company, the Members or any other Person for losses sustained
or liabilities incurred as a result of any act or omission of an Indemnitee unless there has been a
final and non-appealable judgment entered by a court of competent jurisdiction determining that, in
respect of the matter in question, the Indemnitee acted in bad faith or engaged in fraud, willful
misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitees conduct
was criminal.
(b) Subject to its obligations and duties as set forth in this Article 6, the Board of
Directors and any committee thereof 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 the
Companys Officers or agents, and neither the Board of Directors nor any committee thereof shall be
responsible for any misconduct or negligence on the part of any such Officer or agent appointed by
the Board of Directors or any committee thereof 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 Partnerships business or affairs shall not
be liable to the Partnership or to any Partner for any acts or omissions taken in good faith
reliance on the provisions of this Agreement.
15
(d) Any amendment, modification or repeal of this Section 6.07 or any provision hereof shall
be prospective only and shall not in any way affect the limitations on liability under this Section
6.07 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 be asserted.
6.08 Outside Activities.
(a) Except as specifically restricted by the provisions of the DCP GP Agreement or the MLP
Partnership Agreement, each Indemnitee, other than officers or employees of the Company, shall have
the right to engage in businesses of every type and description and other activities for profit and
to engage in and possess an interest in other business ventures of any and every type or
description, whether in businesses engaged in or anticipated to be engaged in by the Company or its
Subsidiaries, independently or with others, including business interests and activities in direct
competition with the business and activities of the Company or its Subsidiaries, and none of the
same shall constitute a breach of this Agreement or any duty expressed or implied by Law to the
Company or its Subsidiaries or any Member. Neither the Company or its Subsidiaries, any Member nor
any other Person shall have any rights by virtue of this Agreement, the DCP GP Agreement or the MLP
Partnership Agreement or the partnership relationship established hereby or thereby in any business
ventures of any Indemnitee.
(b) Notwithstanding anything to the contrary in this Agreement, (i) the engaging in
competitive activities by any Indemnitees, other than officers or employees of the Company, in
accordance with the provisions of this Section 6.08 is hereby approved by the Company and all
Members, (ii) it shall be deemed not to be a breach of any fiduciary duty or any other obligation
of any type whatsoever of any Indemnitee, other than officers or employees of the Company, for such
Indemnitees to engage in such business interests and activities in preference to or to the
exclusion of the Company and (iii) the Indemnitees, other than Officers or employees of the
Company, shall have no obligation hereunder or as a result of any duty expressed or implied by Law
to present business opportunities to the Company, DCP GP or the MLP.
(c) Each Member and each of its Affiliates may acquire additional Membership Interests and,
except as otherwise provided in this Agreement, shall be entitled to exercise, at their option, all
rights relating to such Membership Interests.
6.09 Resolution of Conflicts of Interest; Standard of Conduct and Modification of Duties.
(a) Unless otherwise expressly provided in this Agreement, whenever a potential conflict of
interest exists or arises between the Members or any of their Affiliates (other than the MLP or any
Group Member), on the one hand, and the MLP or any Group Member, on the other hand, any resolution
or course of action by the Board of Directors in respect of such conflict of interest shall be
permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement
or of any agreement contemplated herein or therein, or of
16
any duty stated or implied by law or
equity, if the resolution or course of action in respect of such conflict of interest is (i)
approved by Special Approval, (ii) approved by the vote of a majority of the Units excluding Units
owned by the Members and their Affiliates, (iii) on terms no less favorable to the MLP or Group
Member, as the case may be, than those generally being provided to or available from unrelated
third parties or (iv) fair and reasonable to the MLP or Group Member, as the case may be, taking
into account the totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the MLP or Group Member, as the
case may be). The Board of Directors shall be authorized but not required in connection with its
resolution of such conflict of interest to seek
Special Approval of such resolution, and the Board of Directors may also adopt a resolution or
course of action that has not received Special Approval. If Special Approval is not sought and the
Board of Directors determines that the resolution or course of action taken with respect to a
conflict of interest satisfies either of the standards set forth in clauses (iii) or (iv) above,
then it shall be presumed that, in making its decision, the Board of Directors acted in good faith,
and in any proceeding brought by any Member or by or on behalf of such Member or the MLP or Group
Member, as the case may be, challenging such approval, the Person bringing or prosecuting such
proceeding shall have the burden of overcoming such presumption.
(b) Whenever the Company makes a determination or takes or declines to take any other action,
or any of its Affiliates causes it to do so, in its capacity as the general partner of the General
Partner of the MLP as opposed to in its individual capacity, whether under this Agreement, or any
other agreement contemplated hereby or otherwise, then unless another express standard is provided
for in this Agreement, the Company, or such Affiliates causing it to do so, shall make such
determination or take or decline to take such other action in good faith and shall not be subject
to any other or different standards imposed by this Agreement, any other agreement contemplated
hereby or under the Delaware Act or any other law, rule or regulation or at equity. In order for a
determination or other action to be in good faith for purposes of any action taken or delivered
to be taken by the Company in its capacity as the general partner of the General Partner of the
MLP, the Person or Persons making such determination or taking or declining to take such other
action must believe that the determination or other action is in the best interests of the MLP.
(c) Whenever the Company makes a determination or takes or declines to take any other action,
or any of its Affiliates causes it to do so, in its individual capacity as opposed to in its
capacity as a general partner of the General Partner of the MLP, whether under this Agreement or
any other agreement contemplated hereby or otherwise, then the Company, or such Affiliates causing
it to do so, are entitled to make such determination or to take or decline to take such other
action free of any fiduciary duty or obligation whatsoever to the MLP or any partner thereof, and
the Company, or such Affiliates causing it to do so, shall not be required to act in good faith or
pursuant to any other standard imposed by this Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation. By way of illustration and not of
limitation, whenever the phrase, at the option of the Company, or some variation of that phrase,
is used in this Agreement, it indicates that the Company is acting in its individual capacity. For
the avoidance of doubt, whenever the Company votes or transfers its MLP Interests, or refrains from
voting or transferring its MLP Interests, it shall be acting in its individual capacity.
17
(d) Notwithstanding anything to the contrary in this Agreement, the Company and its Affiliates
shall have no duty or obligation, express or implied, to (i) sell or otherwise dispose of any asset
of the MLP or any Group Member or (ii) permit the MLP or any Group Member to use any facilities or
assets of the Company and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use. Any determination by the Company or any of its
Affiliates to enter into such contracts shall be at its option.
(e) 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.
ARTICLE 7
TAX MATTERS
7.01 Tax Returns and Tax Characterization.
(a) The Board of Directors shall cause to be prepared and timely filed (on behalf of the
Company) all federal, state and local tax returns required to be filed by the Company, including
making all elections on such tax returns. The Company shall bear the costs of the preparation and
filing of its returns.
(b) The Company and the Member acknowledge that for federal income tax purposes, the Company
will be disregarded as an entity separate from the Member pursuant to Treasury Regulation
§301.7701-3 as long as all of the Membership Interests in the Company are owned by DEFS.
ARTICLE 8
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
8.01 Maintenance of Books.
(a) The Board of Directors shall keep or cause to be kept at the principal office of the
Company or at such other location approved by the Board of Directors complete and accurate books
and records of the Company, supporting documentation of the transactions with respect to the
conduct of the Companys business and minutes of the proceedings of the Board of Directors and any
other books and records that are required to be maintained by applicable Law.
(b) The books of account of the Company shall be maintained on the basis of a fiscal year that
is the calendar year and on an accrual basis in accordance with United States generally accepted
accounting principles, consistently applied.
8.02 Reports. The Board of Directors shall cause to be prepared and delivered to each Member such
reports, forecasts, studies, budgets and other information as the Members may reasonably request
from time to time.
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8.03 Bank Accounts. Funds of the Company shall be deposited in such banks or other depositories as shall be
designated from time to time by the Board of Directors. All withdrawals from any such depository
shall be made only as authorized by the Board of Directors and shall be made only by check, wire
transfer, debit memorandum or other written instruction.
ARTICLE 9
DISSOLUTION, WINDING-UP AND TERMINATION
9.01 Dissolution.
(a) Subject to compliance with Section 6.01(c), the Company shall dissolve and its affairs
shall be wound up on the first to occur of the following events (each a Dissolution Event):
(i) the unanimous consent of the Board of Directors;
(ii) the entry of a decree of judicial dissolution of the Company under Section 18-802 of the
Delaware Act; and
(iii) at any time there are no Members of the Company, unless the Company is continued in
accordance with the Delaware Act or this Agreement.
(b) No other event shall cause a dissolution of the Company.
(c) Upon the occurrence of any event that causes there to be no Members of the Company, to the
fullest extent permitted by law, the personal representative of the last remaining Member is hereby
authorized to, and shall, within 90 days after the occurrence of the event that terminated the
continued membership of such Member in the Company, agree in writing (i) to continue the Company
and (ii) to the admission of the personal representative or its nominee or designee, as the case
may be, as a substitute Member of the Company, effective as of the occurrence of the event that
terminated the continued membership of such Member in the Company.
(d) Notwithstanding any other provision of this Agreement, the Bankruptcy of a Member shall
not cause such Member to cease to be a member of the Company, and, upon the occurrence of such an
event, the Company shall continue without dissolution.
9.02 Winding-Up and Termination.
(a) On the occurrence of a Dissolution Event, the Board of Directors shall select one or more
Persons to act as liquidator. The liquidator shall proceed diligently to wind up the affairs of
the Company and make final distributions as provided herein and in the Delaware Act. The costs of
winding up shall be borne as a Company expense. Until final distribution, the
liquidator shall continue to operate the Company properties with all of the power and
authority of the Board of Directors. The steps to be accomplished by the liquidator are as
follows:
(i) as promptly as possible after dissolution and again after final winding up, the liquidator
shall cause a proper accounting to be made by a recognized firm of
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certified public accountants of
the Companys assets, liabilities, and operations through the last calendar day of the month in
which the dissolution occurs or the final winding up is completed, as applicable;
(ii) the liquidator shall discharge from Company funds all of the debts, liabilities and
obligations of the Company or otherwise make adequate provision for payment and discharge thereof
(including the establishment of a cash escrow fund for contingent liabilities in such amount and
for such term as the liquidator may reasonably determine); and
(iii) all remaining assets of the Company shall be distributed to the Members as follows:
(A) the liquidator may sell any or all Company property, including to Members;
and
(B) Company property (including cash) shall be distributed to the Members.
(b) The distribution of cash or property to a Member in accordance with the provisions of this
Section 9.02 constitutes a complete return to the Member of its Capital Contributions and a
complete distribution to the Member of its share of all the Companys property and constitutes a
compromise to which all Members have consented within the meaning of Section 18-502(b) of the
Delaware Act. No Member shall be required to make any Capital Contribution to the Company to
enable the Company to make the distributions described in this Section 9.02.
(c) On completion of such final distribution, the liquidator shall file a certificate of
cancellation with the Secretary of State of the State of Delaware and take such other actions as
may be necessary to terminate the existence of the Company.
ARTICLE 10
MERGER, CONSOLIDATION OR CONVERSION
10.01 Authority. Subject to compliance with Section 6.01(c), the Company may merge or consolidate
with one or more corporations, limited liability companies, statutory trusts or associations, real
estate investment trusts, common law trusts or unincorporated businesses, including a partnership
(whether general or limited (including a limited liability partnership)) or convert into any such
entity, whether such entity is 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) or a written plan of conversion (Plan of Conversion), as the case may
be, in accordance with this Article 10. The surviving entity to any such merger, consolidation or
conversion is referred to herein as the Surviving Business Entity.
10.02 Procedure for Merger, Consolidation or Conversion.
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(a) The merger, consolidation or conversion of the Company pursuant to this Article 10
requires the prior approval of a majority of the Board of Directors and compliance with Section
10.03.
(b) If the Board of Directors shall determine to consent to a merger or consolidation, the
Board of Directors shall approve the Merger Agreement, which shall set forth:
(i) the names and jurisdictions of formation or organization of each of the business entities
proposing to merge or consolidate;
(ii) the name and jurisdiction of formation or organization of the Surviving Business Entity
that is to survive the proposed merger or consolidation;
(iii) the terms and conditions of the proposed merger or consolidation;
(iv) the manner and basis of exchanging or converting the equity securities of each
constituent business entity for, or into, cash, property or interests, rights, securities or
obligations of the Surviving Business Entity; and (A) 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 interests, rights, securities
or obligations of any general or limited partnership, corporation, trust, limited liability
company, unincorporated business 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 interests, securities or rights, and (B) 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, limited
liability company, unincorporated business or other entity (other than the Surviving Business
Entity), or evidences thereof, are to be delivered;
(v) 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, operating agreement or other similar charter or
governing document) of the Surviving Business Entity to be effected by such merger or
consolidation;
(vi) the effective time of the merger, which may be the date of the filing of the certificate
of merger pursuant to Section 10.04 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 such certificate of merger, the effective time
shall be fixed at a date or time certain at or prior to the time of the filing of such
certificate of merger and stated therein); and
(vii) such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or appropriate by the Board of Directors.
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(c) If the Board of Directors shall determine to consent to the conversion, the Board of
Directors shall approve and adopt a Plan of Conversion containing such terms and conditions that
the Board of Directors determines to be necessary or appropriate.
10.03 Approval by Members of Merger or Consolidation.
(a) The Board of Directors, upon its approval of the Merger Agreement or Plan of Conversion,
as the case may be, shall direct that the Merger Agreement or the Plan of Conversion, as
applicable, be submitted to a vote of the Members, whether at a meeting or by written consent. A
copy or a summary of the Merger Agreement or the Plan of Conversion, as applicable, shall be
included in or enclosed with the notice of a special meeting or the written consent.
(b) The Merger Agreement or the Plan of Conversion, as applicable, shall be approved upon
receiving the affirmative vote or consent of the holders of a majority of the Members.
(c) After such approval by vote or consent of the Limited Partners, and at any time prior to
the filing of the certificate of merger, consolidation or conversion pursuant to Section 10.04, the
merger, consolidation or conversion may be abandoned pursuant to provisions therefor, if any, set
forth in the Merger Agreement or the Plan of Conversion, as the case may be.
10.04 Certificate of Merger, Consolidation or Conversion.
(a) Upon the required approval, if any, by the Board of Directors and the Members of a Merger
Agreement or a Plan of Conversion, as the case may be, a certificate of merger, consolidation or
conversion, as applicable, shall be executed and filed with the Secretary of State of the State of
Delaware in conformity with the requirements of the Delaware Act.
(b) At the effective time of the certificate of merger or consolidation:
(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 property 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 interest in property of any of
those constituent business entities shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business entities shall attach to
the Surviving Business Entity, and may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it.
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(c) At the effective time of the certificate of conversion:
(i) the Company shall continue to exist, without interruption, but in the organizational form
of the converted entity rather than in its prior organizational form;
(ii) all rights, title, and interests to all real estate and other property owned by the
Company shall continue to be owned by the converted entity in its new organizational form without
reversion or impairment, without further act or deed, and without any transfer or assignment having
occurred, but subject to any existing liens or other encumbrances thereon;
(iii) all liabilities and obligations of the Company shall continue to be liabilities and
obligations of the converted entity in its new organizational form without impairment or diminution
by reason of the conversion;
(iv) all rights of creditors or other parties with respect to or against the prior interest
holders or other owners of the Company in their capacities as such in existence as of the effective
time of the conversion will continue in existence as to those liabilities and obligations and may
be pursued by such creditors and obligees as if the conversion did not occur;
(v) a proceeding pending by or against the Company or by or against any of the Members in
their capacities as such may be continued by or against the converted entity in its new
organizational form and by or against the prior members without any need for substitution of
parties; and
(vi) the Company securities that are to be converted into partnership interests, shares,
evidences of ownership, or other securities in the converted entity as provided in the Plan of
Conversion or certificate of conversion shall be so converted, and the Members shall be entitled
only to the rights provided in the Plan of Conversion or certificate of conversion.
(d) A merger, consolidation or conversion effected pursuant to this Article 10 shall not (i)
be deemed to result in a transfer or assignment of assets or liabilities from one entity to another
having occurred or (ii) require the Company (if it is not the Surviving Business Entity) to wind up
its affairs, pay its liabilities or distribute its assets as required under Article 9 of this
Agreement or under the applicable provisions of the Delaware Act.
ARTICLE 11
GENERAL PROVISIONS
11.01 Notices. Except as expressly set forth to the contrary in this Agreement, all notices,
requests or consents provided for or permitted to be given under this Agreement must be in writing
and must be delivered to the recipient in person, by courier or mail or by facsimile or other
electronic transmission and a notice, request or consent given under this Agreement is effective on
receipt by the Person to receive it; provided, however, that a facsimile or other electronic
transmission that is transmitted after the normal business hours of the recipient shall be deemed
effective on the next Business Day. All notices, requests and consents to be sent to a Member must
be sent to or made at the addresses given for that Member as that Member may specify by notice to
the other Members. Any notice, request or consent to the Company must be
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given to all of the
Members. Whenever any notice is required to be given by applicable Law, the Organizational
Certificate or this Agreement, a written waiver thereof, signed by the Person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to the giving of such
notice. Whenever any notice is required to be given by Law, the Organizational Certificate or this
Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such notice.
11.02 Entire Agreement; Supersedure. This Agreement constitutes the entire agreement of the
Members and their respective Affiliates relating to the subject matter hereof and supersedes all
prior contracts or agreements with respect to such subject matter, whether oral or written.
11.03 Effect of Waiver or Consent. Except as provided in this Agreement, a waiver or consent,
express or implied, to or of any breach or default by any Person in the performance by that Person
of its obligations with respect to the Company is not a consent or waiver to or of any other breach
or default in the performance by that Person of the same or any other obligations of that Person
with respect to the Company. Except as provided in this Agreement, failure on the part of a Person
to complain of any act of any Person or to declare any Person in default with respect to the
Company, irrespective of how long that failure continues, does not constitute a waiver by that
Person of its rights with respect to that default until the applicable statute-of-limitations
period has run.
11.04 Amendment or Restatement. This Agreement may be amended or restated only by a written
instrument executed by all Members; provided, however, that notwithstanding anything to the
contrary contained in this Agreement, each Member agrees that the Board of Directors, without the
approval of any Member, may amend any provision of the Organizational Certificate and this
Agreement, and may authorize any Officer to execute, swear to, acknowledge, deliver, file and
record any such amendment and whatever documents may be required in connection therewith, to
reflect any change that does not require consent or approval (or for which such consent or approval
has been
obtained) under this Agreement or does not materially adversely affect the rights of the Members.
11.05 Binding Effect. This Agreement is binding on and shall inure to the benefit of the Members
and their respective heirs, legal representatives, successors and assigns.
11.06 Governing Law; Severability. THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE
THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION. In the event of a direct conflict between the provisions of this Agreement and (a)
any provision of the Organizational Certificate, or (b) any mandatory, non-waivable provision of
the Delaware Act, such provision of the Organizational Certificate or the Delaware Act shall
control. If any provision of the Delaware Act provides that it may be varied or superseded in the
limited liability company agreement (or otherwise by agreement of the members or managers of a
limited liability company), such provision shall be deemed superseded and waived in its entirety if
this Agreement contains a provision addressing
24
the same issue or subject matter. If any provision
of this Agreement or the application thereof to any Person or circumstance is held invalid or
unenforceable to any extent, (a) the remainder of this Agreement and the application of that
provision to other Persons or circumstances is not affected thereby and that provision shall be
enforced to the greatest extent permitted by Law, and (b) the Members or Directors (as the case may
be) shall negotiate in good faith to replace that provision with a new provision that is valid and
enforceable and that puts the Members in substantially the same economic, business and legal
position as they would have been in if the original provision had been valid and enforceable.
11.07 Further Assurances. In connection with this Agreement and the transactions contemplated
hereby, each Member shall execute and deliver any additional documents and instruments and perform
any additional acts that may be necessary or appropriate to effectuate and perform the provisions
of this Agreement and those transactions.
11.08 Offset. Whenever the Company is to pay any sum to any Member, any amounts that a Member owes
the Company may be deducted from that sum before payment.
11.09 Counterparts. This Agreement may be executed in any number of counterparts with the same
effect as if all signing parties had signed the same document. All counterparts shall be construed
together and constitute the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, DEFS has executed this Agreement as the sole member as of the date first
set forth above.
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MEMBER:
DUKE ENERGY FIELD SERVICES, LLC
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Attachment I
Defined Terms
Affiliate with respect to any Person, each Person Controlling, Controlled by or under common
Control with such first Person; provided that, for the evidence of doubt, the term Affiliate,
includes any Person that, directly or indirectly,
is the beneficial owner of at least 25% of the equity interest in DEFS or has the right to appoint
at least 25% of the members of the board of directors of DEFS.
Agreement this Amended and Restated Limited Liability Company Agreement of DCP Midstream GP,
LLC, as the same may be amended, modified, supplemented or restated from time to time.
Audit Committee Section 6.02(e)(iii).
Available Cash as of any Distribution Date, (a) all cash and cash equivalents of the Company
on hand on such date, less (b) the amount of any cash reserves determined to be appropriate by the
Board of Directors.
Bankruptcy or Bankrupt with respect to any Person, that (a) such Person (i) makes an
assignment for the benefit of creditors; (ii) files a voluntary petition in bankruptcy; (iii) is
insolvent, or has entered against such Person an order for relief in any bankruptcy or insolvency
proceeding; (iv) files a petition or answer seeking for such Person any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar relief under any Law;
(v) files an answer or other pleading admitting or failing to contest the material allegations of a
petition filed against such Person in a proceeding of the type described in subclauses (i) through
(iv) of this clause (a); or (vi) seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator of such Person or of all or any substantial part of such Persons
properties; or (b) 120 Days have passed after the commencement of any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief
under any Law, if the proceeding has not been dismissed, or 90 Days have passed after the
appointment without such Persons consent or acquiescence of a trustee, receiver or liquidator of
such Person or of all or any substantial part of such Persons properties, if the appointment is
not vacated or stayed, or 90 Days have passed after the date of expiration of any such stay, if the
appointment has not been vacated.
Board of Directors or Board Section 6.01.
Business Day any Day other than a Saturday, a Sunday or a Day on which national banking
associations in the State of Texas are authorized or required by Law to close.
Capital Contribution Section 4.01(b).
Class B
Units has the meaning ascribed to such term in the MLP Partnership Agreement.
1
Commitment means (a) options, warrants, convertible securities, exchangeable securities,
subscription rights, conversion rights, exchange rights, or other contracts, agreements or
commitments that could require a Person to issue any of its Equity Interests or to sell any Equity
Interests it owns in another Person; (b) any other securities convertible into, exchangeable or
exercisable for, or representing the right to subscribe for any Equity Interest of a Person or
owned by a Person; (c) statutory or contractual pre-emptive rights or pre-emptive rights granted
under a Persons organizational or constitutive documents; and (d) stock appreciation rights,
phantom stock, profit participation, or other similar rights with respect to a Person.
Company initial paragraph of this Agreement.
Compensation Committee 6.02(e)(iv)
Conflicts Committee Section 6.02(e)(ii).
Contribution Agreement has the meaning ascribed to such term in the MLP Partnership Agreement.
Control shall mean the possession, directly or indirectly, of the power and authority to
direct or cause the direction of the management and policies of a Person, whether through ownership
or control of Voting Stock, by contract or otherwise.
Day a calendar Day; provided, however, that, if any period of Days referred to in this
Agreement shall end on a Day that is not a Business Day, then the expiration of such period shall
be automatically extended until the end of the first succeeding Business Day.
DCP GP DCP Midstream GP, LP, as the general partner of the MLP.
DCP GP Agreement the First Amended and Restated Agreement of Limited Partnership of DCP
Midstream GP, LP, dated effective as of ___, 2005, as amended, supplemented, amended and
restated, or otherwise modified from time to time.
DEFS initial paragraph of this Agreement.
DEFS LLC Agreement means the Second Amended and Restated Limited Liability Company Agreement
of DEFS.
Delaware Act the Delaware Limited Liability Company Act and any successor statute, as
amended from time to time.
Delaware General Corporation Law Title 8 of the Delaware Code, as amended from time to time.
Director each member of the Board of Directors elected as provided in Section 6.02.
Dissolution Event Section 9.01(a).
2
Distribution Date Section 5.01.
Effective Date initial paragraph of this Agreement.
Equity Interest (a) with respect to a corporation, any and all shares of capital stock and
any Commitments with respect thereto, (b) with respect to a partnership, limited liability company,
trust or similar Person, any and all units, interests or other partnership, limited liability
company, trust or similar interests, and any Commitments with respect thereto, and (c) any other
direct or indirect equity ownership or participation in a Person (including any incentive
distribution rights).
Existing Agreement Recitals.
Extraordinary Approval written approval of DEFS.
Group Member means any of the MLP and its Subsidiaries.
Incentive Distribution Rights has the meaning ascribed thereto in the MLP Partnership
Agreement.
Indemnitee each of (a) the Company and any Person who is or was an Affiliate of the Company,
(b) any Person who is or was a member, director, officer, fiduciary or trustee of the Company, (c)
any Person who is or was an officer, member, partner, director, employee, agent or trustee of the
General Partner or any Affiliate of the General 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 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 and (e) any Person the Company designates as an
Indemnitee for purposes of this Agreement.
Independent Director Section 6.02(a).
Law any applicable constitutional provision, statute, act, code, law, regulation, rule,
ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration or
interpretative or advisory opinion or letter of a governmental authority.
Liability any liability or obligation, whether known or unknown, asserted or unasserted,
absolute or contingent, matured or unmatured, conditional or unconditional, latent or patent,
accrued or unaccrued, liquidated or unliquidated, or due or to become due.
Member any Person executing this Agreement as of the date of this Agreement as a member or
hereafter admitted to the Company as a member as provided in this Agreement, but such term does not
include any Person who has ceased to be a member in the Company.
Membership Interest with respect to any Member, (a) that Members status as a Member; (b)
that Members share of the income, gain, loss, deduction and credits of, and the right to receive
distributions from, the Company; (c) all other rights, benefits and privileges enjoyed by that
Member (under the Delaware Act, this Agreement, or otherwise) in its capacity
3
as a Member; and (d) all obligations, duties and liabilities imposed on that Member (under the
Delaware Act, this Agreement or otherwise) in its capacity as a Member, including any obligations
to make Capital Contributions.
Merger Agreement Section 10.01.
MLP DCP Midstream Partners, LP, a Delaware limited partnership.
MLP Interests the limited partner interests of the MLP, regardless of class or category of
limited partner interests.
MLP Partnership Agreement means the Amended and Restated Agreement of Limited Partnership of
the MLP, dated as of ___, 2005, as amended or restated from time to time.
National Securities Exchange has the meaning ascribed to such term in the MLP Partnership
Agreement.
Officers any person elected as an officer of the Company as provided in Section 6.03(a), but
such term does not include any person who has ceased to be an officer of the Company.
Omnibus Agreement Omnibus Agreement, dated ___, 2005, among the Company, DCP GP and DEFS,
as amended or restated from time to time.
Organizational Certificate Section 2.01.
Partnership Securities has the meaning ascribed to such term in the MLP Partnership Agreement.
Person a natural person, partnership (whether general or limited), limited liability
company, governmental entity, trust, estate, association, corporation, venture, custodian, nominee
or any other individual or entity in its own or any representative capacity.
Plan of Conversion Section 10.01.
Quarter unless the context requires otherwise, a calendar quarter.
SEC the United States Securities and Exchange Commission.
Special Approval approval by a majority of the members of the Conflicts Committee.
Subsidiary with respect to any relevant Person, (a) a corporation of which more than 50% of
the Voting Stock is owned, directly or indirectly, at the date of determination, by such relevant
Person, by one or more Subsidiaries of such relevant Person or a combination thereof, (b) a
partnership (whether general or limited) in which such relevant Person, one or more Subsidiaries of
such relevant Person or a combination thereof is, at the date of
4
determination, a general or limited partner of such partnership, but only if more than 50% of
the partnership interests of such partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly, at the date of determination, by
such relevant Person, by one or more Subsidiaries of such relevant Person, or a combination
thereof, or (c) any other Person (other than a corporation or a partnership) in which such relevant
Person, one or more Subsidiaries of such relevant 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 other Person.
Surviving Business Entity Section 10.01.
Underwriting Agreement has the meaning ascribed to such term in the MLP Partnership
Agreement.
Units
has the meaning ascribed to such term in the MLP Partnership
Agreement.
Voting Stock with respect to any Person, Equity Interests in such Person, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for the election of, or
otherwise appoint, directors (or Persons with management authority performing similar functions) of
such Person.
Withdraw, Withdrawing and Withdrawal the withdrawal, resignation or retirement of a Member
from the Company as a Member.
5
exv5w1
Exhibit 5.1
November 17, 2005
DCP Midstream Partners, LP
370 17th Street, Suite 2775
Denver, Colorado 80202
Ladies and Gentlemen:
We have acted as counsel to DCP Midstream Partners, LP, a Delaware limited partnership (the
Partnership), in connection with the registration under the Securities Act of 1933, as amended
(the Securities Act), of the offering and sale of up to an aggregate of 10,350,000 common units
representing limited partner interests in the Partnership (the Common Units).
We are rendering this opinion as of the time the Registration Statement (defined below)
becomes effective in accordance with Section 8(a) of the Securities Act.
As the basis for the opinion hereinafter expressed, we examined such statutes, including the
Delaware Revised Uniform Limited Partnership Act (the Delaware Act), corporate records and
documents, certificates of corporate and public officials, and other instruments and documents as
we deemed necessary or advisable for the purposes of this opinion. In such examination, we assumed
the authenticity of all documents submitted to us as originals and the conformity with the original
documents of all documents submitted to us as copies.
Based on the foregoing and on such legal considerations as we deem relevant, we are of the
opinion that:
1. The Partnership has been duly formed and is validly existing as a limited partnership under
the Delaware Act.
2. The Common Units, when issued and delivered on behalf of the Partnership against payment
therefor as described in the Partnerships Registration Statement on Form S-1 (File No.
333-128378), as amended, to which this opinion is an exhibit and relating to the Common Units (the
Registration Statement), will be duly authorized, validly issued, fully paid and nonassessable.
The opinions expressed herein are limited in all respects to federal law of the United States
of America and the Delaware Act, and we are expressing no opinion as to the effect of the laws of
any other jurisdiction.
We hereby consent to the reference to us under the heading Validity of the Common Units in
the prospectus forming a part of the Registration Statement and to the filing of this opinion as an
exhibit to the Registration Statement, but we do not thereby admit that we are within the class of
persons whose consent is required under the provisions of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission issued thereunder.
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Very truly yours, |
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/s/ VINSON & ELKINS L.L.P. |
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VINSON & ELKINS L.L.P. |
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Vinson & Elkins LLP Attorneys at Law Austin Beijing Dallas Dubai
Houston London Moscow New York Shanghai Tokyo Washington
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First City Tower, 1001 Fannin Street, Suite 2300, Houston, TX 77002-6760
Tel 713.758.2222 Fax 713.758.2346 www.velaw.com |
exv8w1
Exhibit 8.1
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
November 17, 2005
DCP Midstream Partners, LP
370 17th Street, Suite 2775
Denver, CO 80202
RE: DCP MIDSTREAM PARTNERS, LP REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel for DCP Midstream Partners, LP, a Delaware limited partnership (the
Partnership), with respect to certain legal matters in connection with the offer and sale of
common units representing limited partner interests in the Partnership. We have also participated
in the preparation of a Registration Statement on Form S-1 (No. 333-128378) (the Registration
Statement) to which this opinion is an exhibit. In connection therewith, we prepared the
discussion (the Discussion) set forth under the caption Material Tax Consequences in the
Registration Statement.
All statements of legal conclusions contained in the Discussion, unless otherwise noted, are
our opinion with respect to the matters set forth therein as of the effective date of the
Registration Statement. In addition, we are of the opinion that the Discussion with respect to
those matters as to which no legal conclusions are provided is an accurate discussion of such
federal income tax matters (except for the representations and statements of fact of the
Partnership and its general partner, included in the Discussion, as to which we express no
opinion).
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement
and to the use of our name in the Registration Statement. This consent does not constitute an
admission that we are experts within the meaning of such term as used in the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange Commission issued
thereunder.
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Very truly yours,
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/s/ VINSON & ELKINS L.L.P.
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VINSON & ELKINS L.L.P. |
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exv10w1
Exhibit 10.1
CREDIT AGREEMENT
Dated as of ____________, 2005
among
DCP MIDSTREAM OPERATING, LP
as the Borrower,
DCP MIDSTREAM PARTNERS, LP
and its subsidiaries
as Guarantors,
THE LENDERS PARTY HERETO
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent
SUNTRUST BANK,
as Syndication Agent,
and
WACHOVIA CAPITAL MARKETS, LLC
and
SUNTRUST CAPITAL MARKETS, INC.,
as Co-Lead Arrangers and Joint Book Runners
TABLE OF CONTENTS
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SECTION 1. DEFINITIONS AND ACCOUNTING TERMS |
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1 |
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1.1 |
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Definitions |
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1 |
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1.2 |
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Computation of Time Periods |
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17 |
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1.3 |
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Accounting Terms |
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18 |
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1.4 |
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Time |
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18 |
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SECTION 2. LOANS |
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18 |
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2.1 |
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Revolving and Term Loan Commitments |
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18 |
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2.2 |
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Letters of Credit |
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18 |
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2.3 |
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Method of Borrowing for Revolving Loans and Term Loans |
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23 |
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2.4 |
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Funding of Revolving Loans and Term Loans |
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23 |
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2.5 |
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Continuations and Conversions |
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23 |
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2.6 |
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Minimum Amounts |
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24 |
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2.7 |
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Reductions of Revolving Committed Amount |
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24 |
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2.8 |
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Swingline Loans |
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24 |
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2.9 |
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Notes |
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26 |
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2.10 |
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Increases in Revolving Committed Amount |
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26 |
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SECTION 3. PAYMENTS |
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27 |
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3.1 |
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Interest |
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27 |
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3.2 |
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Prepayments |
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27 |
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3.3 |
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Payment of Loans in full at Maturity |
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28 |
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3.4 |
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Fees |
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28 |
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3.5 |
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Place and Manner of Payments |
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29 |
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3.6 |
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Pro Rata Treatment |
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30 |
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3.7 |
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Computations of Interest and Fees |
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30 |
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3.8 |
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Sharing of Payments |
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31 |
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3.9 |
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Evidence of Debt |
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31 |
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SECTION 4. ADDITIONAL PROVISIONS |
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32 |
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4.1 |
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Eurodollar Loan Provisions |
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32 |
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4.2 |
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Capital Adequacy |
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34 |
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4.3 |
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Compensation |
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34 |
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4.4 |
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Taxes |
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35 |
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4.5 |
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Replacement of Lenders |
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37 |
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SECTION 5. CONDITIONS PRECEDENT |
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37 |
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5.1 |
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Closing Conditions |
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37 |
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5.2 |
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Conditions to Loans and Issuances of Letters of Credit |
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40 |
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SECTION 6. REPRESENTATIONS AND WARRANTIES |
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40 |
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6.1 |
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Organization and Good Standing |
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40 |
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6.2 |
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Due Authorization |
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41 |
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6.3 |
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No Conflicts |
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41 |
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6.4 |
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Consents |
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41 |
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6.5 |
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Enforceable Obligations |
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41 |
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6.6 |
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Financial Condition/Material Adverse Effect |
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41 |
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6.7 |
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Taxes |
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41 |
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i
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6.8 |
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Compliance with Law |
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42 |
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6.9 |
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Use of Proceeds; Margin Stock |
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42 |
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6.10 |
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Government Regulation |
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42 |
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6.11 |
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Solvency |
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42 |
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6.12 |
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Environmental Matters |
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42 |
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6.13 |
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Subsidiaries |
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42 |
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6.14 |
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Litigation |
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43 |
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6.15 |
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Collateral |
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43 |
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6.16 |
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Material Contracts |
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43 |
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6.17 |
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Anti-Terrorism Laws |
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43 |
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6.18 |
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Compliance with OFAC Rules and Regulations |
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43 |
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6.19 |
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Compliance with FCPA |
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43 |
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SECTION 7. AFFIRMATIVE COVENANTS |
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44 |
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7.1 |
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Information Covenants |
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44 |
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7.2 |
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Preservation of Existence and Franchises |
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46 |
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7.3 |
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Books and Records |
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46 |
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7.4 |
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Compliance with Law |
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46 |
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7.5 |
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Payment of Taxes and Other Indebtedness |
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46 |
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7.6 |
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Maintenance of Property; Insurance |
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47 |
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7.7 |
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Use of Proceeds |
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47 |
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7.8 |
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Audits/Inspections |
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47 |
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7.9 |
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Maintenance of Ownership |
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47 |
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7.10 |
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Financial Covenants |
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48 |
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7.11 |
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Material Contracts |
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48 |
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7.12 |
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Additional Guarantors |
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48 |
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7.12 |
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Cash Collateral |
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49 |
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SECTION 8. NEGATIVE COVENANTS |
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50 |
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8.1 |
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Nature of Business |
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51 |
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8.2. |
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Liens |
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51 |
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8.3 |
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Consolidation and Merger |
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52 |
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8.4 |
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Dispositions |
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53 |
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8.5 |
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Transactions with Affiliates |
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53 |
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8.6 |
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Indebtedness |
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54 |
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8.7 |
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Investments |
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54 |
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8.8 |
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Restricted Payments |
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55 |
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SECTION 9. EVENTS OF DEFAULT |
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56 |
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9.1 |
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Events of Default |
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56 |
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9.2 |
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Acceleration; Remedies |
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58 |
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9.3 |
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Allocation of Payments After Event of Default |
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59 |
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SECTION 10. AGENCY PROVISIONS |
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60 |
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10.1 |
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Appointment |
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60 |
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10.2 |
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Delegation of Duties |
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60 |
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10.3 |
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Exculpatory Provisions |
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60 |
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10.4 |
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Reliance on Communications |
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61 |
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10.5 |
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Notice of Default |
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61 |
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10.6 |
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Non-Reliance on Agent and Other Lenders |
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61 |
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10.7 |
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Indemnification |
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62 |
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ii
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10.8 |
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Agent in Its Individual Capacity |
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62 |
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10.9 |
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Successor Agent |
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62 |
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SECTION 11. MISCELLANEOUS |
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63 |
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11.1 |
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Notices |
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63 |
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11.2 |
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Right of Set-Off |
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63 |
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11.3 |
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Benefit of Agreement |
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63 |
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11.4 |
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No Waiver; Remedies Cumulative |
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65 |
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11.5 |
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Payment of Expenses, etc. |
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66 |
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11.6 |
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Amendments, Waivers and Consents |
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66 |
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11.7 |
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Counterparts/Telecopy |
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67 |
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11.8 |
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Headings |
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67 |
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11.9 |
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Defaulting Lender |
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67 |
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11.10 |
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Survival of Indemnification and Representations and Warranties |
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68 |
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11.11 |
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Governing Law; Venue |
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68 |
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11.12 |
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Waiver of Jury Trial; Waiver of Consequential Damages |
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68 |
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11.13 |
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Severability |
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69 |
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11.14 |
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Further Assurances |
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69 |
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11.15 |
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Entirety |
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69 |
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11.16 |
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Binding Effect; Continuing Agreement |
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69 |
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11.17 |
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Confidentiality; USA PATRIOT Act |
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69 |
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SECTION 12. GUARANTY |
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70 |
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12.1 |
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The Guaranty |
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70 |
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12.2 |
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Obligations Unconditional |
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70 |
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12.3 |
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Reinstatement |
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71 |
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12.4 |
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Certain Additional Waivers |
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71 |
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12.5 |
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Remedies |
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72 |
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12.6 |
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Rights of Contribution |
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72 |
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12.7 |
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Guarantee of Payment; Continuing Guarantee |
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72 |
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SCHEDULES |
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Schedule 1.1
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Commitment Percentages |
Schedule 6.13
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Subsidiaries |
Schedule 8.5
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Affiliate Transactions |
Schedule 11.1
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Notices |
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EXHIBITS |
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Exhibit 1.1
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Form of Rating Agency Designation |
Exhibit 2.3
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Form of Notice of Borrowing |
Exhibit 2.5
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Form of Notice of Continuation/Conversion |
Exhibit 2.9(a)
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Form of Revolving Note |
Exhibit 2.9(b)
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Form of Term Loan Note |
Exhibit 2.9(c)
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Form of Swingline Loan Note |
Exhibit 5.1
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Form of Account Designation Letter |
Exhibit 7.1(d)
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Form of Officers Certificate |
iii
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Exhibit 7.12
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Form of Joinder Agreement |
Exhibit 11.3(b)
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Form of Assignment Agreement |
iv
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this Credit Agreement), dated as of , 2005, is
entered into among DCP MIDSTREAM OPERATING, LP, a Delaware limited partnership (the
Borrower), DCP MIDSTREAM PARTNERS, LP, a Delaware limited partnership (the
Parent) and all Subsidiaries of the Parent (collectively, the Guarantors), the
Lenders (as defined herein) and WACHOVIA BANK, NATIONAL ASSOCIATION, as administrative agent for
the Lenders (in such capacity, the Agent).
RECITALS
WHEREAS, the Borrower has requested that the Lenders make available to it a credit facility in
the aggregate initial amount of $400 million for the purposes set forth herein; and
WHEREAS, the Lenders have agreed to provide the requested credit facility to the Borrower on
the terms, and subject to the conditions, set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
SECTION 1.
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
As used herein, the following terms shall have the meanings herein specified unless the
context otherwise requires. Defined terms herein shall include in the singular number the plural
and in the plural the singular:
Account Control Agreement means that certain Account Control Agreement, dated
as of the Effective Date, among the Borrower (as Debtor), Intermediary (as Intermediary) and
the Agent (as Bank).
Account Designation Letter means the Notice of Account Designation Letter
dated the Closing Date from the Borrower to the Agent in substantially the form attached
hereto as Exhibit 5.1.
Acquisition by any Person, means the acquisition by such Person, in a single
transaction or in a series of related transactions, of property or assets (other than
capital expenditures or acquisitions of inventory or supplies in the ordinary course of
business) of, or of a business unit or division of, another Person or at least a majority of
the securities having ordinary voting power for the election of directors, managing general
partners or the equivalent of another Person, in each case whether or not involving a merger
or consolidation with such other Person and whether for cash, property, services, assumption
of Indebtedness, securities or otherwise.
Adjusted Base Rate means the Base Rate plus the Applicable Margin for Base
Rate Loans.
Adjusted Eurodollar Rate means the Eurodollar Rate plus the Applicable Margin
for Eurodollar Loans.
Affiliate means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control with such
Person. A Person shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause direction of the management and
policies of such corporation, whether through the ownership of voting securities, by
contract or otherwise.
Agency Services Address means Wachovia Bank, National Association, as
Administrative Agent, 201 South College Street, CP-8, Charlotte, North Carolina 28288-0680,
or such other address as may be identified by written notice from the Agent to the Borrower
and the Lenders.
Agent means Wachovia Bank, National Association and any successors and
assigns in such capacity.
Applicable Margin means, at any time:
(a) with respect to Term Loans, (i) for Eurodollar Loans, .15% and (ii) for Base Rate
Loans, 0%.
(b) with respect to Loans (other than Term Loans) and applicable fees, if the Parent
does not have a Debt Rating from S&P or Moodys, the rate per annum set forth below based on
the Consolidated Leverage Ratio:
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Applicable |
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Margin for |
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Applicable Margin |
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Applicable |
Pricing |
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Consolidated |
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Facility |
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for Margin for |
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Base Rate |
Level |
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Leverage Ratio |
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Fees |
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Eurodollar Loans |
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Loans |
I |
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< 2.75 to 1.0 |
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.150 |
% |
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.500 |
% |
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|
0 |
% |
II |
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> 2.75 to 1.0 but
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< 3.25 to 1.0 |
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.175 |
% |
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.575 |
% |
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0 |
% |
III |
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>3.25 to 1.0 but
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< 3.75 to 1.0 |
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.225 |
% |
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.650 |
% |
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0 |
% |
IV |
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>3.75 to 1.0 but
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< 4.25 to 1.0 |
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.275 |
% |
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.850 |
% |
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0 |
% |
V |
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>4.25 to 1.0 |
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.350 |
% |
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1.025 |
% |
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.025 |
% |
Any increase or decrease in the Applicable Margin resulting from a change in the
Consolidated Leverage Ratio shall become effective as of the first Business Day immediately
following the date that the officers certificate is required to be delivered pursuant to
Section 7.1(d) evidencing calculation of the Consolidated Leverage Ratio; provided,
however, that if such certificate is not delivered when due in accordance with such
Section 7.1(d), then Pricing Level V shall apply as of the first Business Day after the date
on which such certificate was required to have been delivered and shall continue to apply
until the first Business Day immediately following the date a certificate is delivered in
accordance with Section 7.1(d), whereupon the Applicable Margin shall be adjusted based upon
the calculation of the Consolidated Leverage Ratio contained in such certificate. The
Applicable Margin in effect from the Effective Date through the first Business Day
immediately
2
following the date a certificate is required to be delivered pursuant to Section 7.1(d) for
the fiscal quarter ending March 31, 2006 shall be determined based upon Pricing Tier II.
(c) with respect to Loans (other than Term Loans) and applicable fees, if the Parent
has at least one Debt Rating from S&P or Moodys, the rate per annum set forth in the table
below opposite the Debt Rating of the Parent:
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Parents Debt Rating* |
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Applicable Margin |
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Applicable Margin |
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Applicable Margin |
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for |
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for Base |
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for Facility Fees |
|
Eurodollar Loans |
|
Rate Loans |
>BBB+/Baal |
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|
.080 |
% |
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.270 |
% |
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|
0 |
% |
BBB/Baa2 |
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|
.100 |
% |
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|
.350 |
% |
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|
0 |
% |
BBB-/Baa3 |
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|
.125 |
% |
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.500 |
% |
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|
0 |
% |
BB+/Ba1 |
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|
.150 |
% |
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|
.600 |
% |
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|
0 |
% |
<BB/Ba2 |
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.250 |
% |
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|
.900 |
% |
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0 |
% |
* If any Designated Rating Agency is other than S&P and
Moodys, then the equivalent Debt Rating given by such rating agency
shall be used. If there is only one Designated Rating Agency it must be
either S&P or Moodys.
The Applicable Margin shall, in each case, be determined and adjusted on the date
on which there is a change in the Parents Debt Rating and shall be effective until a future
change in the Parents Debt Rating.
Notwithstanding the above, if at any time (i) there is a split in Debt Ratings between
the two Designated Rating Agencies, the higher Debt Rating (i.e. the lower pricing) will
apply unless there is more than one level between the Debt Ratings and then one level below
the higher rating will apply and (ii) the Parent is not rated by S&P or Moodys, the pricing
grid above based on the Consolidated Leverage Ratio shall apply.
(d) Any adjustment in the Applicable Margin shall be applicable to all existing
Eurodollar Loans and Letters of Credit as well as any new Eurodollar Loans made or Letters
of Credit issued.
(e) The Borrower shall promptly deliver to the Agent, at the address set forth on
Schedule 11.1 and at the Agency Services Address, information regarding any change
in the Consolidated Leverage Ratio or the Parents Debt Rating that would change the
existing Pricing Level pursuant to clause (a) or (b) above.
Approved Officer means the president, a vice president, the treasurer or the
assistant treasurer of the applicable Credit Party or such other authorized representative
of such Credit Party as may be designated by any one of the foregoing.
Assignment Agreement means an Assignment Agreement executed and delivered
pursuant to Section 11.3(b).
Available Cash has the meaning ascribed to such term in the First Amended and
Restated Agreement of Limited Partnership of the Borrower as in effect on the Effective
Date, with such amendments thereto as agreed to by the Required Lenders.
3
Bankruptcy Code means the Bankruptcy Code in Title 11 of the United States
Code, as amended, modified, succeeded or replaced from time to time.
Base Rate means, for any day, the rate per annum equal to the greater of (a)
the Federal Funds Rate in effect on such day plus 1/2 of 1% or (b) the Prime Rate in effect on
such day. Any change in the Base Rate due to a change in the Prime Rate or the Federal
Funds Rate shall be effective on the effective date of such change in the Prime Rate or the
Federal Funds Rate, respectively.
Base Rate Loan means a Loan (other than a Swingline Loan) which bears
interest based on the Base Rate.
Borrower means DCP Midstream Operating, LP a Delaware limited partnership.
Business Day means any day other than a Saturday, a Sunday, a legal holiday
or a day on which banking institutions are authorized or required by law or other
governmental action to close in New York, New York or Charlotte, North Carolina;
provided, that in the case of Eurodollar Loans, such day is also a day on which
dealings between banks are carried on in U.S. dollar deposits in the London interbank
market.
Businesses has the meaning set forth in Section 6.12.
Capital Lease means, as applied to any Person, any lease of any Property
(whether real, personal or mixed) by that Person as lessee that, in accordance with GAAP, is
required to be accounted for as a capital lease on the balance sheet of that Person.
Capital Stock means (a) in the case of a corporation, all classes of capital
stock of such corporation, (b) in the case of a partnership, partnership interests (whether
general or limited), (c) in the case of a limited liability company, membership interests
and (d) any other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing Person.
Cash Collateral means all assets and property maintained in the Cash
Collateral Account.
Cash Collateral Account means the account of the Borrower numbered
with the Intermediary.
Cash Equivalents means, as at any date, (a) securities guaranteed or insured
by the United States or any agency or instrumentality thereof (provided that the full faith
and credit of the United States is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition, (b) Dollar denominated time deposits and
certificates of deposit of (i) any Lender, (ii) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000 or (iii) any bank whose
short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or
from Moodys is at least P-1 or the equivalent thereof (any such bank being an Approved
Bank), in each case with maturities of not more than 270 days from the date of
acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved
Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed
by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1
(or the equivalent thereof) or better by Moodys and maturing within six months of the date
of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust
company (including any of the Lenders)
4
or recognized securities dealer having capital and surplus in excess of $500,000,000
for direct obligations issued by or fully guaranteed by the United States in which such
Person shall have a perfected first priority security interest (subject to no other Liens)
and having, on the date of purchase thereof, a fair market value of at least 100% of the
amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP
as current assets, in money market investment programs registered under the Investment
Company Act of 1940 which are administered by reputable financial institutions having
capital of at least $500,000,000 or having portfolio assets of at least $5,000,000,000 and
the portfolios of which are limited to Investments of the character described in the
foregoing subdivisions (a) through (d).
Change of Control means as of any date, the failure of (a) the Parent to own,
directly or indirectly, 100% of the equity of the Borrower or (b) Duke Energy Field
Services, LLC to own, directly or indirectly, a majority of the voting equity of the general
partner of the Parent.
Closing Date means the date hereof.
Code means the Internal Revenue Code of 1986, as amended from time to time.
Co-lead Arrangers means Wachovia Capital Markets, LLC and SunTrust Capital
Markets, Inc.
Collateral Documents means (i) the Account Control Agreement and (ii) each
other document executed and delivered in connection with the granting, attachment and
perfection of the Agents security interest in the Cash Collateral, including, without
limitation, Uniform Commercial Code financing statements.
Commitment means, as to each Lender, the commitment of such Lender with
respect to the Revolving Committed Amount and the commitment of such Lender with respect to
the Term Loan Committed Amount and Commitments means, collectively, all such
commitments of the Lenders.
Commitment Percentage means, for each Lender, the percentage identified as
its Commitment Percentage opposite such Lenders name on Schedule 1.1, as such
percentage may be modified by assignment or by an increase in Commitments in accordance with
Section 2.10.
Conflicts Committee has the meaning ascribed thereto in the First Amended and
Restated Agreement of Limited Partnership of the Parent, as amended or restated from time to
time.
Consolidated EBITDA means, for any period, an amount equal to Consolidated
Net Income for such period plus, to the extent deducted in determining Consolidated Net
Income for such period, the aggregate amount of (a) taxes based on or measured by income,
(b) Consolidated Interest Expense and (c) depreciation and amortization expense.
Consolidated Indebtedness means, without duplication, all Indebtedness of the
Parent and its Subsidiaries on a consolidated basis minus the principal amount of Cash
Collateral then held by the Agent.
Consolidated Interest Coverage Ratio means, as of the last day of each fiscal
quarter of the Parent, the ratio of (a) Consolidated EBITDA for the period of four
consecutive fiscal quarters
5
ending on such day to (b) Consolidated Interest Expense for the period of four
consecutive fiscal quarters ending on such day.
Consolidated Interest Expense means interest expense as would appear on a
consolidated statement of income of the Parent and its Subsidiaries prepared in accordance
with GAAP; provided, that Consolidated Interest Expense associated with the Term
Loans for any period shall be reduced by any interest income earned on the Cash Collateral
during such period.
Consolidated Leverage Ratio means, as of the last day of each fiscal quarter
of the Parent, the ratio of (a) Consolidated Indebtedness on such day to (b) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending on such day.
Consolidated Net Income means, for any period, the net income of the Parent
and its Subsidiaries for such period determined on a consolidated basis in accordance with
GAAP; provided, that Consolidated Net Income shall not include (i) extraordinary
gains or extraordinary losses, (ii) net gains and losses in respect of disposition of assets
other than in the ordinary course of business, (iii) gains or losses attributable to
write-ups or write-downs of assets other than hedging and derivative activities in the
ordinary course of business and (iv) the cumulative effect of a change in accounting
principles, all as reported in the Parents consolidated statement(s) of income for the
relevant period(s) prepared in accordance with GAAP.
Consolidated Net Tangible Assets means, at any date of determination, the
total amount of consolidated assets of the Parent and its Subsidiaries after deducting
therefrom the value (net of any applicable reserves) of all goodwill, trade names,
trademarks, patents and other like intangible assets, all as set forth, or on a pro forma
basis would be set forth, on the consolidated balance sheet of the Parent and its
Subsidiaries for the most recently completed fiscal quarter, in accordance with GAAP.
Credit Documents means this Credit Agreement, the Notes, the LOC Documents,
the Collateral Documents, any Notice of Borrowing, any Notice of Continuation/Conversion and
all other related agreements and documents issued or delivered hereunder or thereunder or
pursuant hereto or thereto.
Credit Exposure means, as applied to each Lender (a) at any time prior to the
termination of the Commitments, the sum of (i) Commitment Percentage of such Lender
multiplied by the Revolving Committed Amount plus (ii) the Commitment Percentage of such
Lender multiplied by to the principal balance of the outstanding Term Loans and (b) at any
time after the termination of the Commitments, the sum of (i) the principal balance of the
outstanding Loans of such Lender plus (ii) such Lenders Participation Interest in the face
amount of outstanding Letters of Credit and Swingline Loans.
Credit Facility Swap Contract means any interest rate Swap Contract entered
into by a Credit Party with a Lender or an Affiliate of a Lender with respect to the
Obligations.
Credit Parties means the Borrower and the Guarantors.
Debt Rating means, the long-term senior unsecured, non-credit enhanced debt
rating of the Parent by the Designated Rating Agencies.
Default means any event, act or condition which with notice or lapse of time,
or both, would constitute an Event of Default.
6
Defaulting Lender means, at any time, any Lender that, at such time (a) has
failed to make a Loan required pursuant to the term of this Credit Agreement, (b) has failed
to pay to the Agent or any Lender an amount owed by such Lender pursuant to the terms of
this Credit Agreement or (c) has been deemed insolvent by a court of competent jurisdiction
or has become subject to a bankruptcy or insolvency proceeding or to a receiver, trustee or
similar official.
Designated Rating Agencies shall mean any two of S&P, Moodys or any other
rating agency selected by the Parent which is recognized by the Securities and Exchange
Commission and identified by the Parent from time to time in a Rating Agency Designation and
Designated Rating Agency shall mean any one of the foregoing. Until such time as
the Parent shall have delivered a Rating Agency Designation to the Agent, the Designated
Rating Agencies shall be S&P and Moodys.
Disposition or Dispose means the sale, transfer, license, lease or
other disposition (including any Sale and Leaseback Transaction) of any Property by a Credit
Party (including the Equity Interests of any Subsidiary), including any sale, assignment,
transfer or other disposal, with or without recourse, of any notes or accounts receivable or
any rights and claims associated therewith.
Dollars and $ means dollars in lawful currency of the United States
of America.
Effective Date means the date on which the conditions set forth in Section
5.1 shall have been fulfilled (or waived in the sole discretion of the Lenders).
Eligible Assignee means (a) any Lender approved by the Borrower, the Agent
and the Issuing Lenders and (b) any other Person approved by the Borrower, the Issuing
Lenders and the Agent (in each case, which approval by the Borrowers, the Issuing Lenders
and the Agent shall not be unreasonably withheld or delayed); provided, that (A) the
Borrowers consent is not required during the existence and continuation of an Event of
Default and (B) neither the Borrower nor an Affiliate of the Borrower shall qualify as an
Eligible Assignee.
Environmental Laws means any legal requirement of any Governmental Authority
pertaining to (a) the protection of health, safety, and the indoor or outdoor environment,
(b) the conservation, management, or use of natural resources and wildlife, (c) the
protection or use of surface water and groundwater or (d) the management, manufacture,
possession, presence, use, generation, transportation, treatment, storage, disposal,
release, threatened release, abatement, removal, remediation or handling of, or exposure to,
any hazardous or toxic substance or material or (e) pollution (including any release to land
surface water and groundwater) and includes, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq., Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid
Waste Amendment of 1984, 42 USC 6901 et seq., Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 USC 1251 et seq., Clean Air Act, as amended, 42
USC 7401 et seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq., Hazardous
Materials Transportation Act, 49 USC App. 1801 et seq., Occupational Safety and Health Act
of 1970, as amended, 29 USC 651 et seq., Oil Pollution Act of 1990, 33 USC 2701 et seq.,
Emergency Planning and Community Right-to-Know Act of 1986, 42 USC 11001 et seq., National
Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe Drinking Water Act of 1974, as
amended, 42 USC 300(f) et seq., any analogous implementing or successor law, and any
amendment, rule, regulation, order, or directive issued thereunder.
7
ERISA means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto, as interpreted by the rules and regulations thereunder,
all as the same may be in effect from time to time. References to sections of ERISA shall
be construed also to refer to any successor sections.
ERISA Affiliate means an entity, whether or not incorporated, which is under
common control with the Parent or any of its Subsidiaries within the meaning of Section
4001(a)(14) of ERISA, or is a member of a group which includes the Parent or any of its
Subsidiaries and which is treated as a single employer under Sections 414(b), (c), (m), or
(o) of the Code.
Eurodollar Loan means a Loan bearing interest at the Adjusted Eurodollar
Rate.
Eurodollar Rate means with respect to any Eurodollar Loan, for the Interest
Period applicable thereto, a rate per annum equal to the London Interbank Offered Rate.
Eurodollar Reserve Percentage means, for any day, that percentage (expressed
as a decimal) which is in effect from time to time under Regulation D as the maximum reserve
requirement (including, without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities, as that term is
defined in Regulation D (or against any other category of liabilities that includes deposits
by reference to which the interest rate of Eurodollar Loans is determined).
Event of Default has the meaning specified in Section 9.1.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, as amended, modified, succeeded or replaced
from time to time.
Extension of Credit means, as to any Lender, the making of a Loan by such
Lender (or a participation therein by a Lender) or the issuance of, or participation in, a
Letter of Credit by such Lender.
Facility Fee has the meaning specified in Section 3.4(a).
Fee Letter means that certain letter agreement, dated as of November 1, 2005,
among the Agent, Wachovia Capital Markets, LLC and the Borrower, as amended, modified,
supplemented or replaced from time to time.
Federal Funds Rate means for any day the rate per annum (rounded upward to
the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day; provided, that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day and (b) if no such rate is so published on such next succeeding
Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the
Agent on such day on such transactions as determined by the Agent.
GAAP means generally accepted accounting principles in the United States
applied on a consistent basis and subject to Section 1.3.
Government Acts has the meaning specified in Section 2.2(k).
8
Governmental Authority means any Federal, state, local or foreign court,
monetary authority or governmental agency, authority, instrumentality or regulatory body.
Guarantor means (a) the Parent, (b) each Subsidiary of the Parent in
existence as of the Effective Date (other than the Borrower) and (c) any Person which
becomes a Guarantor pursuant to Section 7.11 hereof, in each case, together with their
successors and permitted assigns.
Indebtedness of any Person means, without duplication, (a) all obligations of
such Person for borrowed money, (b) all obligations of such Person for the deferred purchase
price of property or services purchased, (c) all obligations of such Person created or
arising under any conditional sale or other title retention agreement with respect to the
property acquired, (d) all obligations of such Person under lease obligations which shall
have been, or should be, in accordance with GAAP, recorded as capital leases in respect of
which such Person is liable as lessee, (e) the face amount of all letter of credit
indebtedness available to be drawn (other than letter of credit obligations relating to
indebtedness included in Indebtedness pursuant to another clause of this definition) and,
without duplication, the unreimbursed amount of all drafts drawn thereunder, (f) obligations
of others secured by a Lien on property or assets of such Person, whether or not assumed
(but in any event not exceeding the fair market value of the property or asset), (g) all
guarantees of Indebtedness referred to in clauses (a) through (f) above, (h) all amounts
payable by such Person in connection with mandatory redemptions or repurchases of preferred
stock, (i) any obligations of such Person (in the nature of principal or interest) in
respect of acceptances or similar obligations issued or created for the account of such
Person, (j) all Off Balance Sheet Indebtedness of such Person and (k) obligations
(contingent or otherwise) existing or arising under any interest rate Swap Contract, to the
extent such obligations are classified as indebtedness for purposes of GAAP.
Initial Asset Acquisition has the meaning set forth in Section 5.1(d).
Interest Payment Date means (a) as to Base Rate Loans and Swingline Loans,
the first day of each calendar quarter of the Borrower and the Maturity Date and (b) as to
Eurodollar Loans, the last day of each applicable Interest Period and the Maturity Date and,
in addition, where the applicable Interest Period for a Eurodollar Loan is greater than
three months, then also on the last day of each three-month period during such Interest
Period. If an Interest Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding Business Day, except that in
the case of Eurodollar Loans where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day.
Interest Period means, with respect to Eurodollar Loans, a period of one,
two, three or six months duration, as the Borrower may elect, commencing, in each case, on
the date of the borrowing (including continuations and conversions of Eurodollar Loans);
provided, however, (a) if any Interest Period would end on a day which is not a Business
Day, such Interest Period shall be extended to the next succeeding Business Day (except that
where the next succeeding Business Day falls in the next succeeding calendar month, then on
the next preceding Business Day), (b) no Interest Period shall extend beyond the Maturity
Date and (c) where an Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is to end, such
Interest Period shall end on the last Business Day of such calendar month.
Intermediary means Wachovia Bank, National Association, as Intermediary under
the Account Control Agreement.
9
Investment means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other acquisition of the
Capital Stock of another Person, (b) an Acquisition or (c) a loan, advance or capital
contribution to, guarantee or assumption of debt of, or purchase or other acquisition of any
other debt or equity participation or interest in, another Person, including any partnership
or joint venture interest in such other Person and any arrangement pursuant to which the
investor guarantees Indebtedness of such other Person.
Investment Grade Rating means BBB- or better from S&P or Baa3 or better from
Moodys.
Investment Grade Rating Date means the date on which the Parent first
achieves an Investment Grade Rating.
Issuing Lender means Wachovia Bank, National Association or any other Lender
as requested by the Borrower and agreed to by such Lender.
Issuing Lender Fees has the meaning set forth in Section 3.4(b)(ii).
Letter of Credit means a Letter of Credit issued for the account of the
Borrower or one of its Subsidiaries by an Issuing Lender pursuant to Section 2.2, as such
Letter of Credit may be amended, modified, extended, renewed or replaced.
Letter of Credit Fees shall have the meaning assigned to such term in Section
3.4(b)(i).
Lender means any Person identified as a Lender on the signature pages hereto
and any Eligible Assignee which may become a Lender by way of assignment in accordance with
the terms hereof, together with their successors or permitted assigns.
Lien means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, security interest, encumbrance, lien (statutory or otherwise), preference,
priority or charge of any kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any financing or similar statement or
notice filed under the Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in the nature
thereof).
Loans means the Revolving Loans, the Swingline Loans and the Term Loans.
LOC Documents means, with respect to any Letter of Credit, such Letter of
Credit, any amendments thereto, any documents delivered in connection therewith, any
application therefor, and any agreements, instruments, guarantees or other documents
(whether general in application or applicable only to such Letter of Credit) governing or
providing for (a) the rights and obligations of the parties concerned or at risk or (b) any
collateral security for such obligations.
LOC Obligations means, at any time, the sum of (a) the maximum amount which
is then available to be drawn under Letters of Credit then outstanding, assuming compliance
with all requirements for drawings referred to in such Letters of Credit plus (b) the
aggregate amount of all drawings under Letters of Credit honored by an Issuing Lender but
not theretofore reimbursed.
10
London Interbank Offered Rate means, with respect to any Eurodollar Loan for
the Interest Period applicable thereto, the rate of interest per annum appearing on Telerate
Page 3750 (or any successor page) as the London interbank offered rate for deposits in
Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period; provided,
however, if more than one rate is specified on Telerate Page 3750, the applicable rate shall
be the arithmetic mean of all such rates. If, for any reason, such rate is not available,
the term London Interbank Offered Rate shall mean, with respect to any Eurodollar Loan for
the Interest Period applicable thereto, the rate of interest per annum appearing on such
other service as may be nominated by the British Bankers Association as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two
Business Days prior to the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is specified, the
applicable rate shall be the arithmetic mean of all such rates.
Mandatory Borrowing has the meaning specified in Section 2.2(e).
Material Adverse Effect means a material adverse effect on the business,
financial positions or results of operations of the Parent and its Subsidiaries taken as a
whole.
Maturity Date means , 2010.
Moodys means Moodys Investors Service, Inc., or any successor or assignee
of the business of such company in the business of rating securities.
Multiemployer Plan means a Plan covered by Title IV of ERISA which is a
multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA.
Multiple Employer Plan means a Plan covered by Title IV of ERISA, other than
a Multiemployer Plan, which the Parent or any ERISA Affiliate and at least one employer
other than the Parent or any ERISA Affiliate are contributing sponsors.
Non-Excluded Taxes has the meaning specified in Section 4.4(a).
Notes means the Revolving Notes, the Term Loan Notes and the Swingline Loan
Notes, if any.
Notice of Borrowing means a request by the Borrower for a Loan in the form of
Exhibit 2.3.
Notice of Continuation/Conversion means a request by the Borrower for the
continuation or conversion of a Loan in the form of Exhibit 2.5.
Obligations means, without duplication, all of the obligations of the Credit
Parties to the Lenders and the Agent, whenever arising, under this Credit Agreement, the
Notes, the LOC Documents, the Collateral Documents, Credit Facility Swap Contracts, Treasury
Management Agreements or any of the other Credit Documents.
Off Balance Sheet Indebtedness means any obligation of a Person that would be
considered indebtedness for tax purposes but is not set forth on the balance sheet of such
Person, including, but not limited to, (a) any synthetic lease, tax retention operating
lease, off balance sheet
11
loan or similar off-balance sheet financing product of such Person, (b) the aggregate
amount of uncollected accounts receivables of such Person subject at such time to a sale of
receivables (or similar transaction) and (c) obligations of any partnership or joint venture
that is recourse to such Person.
Original Revolving Commitment means, as to each applicable Lender (including
any Lender that purchases any portion of the Original Revolving Commitment by assignment),
the Dollar commitment of such Lender with respect to the Original Revolving Committed
Amount, as such Original Revolving Commitment may be modified by assignment.
Original Revolving Commitment Percentage means, for each applicable Lender,
the percentage identified as its Original Revolving Commitment Percentage opposite such
Lenders name on Schedule 1.1 (or on the applicable Assignment Agreement), as such
percentage may be modified by assignment.
Original Revolving Committed Amount means, the dollar amount of the Revolving
Committed Amount as of the Effective Date (without giving effect to any increase in the
Revolving Committed Amount pursuant to Section 2.10).
Parent means DCP Midstream Partners, LP, a Delaware limited partnership.
Participation Interest means the Extension of Credit by a Lender by way of a
purchase or deemed purchase of a participation in Letters of Credit or LOC Obligations as
provided in Section 2.2 or in any Swingline Loans as provided in Section 2.8 or in any Loans
as provided in Section 3.8.
Payment Date has the meaning set forth in Section 2.2(d).
PBGC means the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA and any successor thereto.
Permitted Acquisitions means (a) the Initial Asset Acquisition and (b) any
other Acquisition by any Credit Party, so long as (i) no Default or Event of Default is in
existence or would be created thereby, (ii) the Person or assets being acquired by such
Credit Party are in the midstream energy business, (iii) such Acquisition has been approved
by the Board of Directors or similar governing body of the target of such Acquisition (if
required or applicable) and (iv) immediately after giving effect to such acquisition, the
Borrower is in compliance with Section 7.10 on a pro forma basis.
Permitted Cash Collateral means each of the following instruments and
securities to the extent having maturities (for purposes of this definition, maturities
shall mean (i) weighted average life for asset-backed securities, mortgage-backed
securities, commercial mortgage-backed securities and collateralized mortgage obligations,
and the next reset date for auction rate securities and (ii) with respect to mutual funds,
the weighted average maturity of the investments it owns) not greater than six months from
the date of acquisition thereof: (a) cash, (b) investments in money market mutual funds that
are registered with the SEC and subject to Rule 2a-7 of the Investment Company Act of 1940
and have a net asset value of 1.0, (c) U.S. Treasury Notes, (d) direct obligations of the
United States (including obligations of agencies and sponsored enterprises of the United
States) and other obligations whose principal and interest is fully guaranteed by the United
States, (e) money market instruments (including, but not limited to, commercial paper,
bankers acceptances, time deposits and certificates of deposits) rated at least A-1 by S&P
or P-1 by Moodys at the time of
12
purchase, (f) obligations of corporations or other business entities (including, bonds,
notes and other structured obligations) rated at least AAA by S&P, Aaa by Moodys or AAA by
Fitch at the time of purchase, (g) asset-backed securities rated at least AAA by S&P, Aaa by
Moodys or AAA by Fitch at the time of purchase, (h) mortgage-backed securities, commercial
mortgage-backed securities and collateralized mortgage obligations rated at least AAA by
S&P, Aaa by Moodys or AAA by Fitch at the time of purchase, (i) repurchase obligations that
are collateralized no less than 102% of market value (including accrued interest) by
obligations of the U.S. government or one of its sponsored enterprises or agencies, (j)
municipal obligations issued by any state of the United States of America or any
municipality or other political subdivision of any such state rated at least AAA by S&P, Aaa
by Moodys or AAA by Fitch at the time of purchase, (k) 7, 28 or 35 day auction rate
securities rated at least AAA by S&P, Aaa by Moodys or AAA by Fitch at the time of purchase
and (l) shares in bond mutual funds that are registered under the Investment Company Act of
1940 that invest solely in the items set forth in (a)-(k) above and maintain an average
credit quality of at least AAA by S&P, Aaa by Moodys or AAA by Fitch at the time of
purchase, in each case which is held in the Cash Collateral Account and is subject to the
Account Control Agreement and in which the Agent has, on behalf of the Lenders, a first
priority perfected security interest. Notwithstanding the above, at the time of purchase,
no one issuer will be more than 5% of the value of the Permitted Cash Collateral. This rule
excludes direct obligations of the United States, United States sponsored agencies and
enterprises, money market funds, repurchase agreements and securities that have an effective
maturity no longer than the next business day. United States sponsored agencies and
enterprises are limited to 40% of the value of the Permitted Cash Collateral at time of
purchase, per issuer. For purposes of calculating the amount of Permitted Cash Collateral
on deposit in the Cash Collateral Account hereunder, Permitted Cash Collateral of an issuer
that exceeds the 5% or 40% thresholds set forth above shall be excluded from such
calculation.
Person means any individual, partnership, joint venture, firm, corporation,
association, trust, limited liability company or other enterprise (whether or not
incorporated), or any government or political subdivision or any agency, department or
instrumentality thereof.
Plan means any employee pension benefit plan (as defined in Section 3(2) of
ERISA) which is covered by ERISA and with respect to which the Parent or any ERISA Affiliate
is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an employer within the meaning of Section 3(5) of ERISA.
Prime Rate means the per annum rate of interest established from time to time
by the Agent at its principal office in Charlotte, North Carolina as its Prime Rate. Any
change in the interest rate resulting from a change in the Prime Rate shall become effective
as of 12:01 a.m. of the Business Day on which each change in the Prime Rate is announced by
the Agent. The Prime Rate is a reference rate used by the Agent in determining interest
rates on certain loans and is not intended to be the lowest rate of interest charged on any
extension of credit to any debtor.
Properties has the meaning set forth in Section 6.12.
Qualified Acquisition means a Permitted Acquisition, the aggregate purchase
price for which, when combined with the aggregate purchase price for all other Permitted
Acquisitions in any rolling 12-month period, is greater than or equal to $25,000,000.
Rating Agency Designation means a written notice in the form of Exhibit
1.1 provided from time to time by the Parent to the Administrative Agent setting forth
the two current Designated Rating Agencies.
13
Register has the meaning set forth in Section 11.3(c).
Regulation A, D, T, U, or X means Regulation A, D, T, U or X, respectively,
of the Board of Governors of the Federal Reserve System as from time to time in effect and
any successor to all or a portion thereof.
Reportable Event means a reportable event as defined in Section 4043 of
ERISA with respect to which the notice requirements to the PBGC have not been waived.
Required Collateral Amount has the meaning specified in Section 7.13(b).
Required Lenders means Lenders whose aggregate Credit Exposure constitutes
more than 50% of the aggregate Credit Exposure of all Lenders at such time;
provided, however, that if any Lender shall be a Defaulting Lender at such time then
there shall be excluded from the determination of Required Lenders the aggregate principal
amount of Credit Exposure of such Lender at such time.
Responsible Officer means the president, chief financial officer, treasurer
or assistant treasurer of the applicable Credit Party.
Restricted Payment means any dividend or other distribution (whether in cash,
securities or other property) with respect to Capital Stock of a Credit Party or any
Subsidiary, or any payment (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such Capital Stock or on account of any
return of capital to a Credit Partys stockholders, partners or members (or the equivalent
Person thereof), or any setting apart of funds or assets for any of the foregoing.
Revolving Committed Amount means TWO HUNDRED MILLION Dollars
($2_0,000,000) as such amount may be reduced in accordance with Section 2.7 or increased
pursuant to Section 2.10.
Revolving Loans has the meaning set forth in Section 2.1(a).
Revolving Notes means the promissory notes of the Borrower in favor of each
of the Lenders evidencing the Loans provided pursuant to Section 2.1(a), individually or
collectively, as appropriate, as such notes may be amended or modified from time to time and
substantially in the form of Exhibit 2.9(a).
S&P means Standard & Poors Ratings Group, a division of McGraw Hill, Inc.,
or any successor or assignee of the business of such division in the business of rating
securities.
Sale and Leaseback Transaction means, with respect to a Credit Party or any
Subsidiary, any arrangement, directly or indirectly, with any Person whereby a Credit Party
or such Subsidiary shall sell or transfer any assets used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such assets or other assets
that it intends to use for substantially the same purpose or purposes as the assets being
sold or transferred.
Sanctioned Country means a country subject to a sanctions program identified
on the list maintained by OFAC and available at http://www.treas.gov/offices/enforcement /ofac/sanctions/index.html, or as
otherwise published from time to time.
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Sanctioned Person means (a) a Person named on the list of Specially
Designated Nationals and Blocked Persons maintained by OFAC available at
http://www.treas.gov/offices/enforcement/ofac/sdn/index.html, or as otherwise published from
time to time or (b) (i) an agency of the government of a Sanctioned Country, (ii) an
organization controlled by a Sanctioned Country or (iii) a person resident in a Sanctioned
Country, to the extent subject to a sanctions program administered by OFAC.
Single Employer Plan means any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan or a Multiple Employer Plan.
Solvent means, with respect to any Person as of a particular date, that on
such date (a) such Person is able to pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of business, (b) such
Person does not intend to, and does not believe that it will, incur debts or liabilities
beyond such Persons ability to pay as such debts and liabilities mature in their ordinary
course, (c) such Person is not engaged in a business or a transaction, and is not about to
engage in a business or a transaction, for which such Persons assets would constitute
unreasonably small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged or is to engage, (d) the fair value of the assets
of such Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person and (e) the present fair saleable value
of the assets of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and matured. In
computing the amount of contingent liabilities at any time, it is intended that such
liabilities will be computed as the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably be expected
to become an actual or matured liability.
Subsidiary means, as to any Person, (a) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation (irrespective of whether or not at the
time, any class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries, (b) any partnership, association, joint venture, limited
liability company or other entity in which such person directly or indirectly through
Subsidiaries has more than 50% equity interest at any time and (c) any other Person that is
controlled by such Person and who for GAAP purposes is required to be consolidated into such
Persons consolidated financial statements. Unless otherwise provided, as used herein,
Subsidiary shall refer to a Subsidiary of the Parent.
Swap Contract means, to the extent entered into on a fair market value basis
at the time of entry, (a) any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options, forward
commodity contracts, equity or equity index swaps or options, bond or bond price or bond
index swaps or options or forward bond or forward bond price or forward bond index
transactions, interest rate options, forward foreign exchange transactions, cap
transactions, floor transactions, collar transactions, currency swap transactions,
cross-currency rate swap transactions, currency options, spot contracts, or any other
similar transactions or any combination of any of the foregoing (including any options to
enter into any of the foregoing), whether or not any such transaction is governed by or
subject to any master agreement, and (b) any and all transactions of any kind, and the
related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association,
Inc., any International Foreign Exchange Master Agreement, or any other master agreement
(any such
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master agreement, together with any related schedules, a Master Agreement),
including any such obligations or liabilities under any Master Agreement.
Swingline Committed Amount means TWENTY MILLION DOLLARS ($20,000,000).
Swingline Lender means Wachovia Bank, National Association or any successor
Swingline Lender.
Swingline Loan or Swingline Loans has the meaning set forth in
Section 2.8(a).
Swingline Note means the promissory note of the Borrower in favor of the
Swingline Lender evidencing the Swingline Loans provided pursuant to Section 2.8, as such
promissory note may be amended or modified, from time to time and substantially in the form
of Exhibit 2.9(c).
Termination Event means (a) with respect to any Single Employer Plan, the
occurrence of a Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA), (b) the withdrawal of the Parent or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it was a substantial
employer (as such term is defined in Section 4001(a)(2) of ERISA), or the termination of a
Multiple Employer Plan, (c) the distribution of a notice of intent to terminate or the
actual termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA, (d) the
institution of proceedings to terminate or the actual termination of a Plan by the PBGC
under Section 4042 of ERISA, (e) any event or condition which might reasonably constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or (f) the complete or partial withdrawal of the Borrower or any
ERISA Affiliate from a Multiemployer Plan.
Term Loans has the meaning specified in Section 2.01(b).
Term Loan Committed Amount means ONE HUNDRED MILLION DOLLARS
($1___0, 000,000).
Term Loan Note means the promissory notes of the Borrower in favor of each of
the Lenders evidencing the Loans provided pursuant to Section 2.1(b), individually or
collectively, as appropriate, as such notes may be amended or modified from time to time and
substantially in the form of Exhibit 2.9(b).
Tier 1 Permitted Cash Collateral means Permitted Cash Collateral with
maturities of not more than 30 days from the date of acquisition with the exception of
auction rate securities which may have a re-set date of 35 days or less.
Tier 2 Permitted Cash Collateral means Permitted Cash Collateral with
maturities more than 30 days from the date of acquisition but not more than 90 days from the
date of acquisition.
Tier 3 Permitted Cash Collateral means Permitted Cash Collateral with
maturities more than 90 days from the date of acquisition but not more than 180 days from
the date of acquisition.
Treasury Management Agreement means any agreement governing the provision of
treasury or cash management services, including deposit accounts, funds transfer, automated
clearinghouse, zero balance accounts, returned check concentration, controlled disbursement,
lockbox, account reconciliation and reporting and trade finance services provided by a
Lender or
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an Affiliate of a Lender.
Utilization Fees has the meaning set forth in Section 3.4(c).
Utilized Revolving Loan Commitment means, for any period from the Effective
Date to the Maturity Date, the amount equal to the daily average sum for such period of the
aggregate principal amount of all Revolving Loans plus Swingline Loans plus LOC Obligations.
Voting Stock means all classes of the Capital Stock (or other voting
interests) of such Person then outstanding and normally entitled to vote in the election of
directors or other governing body of such Person.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word from means from and
including and the words to and until each mean to but excluding. References in this Credit
Agreement to Articles, Sections, Schedules or Exhibits shall be to Articles, Sections,
Schedules or Exhibits of or to this Credit Agreement unless otherwise specifically provided.
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to financial matters
required to be delivered to the Lenders hereunder shall be prepared, in accordance with GAAP
applied on a consistent basis.
1.4 Time.
All references to time herein shall be references to Eastern Standard Time or Eastern Daylight
time, as the case may be, unless specified otherwise.
SECTION 2.
LOANS
2.1 Revolving and Term Loan Commitments.
(a) Revolving Loans. Subject to the terms and conditions set forth herein, each
Lender severally agrees to make revolving loans to the Borrower in Dollars, at any time and from
time to time, during the period from the Effective Date to the Maturity Date (each a Revolving
Loan and collectively the Revolving Loans); provided, however, that (a) the
sum of the aggregate amount of Revolving Loans outstanding plus the aggregate amount of Swingline
Loans outstanding plus the aggregate amount of LOC Obligations outstanding shall not exceed the
Revolving Committed Amount and (b) with respect to each individual Revolving Lender, such Revolving
Lenders pro rata share of outstanding Revolving Loans plus such Revolving Lenders pro rata share
of outstanding LOC Obligations plus its pro rata share of Swingline Loans shall not exceed such
Revolving Lenders Commitment Percentage of the Revolving Committed Amount. Subject to the terms
of this Credit Agreement, the Borrower may borrow, repay and reborrow Revolving Loans. Unless
earlier terminated pursuant to other provisions of this Credit Agreement, the Commitments hereunder
shall terminate on the Maturity Date.
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(b) Term Loans. Subject to the terms and conditions set forth herein, each Lender
severally agrees to make term loans to the Borrower in Dollars, at any time and from time to time
during the period from the Effective Date to forty (40) days following the Effective Date (each a
Term Loan and collectively, the Term Loans); provided, however, that (a) the
Borrower may not request more than two (2) draws with respect to the Term Loans, one of which must
be on the Effective Date, (b) the sum of the aggregate amount of Term Loans outstanding shall not
exceed the Term Loan Committed Amount and (c) with respect to each individual Term Loan Lender,
such Term Loan Lenders pro rata share of outstanding Term Loans shall not exceed such Term Loan
Lenders Commitment Percentage of the Term Loan Committed Amount. Any amounts remaining under the
Term Loan Committed Amount subsequent to the date forty (40) days after the Effective Date shall no
longer be available and the Lenders shall have no further obligation to fund any additional Term
Loans. Once repaid, Term Loans may not be reborrowed.
2.2 Letters of Credit.
(a) Issuance; Terms. Subject to the terms and conditions hereof and of the LOC
Documents, if any, and any other terms and conditions which an Issuing Lender may reasonably
require (so long as such terms and conditions do not impose any financial obligation on or require
any Lien (not otherwise contemplated by this Credit Agreement) to be given by the Borrower or
conflict with any obligation of, or detract from any action which may be taken by the Borrower or
its Subsidiaries under this Credit Agreement), the applicable Issuing Lender shall from time to
time, upon request, issue in Dollars, and the Revolving Lenders shall participate in, letters of
credit (the Letters of Credit) for the account of the Borrower (or, subject to Section
2.2(f), the Parent or any of its Subsidiaries) from the Effective Date until the Maturity Date, in
a form reasonably acceptable to such Issuing Lender; provided, however, that (i) the sum of
the aggregate amount of LOC Obligations outstanding plus Revolving Loans outstanding plus Swingline
Loans outstanding shall not exceed the Revolving Committed Amount and (ii) with respect to each
individual Lender, such Lenders pro rata share of outstanding Revolving Loans plus its pro rata
share of outstanding LOC Obligations plus its pro rata share of Swingline Loans shall not exceed
such Lenders Commitment Percentage of the Revolving Committed Amount. The issuance and expiry
date of each Letter of Credit shall be a Business Day. No Letter of Credit shall have an expiry
date extending beyond the date that is five (5) Business Days before the Maturity Date. Each
Letter of Credit shall be either (x) a standby letter of credit issued to support the obligations
(including pension or insurance obligations), contingent or otherwise, of the Borrower, the Parent
or any of its Subsidiaries or (y) a commercial letter of credit in respect of the purchase of goods
or services by the Borrower, the Parent or any of its Subsidiaries in the ordinary course of
business. Each Letter of Credit shall comply with the related LOC Documents.
(b) Notice and Reports. The request for the issuance of a Letter of Credit shall be
submitted in writing to the applicable Issuing Lender at least three Business Days prior to the
requested date of issuance. Such request shall specify the date such Letter of Credit is to be
issued and describe the terms of such Letter of Credit and shall be accompanied by a completed
application in form and substance satisfactory to such Issuing Lender. Each Issuing Lender will
notify the Agent when a Letter of Credit is issued and the details with respect thereto and shall
provide to the Agent and, upon written request, to the Lenders a detailed report specifying the
Letters of Credit which are then issued and outstanding and any activity with respect thereto which
may have occurred since the date of any prior report, and including therein, among other things,
the account party, the beneficiary, the face amount, and the expiry date as well as any payments or
expirations which may have occurred. Each Issuing Lender will further provide to the Agent,
promptly upon request, copies of the Letters of Credit.
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(c) Participations. Each Lender, upon issuance of a Letter of Credit, shall be deemed
to have purchased without recourse a risk participation from the applicable Issuing Lender in such
Letter of Credit and the obligations arising thereunder and any collateral relating thereto, in
each case in an amount equal to its Commitment Percentage of the obligations under such Letter of
Credit, and shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as
surety, and be obligated to pay to the applicable Issuing Lender therefor and discharge when due,
its Commitment Percentage of the obligations arising under such Letter of Credit. Without limiting
the scope and nature of each Lenders participation in any Letter of Credit, to the extent that the
applicable Issuing Lender has not been reimbursed as required hereunder or under any such Letter of
Credit, each such Lender shall pay to the applicable Issuing Lender its Commitment Percentage of
such unreimbursed drawing in same day funds on the day of notification by the applicable Issuing
Lender of an unreimbursed drawing pursuant to the provisions of subsection (d) hereof. The
obligation of each Lender to so reimburse the applicable Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of a Default, an Event of Default, the
Maturity Date or any other occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower to reimburse the applicable Issuing Lender under
any Letter of Credit, together with interest as hereinafter provided.
(d) Reimbursement. In the event of any request for a drawing or any drawing under any
Letter of Credit, the applicable Issuing Lender will promptly notify the Borrower as to the amount
to be paid as a result of such drawing and the date such payment is to be made by the applicable
Issuing Lender (the Payment Date). If the Commitments remain in effect on the Payment
Date, the Borrower shall, unless the Borrower otherwise instructs the Agent by not less than one
Business Days prior notice, be deemed to have requested a Revolving Loan at the Base Rate in the
amount of the drawing as provided in subsection (e) hereof, the proceeds of which will be used to
satisfy the reimbursement obligations. The Borrower shall reimburse the applicable Issuing Lender
on the Payment Date either with the proceeds of a Revolving Loan obtained hereunder or otherwise in
same day funds as provided herein or in the LOC Documents. If the Borrower shall fail to reimburse
the applicable Issuing Lender as provided hereinabove, the unreimbursed amount of such drawing
shall bear interest at a per annum rate equal to the Base Rate plus two percent (2%). The
Borrowers reimbursement obligations hereunder shall be absolute and unconditional under all
circumstances irrespective of (but without waiver of) any rights of set-off, counterclaim or
defense to payment that the applicable account party or the Borrower may claim or have against the
Issuing Lenders, the Agent, the Lenders, the beneficiary of the Letter of Credit drawn upon or any
other Person, including without limitation, any defense based on any failure of the applicable
account party or the Borrower to receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The applicable Issuing Lender will promptly notify the
Lenders of the amount of any unreimbursed drawing and each Lender shall promptly pay to the Agent
for the account of the applicable Issuing Lender, in Dollars and in immediately available funds,
the amount of such Lenders Commitment Percentage of such unreimbursed drawing. Such payment shall
be made on the day such notice is received by such Lender from the applicable Issuing Lender if
such notice is received at or before 2:00 p.m., otherwise such payment shall be made at or before
12:00 Noon on the Business Day next succeeding the day such notice is received. If such Lender
does not pay such amount to the applicable Issuing Lender in full upon such request, such Lender
shall, on demand, pay to the Agent for the account of the applicable Issuing Lender interest on the
unpaid amount during the period from the date the Lender received the notice regarding the
unreimbursed drawing until such Lender pays such amount to the applicable Issuing Lender in full at
a rate per annum equal to, if paid within two Business Days of the date of drawing, the Federal
Funds Rate and thereafter at a rate equal to the Base Rate. Each Lenders obligation to make such
payment to the applicable Issuing Lender, and the right of the applicable Issuing Lender to receive
the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever
and without regard to the termination of this Credit Agreement or the Commitments hereunder, the
existence of a Default or Event of Default or the acceleration of the obligations hereunder and
shall be made without any offset, abatement, withholding or reduction whatsoever.
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Simultaneously with the making of each such payment by a Lender to the applicable Issuing
Lender, such Lender shall, automatically and without any further action on the part of the
applicable Issuing Lender or such Lender, acquire a participation in an amount equal to such
payment (excluding the portion of such payment constituting interest owing to the applicable
Issuing Lender) in the related unreimbursed drawing portion of the LOC Obligation and in the
interest thereon and in the related LOC Documents, and shall have a claim against the Borrower with
respect thereto.
(e) Repayment with Revolving Loans. On any day on which the Borrower shall have
requested, or been deemed to have requested, a Revolving Loan borrowing to reimburse a drawing
under a Letter of Credit, the Agent shall give notice to the Lenders that a Revolving Loan has been
requested or deemed requested in connection with a drawing under a Letter of Credit, in which case
a Revolving Loan borrowing comprised solely of Base Rate Loans (each such borrowing, a
Mandatory Borrowing) shall be immediately made from all Lenders (without giving effect to
any termination of the Commitments pursuant to Section 9.2 or otherwise) pro rata based on each
Lenders respective Commitment Percentage and the proceeds thereof shall be paid directly to the
applicable Issuing Lender for application to the respective LOC Obligations. Each such Lender
hereby irrevocably agrees to make such Revolving Loans immediately upon any such request or deemed
request on account of each such Mandatory Borrowing in the amount and in the manner specified in
the preceding sentence and on the same such date notwithstanding (i) the amount of Mandatory
Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise
required hereunder, (ii) whether any conditions specified in Section 5.2 are then satisfied, (iii)
whether a Default or Event of Default then exists, (iv) failure of any such request or deemed
request for Revolving Loans to be made by the time otherwise required hereunder or (v) any
reduction in the Revolving Committed Amount. In the event that any Mandatory Borrowing cannot be
made on the date otherwise required above, whether because the Commitments have terminated or for
any other reason (including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code with respect to the Borrower), then each such Lender hereby agrees that
it shall forthwith fund (as of the date the Mandatory Borrowing would otherwise have occurred, but
adjusted for any payments received from the Borrower on or after such date and prior to such
purchase) its Participation Interest in the outstanding LOC Obligations; provided, that in the
event any Lender shall fail to fund its Participation Interest on the day it is required to do so,
then the amount of such Lenders unfunded Participation Interest therein shall bear interest
payable to the applicable Issuing Lender upon demand, at the rate equal to, if paid within two
Business Days of such date, the Federal Funds Rate, and thereafter at a rate equal to the Base
Rate.
(f) Designation of Subsidiaries as Account Parties. Notwithstanding anything to the
contrary set forth in this Credit Agreement, a Letter of Credit issued hereunder may contain a
statement to the effect that such Letter of Credit is issued for the account of the Parent or any
of its Subsidiaries; provided, that notwithstanding such statement, the Borrower shall be the
actual account party for all purposes of this Credit Agreement for such Letter of Credit and such
statement shall not affect the Borrowers reimbursement obligations hereunder with respect to such
Letter of Credit.
(g) Modification and Extension. Except for non-substantive amendments to any Letter
of Credit for the purpose of correcting errors or ambiguities or to allow for administrative
convenience (which amendments each Issuing Bank may make in its discretion with the consent of the
Borrower), the amendment, modification, supplement, extension or renewal of any Letter of Credit
shall be deemed to be an issuance of such Letter of Credit. If any Letter of Credit contains a
provision pursuant to which it is deemed to be automatically renewed unless notice of termination
is given by the applicable Issuing Lender, such Issuing Lender shall timely give notice of
termination if (i) as of close of business on the seventeenth day prior to the last day upon which
such Issuing Lenders notice of termination may be given to the beneficiaries of such Letter of
Credit, such Issuing Lender has received a notice of termination from the Borrower or a
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notice from the Agent that the conditions to issuance of such Letter of Credit have not been
satisfied or (ii) the renewed Letter of Credit would have a term not permitted by subsection (a)
above.
(h) Uniform Customs and Practices. An Issuing Lender may have the Letters of Credit
be subject to The Uniform Customs and Practice for Documentary Credits (the UCP) or the
International Standby Practices 1998 (the ISP98), in either case as published as of the
date of issue by the International Chamber of Commerce, in which case the UCP or ISP98, as
applicable, may be incorporated therein and deemed in all respects to be a part thereof.
(i) Responsibility of Issuing Lenders. It is expressly understood and agreed that the
obligations of each Issuing Lender hereunder to the Lenders are only those expressly set forth in
this Credit Agreement and that each Issuing Lender shall be entitled to assume that the conditions
precedent set forth in Section 5.2 have been satisfied unless it shall have acquired actual
knowledge that any such condition precedent has not been satisfied; provided, however, that nothing
set forth in this Section 2.2 shall be deemed to prejudice the right of any Lender to recover from
an Issuing Lender any amounts made available by such Lender to such Issuing Lender pursuant to
this Section 2.2 in the event that it is determined by a court of competent jurisdiction that the
payment with respect to a Letter of Credit constituted gross negligence or willful misconduct on
the part of such Issuing Lender.
(j) Conflict with LOC Documents. In the event of any conflict between this Credit
Agreement and any LOC Document, this Credit Agreement shall govern.
(k) Indemnification of Issuing Lenders.
(i) In addition to its other obligations under this Credit Agreement, the Borrower
hereby agrees to protect, indemnify, pay and save the Issuing Lenders harmless from and
against any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys fees) that the Issuing Lenders may incur or be
subject to as a consequence, direct or indirect, of (A) the issuance of any Letter of Credit
or (B) the failure of an Issuing Lender to honor a drawing under a Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto government or Governmental Authority (all such acts or omissions, herein
called Government Acts).
(ii) As between the Borrower and the Issuing Lenders, the Borrower shall assume all
risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof.
The Issuing Lenders shall not be responsible for: (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(B) the validity or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or ineffective for any reason;
(C) failure of the beneficiary of a Letter of Credit to comply fully with conditions
required in order to draw upon a Letter of Credit; (D) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in interpretation of technical
terms; (F) any loss or delay in the transmission or otherwise of any document required in
order to make a drawing under a Letter of Credit or of the proceeds thereof; and (G) any
consequences arising from causes beyond the control of an Issuing Lender, including, without
limitation, any Government Acts. None of the above shall affect, impair, or prevent the
vesting of an Issuing Lenders rights or powers hereunder.
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(iii) In furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by an Issuing Lender, under or in
connection with any Letter of Credit or the related certificates, if taken or omitted in
good faith, shall not put such Issuing Lender under any resulting liability to the Borrower.
It is the intention of the parties that this Credit Agreement shall be construed and
applied to protect and indemnify the Issuing Lenders against any and all risks involved in
the issuance of the Letters of Credit, all of which risks are hereby assumed by the
Borrower, including, without limitation, any and all risks of the acts or omissions, whether
rightful or wrongful, of any present or future Government Acts. An Issuing Lender shall
not, in any way, be liable for any failure by such Issuing Lender or anyone else to pay any
drawing under any Letter of Credit as a result of any Government Acts or any other cause
beyond the control of such Issuing Lender.
(iv) Nothing in this subsection (k) is intended to limit the reimbursement obligation
of the Borrower contained in this Section 2.2. The obligations of the Borrower under this
subsection (k) shall survive the termination of this Credit Agreement. No act or omission
of any current or prior beneficiary of a Letter of Credit shall in any way affect or impair
the rights of an Issuing Lender to enforce any right, power or benefit under this Credit
Agreement.
(v) Notwithstanding anything to the contrary contained in this subsection (k) or any of
the Credit Documents, the Borrower shall have no obligation to indemnify an Issuing Lender
in respect of any liability incurred by such Issuing Lender arising solely out of the gross
negligence or willful misconduct of such Issuing Lender, as determined by a court of
competent jurisdiction. Nothing in this Credit Agreement shall relieve an Issuing Lender of
any liability to the Borrower in respect of any action taken by such Issuing Lender which
action constitutes gross negligence or willful misconduct of such Issuing Lender or a
violation of the UCP, the ISP98 or Uniform Commercial Code (as applicable), as determined by
a court of competent jurisdiction.
2.3 Method of Borrowing for Revolving Loans and Term Loans.
By no later than 11:00 a.m. (a) on the date of the requested borrowing of Loans (other than
Swingline Loans) that will be Base Rate Loans or (b) three Business Days prior to the date of the
requested borrowing of Loans that will be Eurodollar Loans, the Borrower shall submit a written
Notice of Borrowing in the form of Exhibit 2.3 to the Agent setting forth (i) the amount
requested, (ii) whether such Loans shall accrue interest at the Adjusted Base Rate or the Adjusted
Eurodollar Rate, (iii) with respect to Loans that will be Eurodollar Loans, the Interest Period
applicable thereto and (iv) certification that the Borrower has complied in all respects with
Section 5.2.
2.4 Funding of Revolving Loans and Term Loans.
Upon receipt of a Notice of Borrowing, the Agent shall promptly inform the Lenders as to the
terms thereof. Each such Lender shall make its Commitment Percentage of the requested Revolving
Loans or Term Loans, as applicable, available to the Agent by 2:00 p.m. on the date specified in
the Notice of Borrowing by deposit, in Dollars, of immediately available funds at the Agency
Services Address. The amount of the requested Loans will then be made available to the Borrower by
the Agent by crediting the account of the Borrower on the books of such office of the Agent, to the
extent the amount of such Loans are made available to the Agent.
No Lender shall be responsible for the failure or delay by any other Lender in its obligation
to make Loans under this Section 2.4; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve any other Lender of its obligations hereunder.
Unless the Agent shall have been
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notified by any Lender prior to the date of any such Loan that such Lender does not intend to
make available to the Agent its portion of the Loans to be made on such date, the Agent may assume
that such Lender has made such amount available to the Agent on the date of such Loans, and the
Agent in reliance upon such assumption, may (in its sole discretion but without any obligation to
do so) make available to the Borrower a corresponding amount. If such corresponding amount is not
in fact made available to the Agent, the Agent shall be able to recover such corresponding amount
from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Agents
demand therefor, the Agent will promptly notify the Borrower and the Borrower shall immediately pay
such corresponding amount within two Business Days to the Agent. The Agent shall also be entitled
to recover from the Lender or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made available by the
Agent to the Borrower to the date such corresponding amount is recovered by the Agent at a per
annum rate equal to (a) from the Borrower at the applicable rate for such Loan pursuant to the
Notice of Borrowing and (b) from a Lender at the Federal Funds Rate.
2.5 Continuations and Conversions.
The Borrower shall have the option (subject to the limitations set forth below), on any
Business Day, to continue existing Eurodollar Loans for a subsequent Interest Period, to convert
Base Rate Loans into Eurodollar Loans or to convert Eurodollar Loans into Base Rate Loans;
provided, however, that (a) each such continuation or conversion must be requested by the
Borrower pursuant to a written Notice of Continuation/Conversion, in the form of Exhibit
2.5, in compliance with the terms set forth below, (b) if a Eurodollar Loan is continued or
converted into a Base Rate Loan on any day other than the last day of the Interest Period
applicable thereto, then the Borrower shall be subject to the provisions set forth in Section 4.3,
(c) Eurodollar Loans may not be continued nor may Base Rate Loans be converted into Eurodollar
Loans during the existence and continuation of a Default or Event of Default and (d) any request to
extend a Eurodollar Loan that fails to comply with the terms hereof or any failure to request an
extension of a Eurodollar Loan at the end of an Interest Period shall constitute a conversion to a
Base Rate Loan on the last day of the applicable Interest Period. Each continuation or conversion
must be requested by the Borrower no later than 11:00 a.m. (i) on the date for a requested
conversion of a Eurodollar Loan to a Base Rate Loan or (ii) three Business Days prior to the date
for a requested continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a Eurodollar
Loan, in each case pursuant to a written Notice of Continuation/Conversion submitted to the Agent
which shall set forth (A) whether the Borrower wishes to continue or convert such Loans and (B) if
the request is to continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan, the
Interest Period applicable thereto.
2.6 Minimum Amounts.
Each request for a Revolving Loan or a Term Loan or a conversion or continuation hereunder
shall be subject to the following requirements: (a) each Eurodollar Loan shall be in a minimum
amount of $10,000,000 (and in integral multiples of $1,000,000 in excess thereof), (b) each Base
Rate Loan shall be in a minimum amount of the lesser of $10,000,000 (and in integral multiples of
$1,000,000 in excess thereof) or the remaining amount available to be borrowed and (c) no more than
ten Eurodollar Loans shall be outstanding hereunder at any one time; provided, that the
second draw of the Term Loans may be made in a minimum amount of $1,000,000 (and in integral
multiples of $1,000,000 in excess thereof). For the purposes of this Section, all Eurodollar Loans
with the same Interest Periods that begin and end on the same date shall be considered as one
Eurodollar Loan, but Eurodollar Loans with different Interest Periods, even if they begin on the
same date, shall be considered separate Eurodollar Loans.
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2.7 Reductions of Revolving Committed Amount.
Upon at least five (5) Business Days notice, the Borrower shall have the right to permanently
terminate or reduce the aggregate unused amount of the Revolving Committed Amount at any time or
from time to time; provided, that (a) each partial reduction shall be in an aggregate
amount at least equal to $10,000,000 and in integral multiples of $1,000,000 above such amount, (b)
no reduction shall be made which would reduce the Revolving Committed Amount to an amount less than
the aggregate amount of the then outstanding Revolving Loans plus the aggregate amount of the then
outstanding LOC Obligations plus the aggregate amount of then outstanding Swingline Loans. Any
reduction in (or termination of) the Revolving Committed Amount shall be permanent and may not be
reinstated.
2.8 Swingline Loans.
(a) Swingline Commitment. Subject to the terms and conditions herein, the
Swingline Lender, in its individual capacity, agrees to make loans to the Borrower in
Dollars, at any time and from time to time, during the period from the Effective Date to the
Maturity Date (each a Swingline Loan and collectively, the Swingline
Loans); provided, however, that (a) the sum of the aggregate amount of Swingline Loans
outstanding plus Revolving Loans outstanding plus LOC Obligations outstanding shall not
exceed the Revolving Committed Amount and (b) the aggregate amount of Swingline Loans
outstanding at any one time shall not exceed the Swingline Committed Amount. Subject to the
terms and conditions of the Credit Agreement, the Borrower may borrow, repay and reborrow
Swingline Loans.
(b) Notice of Borrowing and Funding. By no later than 1:00 p.m. on the date of
the requested borrowing of Swingline Loans, the Borrower shall submit a written Notice of
Borrowing in the form of Exhibit 2.3 to the Agent setting forth (i) the amount
requested and (ii) certification that the Borrower has complied in all respects with Section
5.2. Swingline Loan borrowings shall be made in minimum amounts of $500,000 and in integral
amounts of $100,000 in excess thereof. The amount of the requested Swingline Loans will
then be made available to the Borrower by the Swingline Lender by crediting the account of
the Borrower on the books of such office of the Agent.
(c) Repayment of Swingline Loans. The Swingline Lender may, at any time, in
its sole discretion, by written notice to the Borrower, demand repayment of its Swingline
Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to
have requested a Revolving Loan borrowing comprised entirely of Base Rate Loans in the
amount of such Swingline Loans; provided, however, that, in the following
circumstances, any such demand shall also be deemed to have been given one (1) Business Day
prior to each of (i) the Maturity Date, (ii) the occurrence of any Event of Default
described in Section 9.1(e), (iii) upon acceleration of the Obligations hereunder, whether
on account of an Event of Default described in Section 9.1(e) or any other Event of Default
and (iv) the exercise of remedies in accordance with the provisions of Section 9.2 hereof
(each such Revolving Loan borrowing made on account of any such deemed request therefor as
provided herein being hereinafter referred to as a Mandatory Swingline Borrowing).
Each Lender hereby irrevocably agrees to make such Revolving Loans on the day such notice
is received by the Lenders from the Agent if such notice is received at or before 2:00 p.m.,
otherwise such payment shall be made at or before 12:00 noon on the Business Day next
succeeding the day such notice is received, in the amount and in the manner specified in the
preceding sentence notwithstanding (A) the amount of the Mandatory Swingline
Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise
required hereunder, (B) whether any conditions specified in Section 5.2 are then
24
satisfied, (C) whether a Default or an Event of Default then exists, (D) failure of any
such request or deemed request for Revolving Loans to be made by the time otherwise required
in Section 2.3, (E) the date of such Mandatory Swingline Borrowing, or (F) any reduction in
the Revolving Committed Amount or termination of the Commitments immediately prior to such
Mandatory Swingline Borrowing or contemporaneously therewith. In the event that any
Mandatory Swingline Borrowing cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a proceeding under
the Bankruptcy Code), then each Lender hereby agrees that it shall forthwith purchase (as of
the date the Mandatory Swingline Borrowing would otherwise have occurred, but adjusted for
any payments received from the Borrower on or after such date and prior to such purchase)
from the Swingline Lender such Participation Interests in the outstanding Swingline Loans as
shall be necessary to cause each such Lender to share in such Swingline Loans ratably based
upon its respective Commitment Percentage (determined before giving effect to any
termination of the Commitments pursuant to Section 9.2); provided that (x) all
interest payable on the Swingline Loans shall be for the account of the Swingline Lender
until the date as of which the respective Participation Interests is purchased, and (y) at
the time any purchase of Participation Interests pursuant to this sentence is actually made,
the purchasing Revolving Lender shall be required to pay to the Swingline Lender interest on
the principal amount of such Participation Interests purchased for each day from and
including the day upon which the Mandatory Swingline Borrowing would otherwise have occurred
to but excluding the date of payment for such participation, at the rate equal to, if paid
within two (2) Business Days of the date of the Mandatory Swingline Borrowing, the Federal
Funds Effective Rate, and thereafter at a rate equal to the Base Rate.
2.9 Notes.
(a) The Revolving Loans made by a Lender, upon request of such Lender, shall be
evidenced by a duly executed promissory note of the Borrower payable to such Lender in
substantially the form of Exhibit 2.9(a) (the Revolving Notes).
(b) The Term Loans made by a Lender, upon request of such Lender, shall be evidenced by
a duly executed promissory note of the Borrower payable to such Lender in substantially the
form of Exhibit 2.9(b) (the Term Loan Notes).
(c) The Swingline Loans made by the Swingline Lender, upon request of the Swingline
Lender, shall be evidenced by a promissory note of the Borrower payable to the Swingline
Lender in substantially the form of Exhibit 2.9(c) (the Swingline Loan
Note).
2.10 Increases in Revolving Committed Amount.
(a) Requested Increases. The Borrower shall have the right, prior to the
Maturity Date and with the consent of the Agent and the Issuing Lenders (such consent not to
be unreasonably withheld), from time to time during the term of this Credit Agreement, and
subject to the terms and conditions set forth below, to increase the aggregate amount of the
Revolving Committed Amount; provided that (a) no Default or Event of Default shall exist at
the time of the request or the proposed increase in the Revolving Committed Amount; (b) such
increase must be in a minimum amount of $10,000,000 and in integral multiples of $1,000,000
above such amount, (c) the Revolving Committed Amount shall not be increased to an amount
greater than FIVE HUNDRED FIFTY MILLION DOLLARS ($550,000,000) less any principal amounts
outstanding under the Term Loans, (d) no individual Lenders Commitment may be increased
without such Lenders written
25
consent, (e) the Borrower shall execute and deliver such Revolving Note(s) as are
necessary to reflect the increase in the Revolving Committed Amount, (f) Schedule
1.1(a) shall be amended to reflect the revised Revolving Committed Amount and revised
Commitments and Commitment Percentages of the Lenders and (g) if any Revolving Loans are
outstanding at the time of an increase in the Revolving Committed Amount, the Borrower will
prepay (provided that any such prepayment shall be subject to Section 4.3) one or more
existing Revolving Loans in an amount necessary such that after giving effect to the
increase in the Revolving Committed Amount each Lender will hold its Commitment Percentage
(based on its share of the revised Revolving Committed Amount) of outstanding Revolving
Loans.
Any such increase in the Revolving Committed Amount shall apply, at the option of the
Borrower, to (x) the Commitment of one or more existing Lenders; provided that any Lender
whose Commitment is being increased must consent in writing thereto and/or (y) the creation
of a new Commitment to one or more institutions that is not an existing Lender; provided
that any such institution (A) must conform to the definition of Eligible Assignee, (B) must
have a Commitment of at least $10,000,000 unless otherwise agreed to by the Agent and the
Borrower and (C) must become a Lender under this Credit Agreement by execution and delivery
of an appropriate joinder agreement or of counterparts to this Credit Agreement in a manner
acceptable to the Borrower and the Agent.
(b) Automatic Increases. The Revolving Committed Amount shall be automatically
increased from time to time in accordance with Section 3.2(a)(iii). Upon any such increase,
(i) each applicable Lenders Original Revolving Commitment shall be increased
automatically in accordance with its Original Revolving Commitment Percentage, (ii)
Schedule 1.1(a) shall be amended to reflect the revised Revolving Committed Amount
and the revised Commitments and, if applicable, Commitment Percentages of the Lenders and
(iii) if the Borrower has previously increased the Revolving Committed Amount pursuant to
Section 2.10(a) and any Revolving Loans are outstanding at the time of such increase in the
Revolving Committed Amount, the Borrower will prepay (provided that any such prepayment
shall be subject to Section 4.3) one or more existing Revolving Loans in an amount necessary
such that after giving effect to the increase in the Revolving Committed Amount each Lender
will hold its Commitment Percentage (as revised due to the increase in the Revolving
Committed Amount) of outstanding Revolving Loans. For the avoidance of doubt, no Commitment
or Commitment Percentage obtained by a Lender pursuant to Section 2.10(a) shall be subject
to increase pursuant to this Section 2.10(b) or Section 3.2(a)(iii).
SECTION 3.
PAYMENTS
3.1 Interest.
(a) Interest Rate.
(i) All Base Rate Loans and all Swingline Loans shall accrue interest at the
Adjusted Base Rate.
(ii) All Eurodollar Loans shall accrue interest at the Adjusted Eurodollar Rate
applicable to such Eurodollar Loan.
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(b) Default Rate of Interest. Upon the occurrence, and during the
continuation, of an Event of Default, all past due principal of and, to the extent permitted
by law, past due interest on, the Loans and any other past due amounts owing hereunder or
under the other Credit Documents shall bear interest, payable on demand, at a per annum rate
equal to one percent (1%) plus the rate which would otherwise be applicable (or if no rate
is applicable, then the rate for Loans that are Base Rate Loans plus one percent (1%) per
annum).
(c) Interest Payments. Interest on Loans shall be due and payable in arrears
on each Interest Payment Date.
3.2 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to prepay Loans
in whole or in part from time to time without premium or penalty; provided, however,
that (i) Eurodollar Loans may only be prepaid on three Business Days prior written notice
to the Agent and any prepayment of Eurodollar Loans will be subject to Section 4.3; (ii)
each such partial prepayment of Loans shall be in the minimum principal amount of
$10,000,000; and (iii) any prepayment of the Term Loans in connection with a Permitted
Acquisition or capital expenditure shall cause the Revolving Committed Amount to be
increased in the same dollar amount of such prepayment and shall be subject to Section
2.10(b). Any prepayments made under this Section 3.2(a) shall be applied first to Base Rate
Loans and then to Eurodollar Loans in direct order of Interest Period maturities and shall
be subject to Section 4.3. The increase in the Revolving Committed Amount pursuant to this
clause (a) may, upon request of the Borrower, occur concurrently with the prepayment of the
Term Loans.
(b) Mandatory Prepayments. If at any time the amount of Revolving Loans
outstanding plus Swingline Loans outstanding plus the aggregate amount of LOC Obligations
outstanding exceeds the Revolving Committed Amount, the Borrower shall immediately make a
principal payment to the Agent in a manner and in an amount necessary to be in compliance
with Sections 2.1(a), 2.2 and 2.8 and as directed by the Agent. All amounts required to be
paid pursuant to this Section 3.2(b)(i) shall be (A) applied first to Swingline Loans, then
to Revolving Loans (first to Base Rate Loans and then to Eurodollar Loans in the direct
order of Interest Period maturities) and then to a cash collateral account in respect of LOC
Obligations and (B) subject to Section 4.3.
3.3 Payment of Loans in full at Maturity.
On the Maturity Date, the entire outstanding principal balance of all Loans, together
with accrued but unpaid interest and all other sums owing under this Credit Agreement, shall
be due and payable in full, unless accelerated sooner pursuant to Section 9.2.
3.4 Fees.
(a) Facility Fees. The Borrower shall pay to the Agent, for the pro rata
benefit of the Lenders, a facility fee (the Facility Fee) equal to the Applicable
Margin for Facility Fees times the actual daily amount of Revolving Committed Amount
(or, if the Commitments have terminated, on the outstanding amount of all Revolving Loans,
Swingline Loans and LOC Obligations), regardless of usage. The Facility Fee shall accrue at
all times during the period beginning on the Effective Date and ending on the Maturity Date
(and thereafter so long as any Revolving Loans, Swingline Loans or LOC Obligations remain
outstanding), including at any time during which one or more of the conditions in Section
5.2 is not met, and shall be due and payable quarterly in arrears on the15th day
27
following the last day of each calendar quarter for the prior calendar quarter,
commencing with the first such date to occur after the Closing Date, and on the Maturity
Date (and, if applicable, thereafter on demand). The Facility Fee shall be calculated
quarterly in arrears, and if there is any change in the Applicable Margin for Facility Fees
during any quarter, the actual daily amount shall be computed and multiplied by the
Applicable Margin for Facility Fees separately for each period during such quarter that such
Applicable Margin for Facility Fees was in effect.
(b) Letter of Credit Fees.
(i) Letter of Credit Fees. In consideration of the issuance of Letters
of Credit hereunder, the Borrower agrees to pay to the Agent, for the pro rata
benefit of each Lender, a per annum fee equal to the Applicable Margin for
Eurodollar Loans in effect from time to time on the aggregate stated amount for each
Letter of Credit from the date of issuance to the date of expiration (the
Letter of Credit Fees). The accrued Letter of Credit Fees shall be due
and payable in arrears on the 15th day after the end of each calendar
quarter of the Borrower (as well as on the Maturity Date) for the immediately
preceding calendar quarter (or portion thereof), beginning with the first of such
dates to occur after the Closing Date.
(ii) Issuing Lender Fees. In addition to the Letter of Credit Fees
payable pursuant to subsection (i) above, the Borrower shall pay to the applicable
Issuing Lender for its own account, without sharing by the other Lenders, (A) if the
applicable Issuing Lender is Wachovia Bank, National Association, a fee equal to
one-eighth of one percent (.125%) per annum or (B) if the applicable Issuing Lender
is any other Lender, such other rate as agreed to between such Issuing Lender and
the Borrower, in each case on the total sum of all Letters of Credit issued by the
applicable Issuing Lender and outstanding during the applicable period and (C) the
customary charges from time to time to the applicable Issuing Lender for its
services in connection with the issuance, amendment, payment, transfer,
administration, cancellation and conversion of, and drawings under, such Letters of
Credit (collectively, the Issuing Lender Fees). The accrued Issuing
Lender Fees shall be due and payable in arrears on the 15th day following
the last day of each calendar quarter of the Borrower (as well as on the Maturity
Date) for the immediately preceding calendar quarter (or portion thereof), beginning
with the first of such dates to occur after the Closing Date.
(c) Utilization Fees.
(i) If on any day the aggregate outstanding principal amount of all Revolving
Loans, Swingline Loans and LOC Obligations exceeds the product of (A) fifty percent
(50%) times (B) the Revolving Committed Amount, the Borrower agrees to pay
to the Agent, for the pro rata benefit of each Lender, a per annum fee equal to .10%
multiplied by the Utilized Revolving Loan Commitment (the Utilization
Fees).
(ii) The accrued Utilization Fees shall be due and payable in arrears on the
15th day following the last day of each calendar quarter of the Borrower
for the immediately preceding calendar quarter (or portion thereof), beginning with
the first of such dates to occur after the Closing Date.
(d) Administrative Fee. The Borrower agrees to pay to the Administrative Agent
the annual administrative fee as described in the Fee Letter.
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3.5 Place and Manner of Payments.
All payments of principal, interest, fees, expenses and other amounts to be made by the
Borrower under this Credit Agreement shall be made without setoff, deduction or counterclaim and
received not later than 2:00 p.m. on the date when due in Dollars and in immediately available
funds by the Agent at the Agency Services Address. The Borrower shall, at the time it makes any
payment under this Credit Agreement, specify to the Agent the Loans, Letters of Credit, fees or
other amounts payable by the Borrower hereunder to which such payment is to be applied (and in the
event that it fails to specify, or if such application would be inconsistent with the terms hereof,
the Agent shall distribute such payment to the Lenders in such manner as it reasonably determines
in its sole discretion). The Agent will distribute such payments to the applicable Lenders on the
same Business Day if any such payment is received prior to 2:00 p.m.; otherwise the Agent will
distribute each payment to the applicable Lenders prior to 12:00 noon on the next succeeding
Business Day. Whenever any payment hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding Business Day (subject
to accrual of interest and fees for the period of such extension), except that in the case of
Eurodollar Loans, if the extension would cause the payment to be made in the next following
calendar month, then such payment shall be made on the next preceding Business Day.
3.6 Pro Rata Treatment.
(a) Loans/Fees. Except to the extent otherwise provided herein, all borrowing
of Revolving Loans (including each Mandatory Borrowing) and Term Loans, each payment or
prepayment of principal of any Revolving Loan or Term Loan, each payment of interest on the
Revolving Loans or Term Loans, each payment of Facility Fees and Utilization Fees, each
payment of Letter of Credit Fees, each reduction of the Revolving Committed Amount and each
conversion or continuation of any Revolving Loan or Term Loan, shall be allocated pro rata
among the Lenders in accordance with their respective Commitment Percentages;
provided, that, if any Lender shall have failed to pay its applicable pro rata share
of any Loan, then any amount to which such Lender would otherwise be entitled pursuant to
this Section 3.6 shall instead be payable to the Agent until the share of such Loan not
funded by such Lender has been repaid and any interest owed by such Lender as result of such
failure to fund has been paid; and provided, further, that in the event any
amount paid to any Lender pursuant to this Section 3.6 is rescinded or must otherwise be
returned by the Agent, each Lender shall, upon the written request of the Agent, repay to
the Agent the amount so paid to such Lender, with interest for the period commencing on the
date such payment is returned by the Agent until the date the Agent receives such repayment
at a rate per annum equal to, during the period to but excluding the date two Business Days
after such request, the Federal Funds Rate, and thereafter, the Base Rate plus one
percent (1%) per annum.
(b) Letters of Credit. Each payment of unreimbursed drawings in respect of LOC
Obligations shall be allocated to each Lender pro rata in accordance with its Commitment
Percentage; provided, that, if any Lender shall have failed to pay its applicable
pro rata share of any drawing under any Letter of Credit, then any amount to which such
Lender would otherwise be entitled pursuant to this subsection (b) shall instead be payable
to the applicable Issuing Lender; provided, further, that in the event any
amount paid to any Lender pursuant to this subsection (b) is rescinded or must otherwise be
returned by the applicable Issuing Lender, each Lender shall, upon the written request of
the applicable Issuing Lender, repay to the Agent for the account of the applicable Issuing
Lender the amount so paid to such Lender, with interest for the period commencing on the
date such payment is returned by the applicable Issuing Lender until the date the applicable
Issuing Lender receives such repayment at a rate per annum equal to, during the period to
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but excluding the date two Business Days after such request, the Federal Funds Rate, and
thereafter, the Base Rate plus one percent (1%) per annum.
3.7 Computations of Interest and Fees.
(a) Except for Base Rate Loans that are based upon the Prime Rate, on which interest
shall be computed on the basis of a 365 or 366 day year as the case may be, all computations
of interest and fees hereunder shall be made on the basis of the actual number of days
elapsed over a year of 360 days.
(b) It is the intent of the Lenders and the Credit Parties to conform to and contract
in strict compliance with applicable usury law from time to time in effect. All agreements
between the Lenders and the Credit Parties are hereby limited by the provisions of this
paragraph which shall override and control all such agreements, whether now existing or
hereafter arising and whether written or oral. In no way, nor in any event or contingency
(including but not limited to prepayment or acceleration of the maturity of any obligation),
shall the interest taken, reserved, contracted for, charged, or received under this Credit
Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible
under applicable law. If, from any possible construction of any of the Credit Documents or
any other document, interest would otherwise be payable in excess of the maximum nonusurious
amount, any such construction shall be subject to the provisions of this paragraph and
interest owing pursuant to such documents shall be automatically reduced to the maximum
nonusurious amount permitted under applicable law, without the necessity of execution of any
amendment or new document. If any Lender shall ever receive anything of value which is
characterized as interest on the Loans under applicable law and which would, apart from this
provision, be in excess of the maximum lawful amount, an amount equal to the amount which
would have been excessive interest shall, without penalty, be applied to the reduction of
the principal amount owing on the Loans and not to the payment of interest, or refunded to a
Credit Party or the other payor thereof if and to the extent such amount which would have
been excessive exceeds such unpaid principal amount of the Loans. The right to demand
payment of the Loans or any other indebtedness evidenced by any of the Credit Documents does
not include the right to receive any interest which has not otherwise accrued on the date of
such demand, and the Lenders do not intend to charge or receive any unearned interest in the
event of such demand. All interest paid or agreed to be paid to the Lenders with respect to
the Loans shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term (including any renewal or extension)
of the Loans so that the amount of interest on account of such indebtedness does not exceed
the maximum nonusurious amount permitted by applicable law.
3.8 Sharing of Payments.
Each Lender agrees that, in the event that any Lender shall obtain payment in respect of any
Loan, any unreimbursed drawing with respect to any LOC Obligations or any other obligation owing to
such Lender under this Credit Agreement through the exercise of a right of set-off, bankers lien,
counterclaim or otherwise (including, but not limited to, pursuant to the Bankruptcy Code) in
excess of its pro rata share as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a participation in such Loans, LOC Obligations and other
obligations, in such amounts and with such other adjustments from time to time, as shall be
equitable in order that all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. Each Lender further agrees that if a payment to a
Lender (which is obtained by such Lender through the exercise of a right of set-off, bankers lien,
counterclaim or otherwise) shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a participation theretofore
30
sold, return its share of that benefit to each Lender whose payment shall have been rescinded or
otherwise restored. The Borrower agrees that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment, including set-off, bankers
lien or counterclaim, with respect to such participation as fully as if such Lender were a holder
of such Loan or other obligation in the amount of such participation. Except as otherwise
expressly provided in this Credit Agreement, if any Lender shall fail to remit to the Agent or any
other Lender an amount payable by such Lender to the Agent or such other Lender pursuant to this
Credit Agreement on the date when such amount is due, such payments shall accrue interest thereon,
for each day from the date such amount is due until the day such amount is paid to the Agent or
such other Lender, at a rate per annum equal to the Federal Funds Rate. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a
setoff to which this Section 3.8 applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the rights of the Lenders
under this Section 3.8 to share in the benefits of any recovery on such secured claim.
3.9 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing each Loan made by such
Lender to the Borrower from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this Credit Agreement. Each Lender
will make reasonable efforts to maintain the accuracy of its account or accounts and to
promptly update its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section 11.3(c), and a subaccount
for each Lender, in which Register and subaccounts (taken together) shall be recorded (i)
the amount, type and Interest Period of each such Loan hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable to each Lender hereunder
and (iii) the amount of any sum received by the Agent hereunder from or for the account of
the Borrower and each Lenders share thereof. The Agent will make reasonable efforts to
maintain the accuracy of the subaccounts referred to in the preceding sentence and to
promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the Register and subaccounts maintained pursuant to subsection
(b) of this Section 3.9, and the entries made in the accounts maintained pursuant to
subsection (a) of this Section 3.9, if consistent with the entries of the Agent, shall be
prima facie evidence of the existence and amounts of the obligations of the Borrower therein
recorded; provided, however, that the failure of any Lender or the Agent to
maintain any such account, such Register or such subaccount, as applicable, or any error
therein, shall not in any manner affect the obligation of the Borrower to repay the Loans
made by such Lender in accordance with the terms hereof.
SECTION 4.
ADDITIONAL PROVISIONS
4.1 Eurodollar Loan Provisions.
(a) Unavailability. If, on or prior to the first day of any Interest Period,
(i) the Agent shall have determined in good faith (which determination shall be conclusive
and binding upon the Borrower) that (A) Dollar deposits are not generally available in the
London interbank Eurodollar market in the applicable principal amounts and Interest Period
of a requested Eurodollar Loan or (B) by reason of circumstances affecting the relevant
market, adequate and reasonable means do not
31
exist for ascertaining the Eurodollar Rate for
such Interest Period, or (ii) the Agent shall have received notice from the Required Lenders
that the Eurodollar Rate determined or to be determined for such Interest Period will not
adequately and fairly reflect the cost to the Lenders of making or maintaining Eurodollar
Loans for such Interest Period (as conclusively certified by such Lenders), the Agent shall
give notice thereof to the Borrower and the Lenders as soon as practicable thereafter. Upon
delivery of such notice, (A) any Eurodollar Loans requested to be made on the first day of
such Interest Period shall be made as Base Rate Loans, (B) any Loans that were to have been
converted to or continued as Eurodollar Loans shall be prepaid by the Borrower or converted
to or continued as Base Rate Loans and (C) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to Base Rate Loans. Until the Agent
has withdrawn such notice, no further Eurodollar Loans shall be made or continued as such,
nor shall the Borrower have the right to convert Base Rate Loans to Eurodollar Loans.
(b) Change in Legality. Notwithstanding any other provision herein, if any
change, after the date hereof, in any law, governmental rule, regulation, guideline or order
(including the introduction of any new law or governmental rule, regulation, guideline or
order) or in the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof shall make it unlawful for any
Lender to make or maintain any Eurodollar Loan then, by written notice to the Borrower and
to the Agent, such Lender may:
(i) declare that Eurodollar Loans and conversions to or continuations of
Eurodollar Loans, will not thereafter be made by such Lender hereunder, whereupon
any request by the Borrower for, or for conversion into or continuation of,
Eurodollar Loans shall, as to such Lender only, be deemed a request for, or for
conversion into or continuation of, Base Rate Loans, unless such declaration shall
be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be converted to
Base Rate Loans in which event all such Eurodollar Loans shall be converted to Base
Rate Loans either (A) on the last day of the then current Interest Period applicable
to such Eurodollar Loan if such Lender can lawfully continue to maintain and fund
such Eurodollar Loan or (B) immediately if such Lender shall determine that it may
not lawfully continue to maintain and fund such Eurodollar Loan to such day.
(c) Requirements of Law. If at any time a Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder with respect to the making,
the commitment to make or the maintaining of any Eurodollar Loan or of agreeing to issue or
participate in any Letters of Credit because of (i) any change after the date hereof in any
law, governmental rule, regulation, guideline or order (including the introduction of any
new law or governmental rule, regulation, guideline or order) or in the interpretation or
administration thereof by any Governmental Authority charged with the interpretation or
administration thereof, including, without limitation, the imposition, modification or
deemed applicability of any reserves, deposits or similar requirements (such as, for
example, but not limited to, a change in official reserve requirements) or (ii) other
circumstances affecting the London interbank Eurodollar market; then the Borrower shall pay
to such Lender promptly upon written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating, interest or otherwise as such
Lender may determine in its sole discretion) as may be required to compensate such Lender
for such increased costs or reductions in amounts receivable hereunder. If any Lender
becomes entitled to claim any additional amounts pursuant to this
Section 4.1(c), it shall
provide prompt notice thereof to the Borrower, through the Agent, certifying (A) that one of
the events described in this Section 4.1(c)
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has occurred and describing in reasonable detail
the nature of such event, (B) as to the increased cost or reduced amount resulting from such
event and (C) as to the additional amount demanded by such Lender and a reasonably detailed
explanation of the calculation thereof; provided, that no such amount shall be
payable with respect to any period commencing more than 90 days prior to the date such
Lender first notifies the Borrower of its intention to demand compensation therefor under
this Section.
(d) Regulation D Compensation. In the event that a Lender is required to
maintain reserves of the type contemplated by the definition of Eurodollar Reserve
Percentage, such Lender may require the Borrower to pay, contemporaneously with each
payment of interest on the Eurodollar Loans, additional interest on the related Eurodollar
Loan of such Lender at a rate per annum determined by such Lender up to but not exceeding
the excess of (i)(A) the applicable London Interbank Offered Rate divided by (B) one
minus the Eurodollar Reserve Percentage over (ii) the applicable London Interbank
Offered Rate. Any Lender wishing to require payment of such additional interest (x) shall
so notify the Borrower and the Agent, in which case such additional interest on the
Eurodollar Loans of such Lender shall be payable to such Lender at the place indicated in
such notice with respect to each Interest Period commencing at least three Business Days
after the giving of such notice and (y) shall notify the Borrower at least three Business
Days prior to each date on which interest is payable on the Eurodollar Loans of the amount
then due it under this Section. Each such notification shall be accompanied by such
information as the Borrower may reasonably request.
Each determination and calculation made by a Lender under this Section 4.1 shall, absent
manifest error, be binding and conclusive on the parties hereto. Any conversions of Eurodollar
Loans made pursuant to this Section 4.1 shall subject the Borrower to the payments required by
Section 4.3 to the extent applicable. This Section shall survive termination of this Credit
Agreement and the other Credit Documents and payment of the Loans and all other amounts payable
hereunder.
4.2 Capital Adequacy.
If any Lender has determined that the adoption or becoming effective, after the date hereof,
of any applicable law, rule or regulation regarding capital adequacy, or any change therein (after
the date hereof), or any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender (or its parent corporation) with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such Governmental
Authority, central bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lenders (or parent corporations) capital or assets as a consequence of its
commitments or obligations hereunder to a level below that which such Lender (or its parent
corporation) could have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration such Lenders (or parent corporations) policies with respect to capital
adequacy), then, upon notice from such Lender (which shall include the basis and calculations in
reasonable detail supporting the compensation requested in such notice), and receipt by the
Borrower of such written notice from such Lender (with a copy to the Agent) the Borrower shall be
obligated to pay to such Lender such additional amount or amounts as will compensate such Lender on
an after tax basis (after taking into account applicable deductions and credits in respect of the
amount so indemnified) for such reduction; provided, that no such amount shall be payable
with respect to any period commencing more than 90 days prior to the date such Lender first
notifies the Borrower of its intention to demand compensation therefor under this Section. Each
determination by any Lender of amounts owing under this Section 4.2 shall, absent manifest error,
be conclusive and binding on the parties hereto. The covenants of this Section 4.2 shall survive
termination of
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this Credit Agreement and the other Credit Documents and the payment of the Loans
and all other amounts payable hereunder.
4.3 Compensation.
The Borrower promises to indemnify each Lender and to hold each Lender harmless from any loss
or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower
in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower
has given a notice requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after the Borrower has
given a notice thereof in accordance with the provisions of this Credit Agreement, (c) the making
of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with
respect thereto and (d) the payment, continuation or conversion of a Eurodollar Loan on a day which
is not the last day of the Interest Period applicable thereto or the failure to repay a Eurodollar
Loan when required by the terms of this Credit Agreement. Such indemnification may include an
amount equal to (i) an amount of interest calculated at the Eurodollar Rate which would have
accrued on the amount in question, for the period from the date of such prepayment or of such
failure to borrow, convert, continue or repay to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of interest for such
Eurodollar Loans provided for herein minus (ii) the amount of interest (as reasonably determined by
such Lender) which would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurocurrency market. If any
Lender becomes entitled to claim any additional amounts pursuant to this Section 4.3, it shall
provide prompt notice thereof to the Borrower, through the Agent, as to the additional amount
demanded by such Lender and a reasonably detailed explanation of the calculation thereof. The
covenants in this Section 4.3 shall survive the termination of this Credit Agreement and the
payment of the Loans and all other amounts payable hereunder.
4.4 Taxes.
(a) Except as provided below in this Section 4.4, all payments made by the Borrower
under this Credit Agreement and any Notes shall be made free and clear of, and without
deduction or withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any court, or governmental body, agency
or other official, excluding taxes measured by or imposed upon the net income of any Lender
or its applicable lending office, or any branch or affiliate thereof, and all franchise
taxes, branch taxes, taxes on doing business or taxes on the capital or net worth of any
Lender or its applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes: (i) by the jurisdiction under the laws of which such
Lender, applicable lending office, branch or affiliate is organized or is located, or in
which its principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii) by reason of any
connection between the jurisdiction imposing such tax and such Lender, applicable lending
office, branch or affiliate other than a connection arising solely from such Lender having
executed, delivered or performed its obligations, or received payment under or enforced,
this Credit Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings (Non-Excluded Taxes) are required to be
withheld from any amounts payable to an Agent or any Lender hereunder or under any Notes,
(A) the amounts so payable to the Agent or such Lender shall be increased to the extent
necessary to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the amounts
specified in this Credit Agreement and any Notes; provided, however, that
the Borrower
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shall be entitled to deduct and withhold any Non- Excluded Taxes and shall not
be required to increase any such amounts payable to any Lender that is not organized under
the laws of the United States of America or a state thereof if such Lender fails to comply
with the requirements of paragraph (b) of this Section 4.4 whenever any Non-Excluded Taxes
are payable by the Borrower, and (B) as promptly as possible after requested, the Borrower
shall send to the Agent for its own account or for the account of such Lender, as the case
may be, a certified copy of an original official receipt received by the Borrower showing
payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and any Lender for any
incremental Non-Excluded Taxes, interest or penalties that may become payable by the Agent
or any Lender as a result of any such failure. The agreements in this Section 4.4 shall
survive the termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United States of America
or a state thereof shall:
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(A) on or before the date of any payment by the
Borrower under this Credit Agreement or the Notes to such Lender,
deliver to the Borrower and the Agent (x) two duly completed copies of
United States Internal Revenue Service Form W-8BEN or W-8ECI, or any
successor applicable form, as the case may be, certifying that it is
entitled to receive payments under this Credit Agreement and any Notes
without deduction or withholding of any United States federal income
taxes and (y) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, certifying that it is entitled to
an exemption from United States backup withholding tax; |
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(B) deliver to the Borrower and the
Agent two further copies of any such form or certification on
or before the date that any such form or certification expires
or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered
by it to the Borrower; and |
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(C) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the
Borrower or the Agent; or |
(ii) in the case of any such Lender that is not a bank within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code, (A) represent to the Borrower
(for the benefit of the Borrower and the Agent) that it is not a bank within the
meaning of Section 881 (c)(3)(A) of the Internal Revenue Code, (B) agree to furnish
to the Borrower, on or before the date of any payment by the Borrower, with a copy
to the Agent, two accurate and complete original signed copies of Internal Revenue
Service Form W-8, or successor applicable form, certifying to such Lenders legal
entitlement at the date of such certificate to an exemption from U.S. withholding
tax under the provisions of Section 881(c) of the Internal Revenue Code with respect
to payments to be made under this Credit Agreement and any Notes (and to deliver to
the Borrower and the Agent two further copies of such form on or before the date it
expires or becomes obsolete and after the occurrence of any event requiring a change
in the most recently provided form and, if
35
necessary, obtain any extensions of time
reasonably requested by the Borrower or the Agent for filing and completing such
forms), and (C) agree, to the extent legally entitled to do so, upon reasonable
request by the Borrower, to provide to the Borrower (for the benefit of the Borrower
and the Agent) such other forms as may be reasonably required in order to establish
the legal entitlement of such Lender to an exemption from withholding with respect
to payments under this Credit Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation has occurred after the
date such Person becomes a Lender hereunder which renders all such forms inapplicable or which
would prevent such Lender from duly completing and delivering any such form with respect to it and
such Lender so advises the Borrower and the Agent, then such Lender shall be exempt from such
requirements. Each Person that shall become a Lender or a participant of a Lender pursuant to
Section 11.3 shall, upon the effectiveness of the related transfer, be required to provide all of
the forms, certifications and statements required pursuant to this subsection (b);
provided, that in the case of a participant of a Lender, the obligations of such
participant of a Lender pursuant to this subsection (b) shall be determined as if the participant
of a Lender were a Lender except that such participant of a Lender shall furnish all such required
forms, certifications and statements to the Lender from which the related participation shall have
been purchased.
4.5 Replacement of Lenders.
The Agent and each Lender shall use reasonable efforts to avoid or mitigate any increased cost
or suspension of the availability of an interest rate under Sections 4.1 through 4.4 above to the
greatest extent practicable (including transferring the Loans to another lending office or
Affiliate of a Lender) unless, in the opinion of the Agent or such Lender, such efforts would be
likely to have an adverse effect upon it. In the event a Lender makes a request to the Borrower
for additional payments in accordance with Section 4.1, 4.2 or 4.4, or suspends Eurodollar Loans
under Section 4.1, then, provided that no Default or Event of Default has occurred and is
continuing at such time, the Borrower may, at its own expense (such expense to include any transfer
fee payable to the Agent under Section 11.3(b) and any expense pursuant to Section 4) and in its
sole discretion, require such Lender to transfer and assign in whole (but not in part), without
recourse (in accordance with and subject to the terms and conditions of Section 11.3(b)), all of
its interests, rights and obligations under this Credit Agreement to an Eligible Assignee which
shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided, that (a) such assignment shall not conflict with any law, rule
or regulation or order of any court or other Governmental Authority and (b) the Borrower or such
assignee shall have paid to the assigning Lender in immediately available funds the principal of
and interest accrued to the date of such payment on the portion of the Loans hereunder held by such
assigning Lender and all other amounts owed to such assigning Lender hereunder, including amounts
owed pursuant to Sections 4.1 through 4.4.
SECTION 5.
CONDITIONS PRECEDENT
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement is subject to satisfaction
(or waiver) of the following conditions:
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(a) Executed Credit Documents. Receipt by the Agent of duly executed copies of
(i) this Credit Agreement, (ii) the Notes, (iii) the Collateral Documents and (iv) all other
Credit Documents, each in form and substance acceptable to the Lenders.
(b) Organizational Documents. Receipt by the Agent of the following:
(i) Partnership Documents. With respect to each Credit Party that is a
partnership, a copy of the partnership agreement of such Credit Party, together with
all amendments thereto certified to be true and complete by the appropriate
Governmental Authority of the State of organization of such Credit Party and
certified by an Authorized Officer of such Credit Party to be true and correct as of
the Effective Date.
(ii) Limited Liability Company Documents. With respect to each Credit
Party that is a limited liability company, the following:
(A) Certificate of Formation. A copy of the certificate of
formation of such Credit Party certified to be true and complete by the
appropriate Governmental Authorities of the State of organization of such
Credit Party and certified by an Authorized Officer of such Credit Party to
be true and correct as of the Effective Date.
(B) LLC Agreement. A copy of the LLC Agreement of such Credit
Party certified by an Authorized Officer of such Credit Party to be true and
correct as of the Effective Date.
(iii) Corporate Documents. With respect to each Credit Party that is a
corporation, the following:
(A) Charter Documents. Copies of the articles or certificates
of incorporation or other charter documents of such Credit Party certified
to be true and complete as of a recent date by the appropriate Governmental
Authorities of the state of its incorporation and certified by an Authorized
Officer of such Credit Party to be true and correct as of the Effective
Date.
(B) Bylaws. A copy of the bylaws of such Credit Party certified an
Authorized Officer of such Credit Party to be true and correct as of the
Effective Date.
(iv) Resolutions. Copies of resolutions, as appropriate, approving and
adopting the Credit Documents to which each Credit Party is a party, the
transactions contemplated therein and authorizing execution and delivery thereof and
certified by an Authorized Officer of the Borrower to be in full force and effect as
of the Effective Date.
(v) Good Standing. Copies of certificates of good standing, existence
or their equivalent with respect to each Credit Party certified as of a recent date
by the appropriate Governmental Authorities of the State of organization of such
Credit Party.
(vi) Incumbency. An incumbency certificate certified by an Authorized
Officer of the applicable Credit Parties to be true and correct as of the Effective
Date.
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(c) Opinion of Counsel. Receipt by the Agent of an opinion from legal counsel
to the Credit Parties, addressed to the Agent on behalf of the Lenders and dated as of the
Effective Date, in form and substance satisfactory to the Agent.
(d) Asset Transfer. Receipt by the Lenders of such information as reasonably
requested regarding the transfer of assets from Duke Energy Field Services, LLC and its
Subsidiaries and Affiliates to the Parent as of the Closing Date, including copies of all
documentation evidencing such transfer (the Initial Asset Acquisition).
(e) IPO. Receipt by the Agent of confirmation that an initial public offering
has been consummated by the Parent (or is simultaneously being consummated by the Parent),
on terms acceptable to the Lenders, that results in net cash proceeds to the Parent of not
less than $100,000,000.
(f) Financial Statements/Ownership Structure. Receipt by the Lenders of such
financial information or other information regarding the Credit Parties and their assets,
and the ownership of same, as the Lenders may reasonably request, including without
limitation, information regarding the Initial Asset Acquisition.
(g) Collateral. Receipt of the Agent of (i) Permitted Cash Collateral with a
value of not less than the Required Collateral Amount, calculated after giving effect to the
making of the Term Loan on the Closing Date and (ii) such other documentation and
information as required herein or by the Collateral Documents.
(h) Fees and Expenses. Payment by the Borrower of all fees and expenses owed
by it to the Lenders, the Agent and the Co-Lead Arrangers, including, without limitation,
payment to the Agent of the fees set forth in the Fee Letter.
(i) Litigation. As of the Closing Date, there shall be no material actions,
suits, investigations or legal, equitable, arbitration or administrative proceedings pending
or threatened against a Credit Party which are likely to be decided adversely to such Credit
Party and if so decided would have a Material Adverse Effect.
(j) Material Adverse Effect. As of the Closing Date, no event or condition
shall have occurred since December 31, 2004 that would have or would be reasonably expected
to have a Material Adverse Effect.
(k) Certificate. The Agent shall have received a certificate or certificates
executed by an Approved Officer of the Parent, on behalf of the Credit Parties, as of the
Closing Date stating that (i) each Credit Party is in compliance with all existing financial
obligations, unless such non-compliance would not have a Material Adverse Effect, (ii) no
action, suit, investigation or proceeding is pending or, to such officers knowledge,
threatened in any court or before any arbitrator or governmental instrumentality that
purports to affect a Credit Party or any transaction contemplated by the Credit Documents,
if such action, suit, investigation or proceeding is likely to be adversely determined and
if adversely determined would have a Material Adverse Effect, (iii) the financial statements
and information delivered to the Agent on or before the Closing Date were prepared in good
faith and in accordance with GAAP, (iv) all consents and approvals of board of directors,
equity holders, general partners, Governmental Authorities and third parties necessary in
connection with the Initial Asset Acquisition, the IPO and the Credit Documents have been
obtained, and (v) immediately after giving effect to this Credit Agreement, the other Credit
Documents and all the
38
transactions contemplated herein and therein to occur on such date,
(A) no Default or Event of Default exists and (B) all representations and warranties
contained herein and in the other Credit Documents are true and correct in all material
respects on and as of the date made.
(l) Patriot Act. Receipt by the Agent at least five (5) Business Days prior to
the Closing Date of all documentation and other information required by regulatory
authorities under applicable know your customer and anti-money laundering rules and
regulations.
(m) Account Designation Letter. Receipt by the Agent of an executed
counterpart of the Account Designation Letter.
(n) Other. Receipt by the Lenders of such other documents, instruments,
agreements or information as reasonably requested by any Lender.
(l) Minimum Commitments. The aggregate amount of Commitments of all Lenders on
the Closing Date shall be not less than $400,000,000.
5.2 Conditions to Loans and Issuances of Letters of Credit.
In addition to the conditions precedent stated elsewhere herein, the Lenders shall not be
obligated to make new Loans nor shall an Issuing Lender be required to issue, renew or extend a
Letter of Credit (and the Lenders shall not be obligated to participate in any Letter of Credit)
unless:
(a) Request. The Borrower shall have timely delivered (i) in the case of any
new Revolving Loan or Term Loan, to the Agent, an appropriate Notice of Borrowing, duly
executed and completed, by the time specified in Section 2.1, (ii) in the case of any Letter
of Credit, to the applicable Issuing Lender, an appropriate request for issuance of a Letter
of Credit in accordance with the provisions of Section 2.2 and (iii) in the case of any
Swingline Loan, to the Swingline Lender, an appropriate Notice of Borrowing, duly executed
and completed, by the time specified in Section 2.8.
(b) Representations and Warranties. The representations and warranties made by
the Credit Parties in this Credit Agreement are true and correct in all material respects at
and as if made as of the date of the funding of the Loans or the issuance, renewal or
extension of the Letters of Credit, as applicable (except to the extent such representations
and warranties expressly and exclusively relate to an earlier date).
(c) No Default. No Default or Event of Default shall exist or be continuing
either prior to or after giving effect thereto.
(d) Availability. Immediately after giving effect to the making of a Loan (and
the application of the proceeds thereof) or to the issuance of a Letter of Credit, as the
case may be, the amount of Loans and LOC Obligations outstanding shall not exceed the
maximum permitted by Sections 2.1, 2.2 and 2.8.
(e) Cash Collateral. In the case of any new Term Loan, the Borrower shall have
deposited into the Cash Collateral Account sufficient Permitted Cash Collateral so that,
after giving effect to the making of such Term Loan, the value of all Permitted Cash
Collateral maintained in the Cash Collateral Account is not less than the Required
Collateral Amount.
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The delivery of each Notice of Borrowing and each request for a Letter of Credit shall
constitute a representation and warranty by the Borrower of the correctness of the matters
specified in subsections (b), (c) and (d) above.
SECTION 6.
REPRESENTATIONS AND WARRANTIES
Each Credit Party hereby represents and warrants to each Lender that:
6.1 Organization and Good Standing.
Each Credit Party (a) is a limited partnership, limited liability company or a corporation
duly formed, validly existing and in good standing under the laws of the state of its formation,
(b) is duly qualified and in good standing and authorized to do business in every jurisdiction
where the failure to so qualify would have a Material Adverse Effect and (c) has the requisite
power and authority to own its properties and to carry on its business as now conducted and as
proposed to be conducted.
6.2 Due Authorization.
Each Credit Party (a) has the requisite power and authority to execute, deliver and perform
this Credit Agreement and the other Credit Documents and to incur the obligations herein and
therein provided for and (b) has been authorized by all necessary corporate, partnership or limited
liability company action to execute, deliver and perform this Credit Agreement and the other Credit
Documents.
6.3 No Conflicts.
Neither the execution and delivery of the Credit Documents, nor the consummation of the
transactions contemplated herein and therein, nor performance of and compliance with the terms and
provisions hereof and thereof by any Credit Party will (a) violate or conflict with any provision
of its organizational documents or bylaws, (b) materially violate, contravene or conflict with any
law (including without limitation, the Public Utility Holding Company Act of 1935, as amended),
regulation (including without limitation, Regulation U or Regulation X), order, writ, judgment,
injunction, decree or permit applicable to it, (c) materially violate, contravene or conflict with
contractual provisions of, or cause an event of default under, any indenture, loan agreement,
mortgage, deed of trust, contract or other agreement or instrument to which it is a party or by
which it may be bound or (d) result in or require the creation of any Lien upon or with respect to
its properties other than the Liens hereunder and under the Collateral Documents.
6.4 Consents.
No consent, approval, authorization or order of, or filing, registration or qualification
with, any court or Governmental Authority or third party is required in connection with the
execution, delivery or performance of this Credit Agreement or any of the other Credit Documents
that has not been obtained.
6.5 Enforceable Obligations.
This Credit Agreement and the other Credit Documents have been duly executed and delivered and
constitute legal, valid and binding obligations of each Credit Party which is a party thereto
enforceable
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against such Credit Party in accordance with their respective terms, except as may be limited
by bankruptcy or insolvency laws or similar laws affecting creditors rights generally or by
general equitable principles.
6.6 Financial Condition/Material Adverse Effect.
The financial statements delivered to the Lenders pursuant to Section 7.1(a) and (b): (i)
have been prepared in accordance with GAAP (subject to the provisions of Section 1.3) and (ii)
present fairly the financial condition, results of operations and cash flows of the Parent and its
Subsidiaries as of such date and for such periods (subject, in the case of interim statements, to
normal year-end adjustments and the absence of footnotes). Since the Effective Date, there has
been no event or circumstance that, either individually or collectively, has had or would
reasonably be expected to have a Material Adverse Effect.
6.7 Taxes.
Each Credit Party and each of its Subsidiaries has filed, or caused to be filed, all material
tax returns (federal, state, local and foreign) required to be filed and paid all amounts of taxes
shown thereon to be due (including interest and penalties) and has paid all other taxes, fees,
assessments and other governmental charges (including mortgage recording taxes, documentary stamp
taxes and intangibles taxes) owing by it, except (a) for such taxes which are not yet delinquent or
that are being contested in good faith and by proper proceedings, and against which adequate
reserves are being maintained in accordance with GAAP or (b) where such nonfiling or nonpayment
would not have a Material Adverse Effect.
6.8 Compliance with Law.
Each Credit Party and each of its Subsidiaries is in compliance with all laws, rules,
regulations, orders, decrees and requirements of Governmental Authorities applicable to it or to
its properties (including, without limitation, ERISA, the Code and Environmental Laws), except
where the necessity of compliance therewith is being contested in good faith by appropriate
proceedings or such failure to comply would not have or would not be reasonably expected to have a
Material Adverse Effect.
6.9 Use of Proceeds; Margin Stock.
The proceeds of the Loans hereunder will be used solely for the purposes specified in Section
7.7. None of such proceeds will be used for the purpose of (a) purchasing or carrying any margin
stock as defined in Regulation U or Regulation X, (b) for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry margin stock, (c) for any other
purpose which might constitute this transaction a purpose credit within the meaning of Regulation
U or Regulation X or (d) for the acquisition of another Person unless the board of directors (or
other comparable governing body) or stockholders, as appropriate, of such Person has approved such
acquisition.
6.10 Government Regulation.
Each Credit Party and each of its Subsidiaries is exempt from the registration provisions of
the Public Utility Holding Company Act of 1935, as amended. No Credit Party is an investment
company registered or required to be registered under the Investment Company Act of 1940, as
amended, or controlled by such a company.
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6.11 Solvency.
Each Credit Party is and, after the consummation of the transactions contemplated by this
Credit Agreement, will be Solvent.
6.12 Environmental Matters.
Except as would not result or be reasonably expected to result in a Material Adverse Effect:
(a) each of the properties of the Credit Parties (the Properties) and all operations at
the Properties are in compliance with all applicable Environmental Laws, (b) there is no violation
of any Environmental Law with respect to the Properties or the businesses operated by the Credit
Parties (the Businesses), and (c) there are no conditions relating to the Businesses or
Properties that would reasonably be expected to give rise to a liability under any applicable
Environmental Laws.
6.13 Subsidiaries.
Set forth on Schedule 6.13 is a complete and accurate list of all Credit Parties and
their Subsidiaries, and the ownership of same, as such Schedule 6.13 may be updated from
time to time.
6.14 Litigation.
There are no actions, suits or legal, equitable, arbitration or administrative proceedings,
pending or, to the knowledge of a Credit Party, threatened against such Credit Party which (a) are
likely to be decided adversely against such Credit Party and (b) if so decided would have or would
reasonably be expected to have a Material Adverse Effect.
6.15 Collateral.
This Credit Agreement and the Collateral Documents create valid security interests in, and
Liens on, the Cash Collateral, which security interests and Liens are perfected first priority
Liens prior to all other Liens. The value of the Permitted Cash Collateral is greater than or
equal to the Required Collateral Amount.
6.16 Material Contracts.
Each Credit Party and each of its Subsidiaries is in compliance with all contracts necessary
for the ongoing operation and business of such Credit Party or Subsidiary in the ordinary course
except where the failure to comply would not have or would not reasonably be expected to have a
Material Adverse Effect.
6.17 Anti-Terrorism Laws.
Neither any Credit Party nor any of its Subsidiaries is an enemy or an ally of the enemy
within the meaning of Section 2 of the Trading with the Enemy Act of the United States of America
(50 U.S.C. App. §§ 1 et seq.), as amended. Neither any Credit Party nor any or its Subsidiaries is
in violation of (a) the Trading with the Enemy Act, as amended, (b) any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended) or any enabling legislation or executive order relating thereto or (c) the Patriot Act (as
defined in Section 11.17(b)). None of the Credit Parties (i) is a blocked person described in
section 1 of the Anti-Terrorism Order or (ii) to the best of its knowledge, engages in any dealings
or transactions, or is otherwise associated, with any
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such blocked person.
6.18 Compliance with OFAC Rules and Regulations.
None of the Credit Parties or their Subsidiaries or their respective Affiliates (a) is a
Sanctioned Person, (b) has more than 15% of its assets in Sanctioned Countries, or (c) derives more
than 15% of its operating income from investments in, or transactions with Sanctioned Persons or
Sanctioned Countries. No part of the proceeds of any Extension of Credit hereunder will be used
directly or indirectly to fund any operations in, finance any investments or activities in or make
any payments to, a Sanctioned Person or a Sanctioned Country.
6.19 Compliance with FCPA.
Each of the Credit Parties and their Subsidiaries is in compliance with the Foreign Corrupt
Practices Act, 15 U.S.C. §§ 78dd-1, et seq., and any foreign counterpart thereto. None of the
Credit Parties and their Subsidiaries has made a payment, offering, or promise to pay, or
authorized the payment of, money or anything of value (a) in order to assist in obtaining or
retaining business for or with, or directing business to, any foreign official, foreign political
party, party official or candidate for foreign political office, (b) to a foreign official, foreign
political party or party official or any candidate for foreign political office, and (c) with the
intent to induce the recipient to misuse his or her official position to direct business wrongfully
to such Credit Party or its Subsidiary or to any other Person, in violation of the Foreign Corrupt
Practices Act, 15 U.S.C. §§ 78dd-1, et seq.
SECTION 7.
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit Agreement is in
effect and until the Loans and LOC Obligations, together with interest, fees and other obligations
hereunder, have been paid in full and the Commitments and Letters of Credit shall have terminated:
7.1 Information Covenants.
The Borrower will furnish, or cause to be furnished, to the Agent for further distribution to
each Lender:
(a) Annual Financial Statements. As soon as available, and in any event within
95 days after the close of each fiscal year of the Parent, a consolidated balance sheet of
the Parent as of the end of such fiscal year, together with a related consolidated income
statement and related statements of cash flows, capitalization and retained earnings for
such fiscal year, setting forth in comparative form figures for the preceding fiscal year,
all such financial information described above to be audited by independent certified public
accountants of recognized national standing and whose opinion, which shall be furnished to
the Agent, shall be to the effect that such financial statements have been prepared in
accordance with GAAP (except for changes with which such accountants concur);
provided, that the Parents Form 10-K Annual Report as filed with the Securities and
Exchange Commission, without exhibits, will satisfy the requirements of this Section 7.1(a).
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(b) Quarterly Financial Statements. As soon as available, and in any event
within 50 days after the close of each fiscal quarter of the Parent (other than the fourth
fiscal quarter) a consolidated balance sheet of the Parent as of the end of such fiscal
quarter, together with a related consolidated income statement and related statement of cash
flows for such fiscal quarter in each case setting forth in comparative form figures for the
corresponding period of the preceding fiscal year, and accompanied by a certificate of an
Approved Officer of the Parent to the effect that such quarterly financial statements fairly
present in all material respects the financial condition of the Parent and its Subsidiaries
and have been prepared in accordance with GAAP, subject to changes resulting from audit and
normal year-end audit adjustments to same; provided, that the Parents Form 10-Q
Quarterly Report as filed with the Securities and Exchange Commission, without exhibits,
will satisfy the requirements of this Section 7.1(b).
(c) Operating Budget and Cash Flow Projections. As soon as available, and in
any event no later than the last day of February of each fiscal year of the Parent,
operating budget and cash flow projections of the Parent and its Subsidiaries prepared on a
monthly or quarterly basis and otherwise in such form as the Agent may reasonably request;
provided, however, that such operating budget and cash flow projections shall not be
required if as of the last day of December of the previous fiscal year the Parent has an
Investment Grade Rating.
(d) Officers Certificate. At the time of delivery of the financial statements
provided for in Sections 7.1(a) and 7.1(b) above, a certificate of an Approved Officer of
the Parent, substantially in the Form of Exhibit 7.1(d), (i) demonstrating
compliance with the financial covenants contained in Section 7.10 by calculation thereof as
of the end of each such fiscal period, beginning with the fiscal quarter ending March 31,
2006, (ii) stating that no Default or Event of Default exists, or if any Default or Event of
Default does exist, specifying the nature and extent thereof and what action the Parent or
the Borrower proposes to take with respect thereto, (iii) setting forth the amount of Off
Balance Sheet Indebtedness of the Parent and its Subsidiaries as of the end of each such
fiscal period, (iv) updating Schedule 6.13 with respect to Subsidiaries, if
appropriate, (v) providing information to evidence compliance with Sections 7.12, 8.2(m),
8.4(i), 8.6(g) and 8.7(g) and (vi) providing such other information to evidence compliance
with this Credit Agreement as reasonably requested by the Agent.
(e) Reports. Promptly upon transmission or receipt thereof, copies of any
material filings and registrations with, and reports to or from, the Securities and Exchange
Commission, or any successor agency.
(f) Notices. Within five Business Days after any officer of a Credit Party
with responsibility relating thereto obtaining knowledge thereof, such Credit Party will
give written notice to the Agent immediately of (i) the occurrence of a Default or Event of
Default, specifying the nature and existence thereof and what action such Credit Party
proposes to take with respect thereto, and (ii) the occurrence of any of the following with
respect to a Credit Party: (A) the pendency or commencement of any litigation, arbitral or
governmental proceeding against such Credit Party the claim of which is likely to be decided
adversely to such Credit Party and, if adversely determined, would have or would be
reasonably expected to have a Material Adverse Effect or (B) the institution of any
proceedings against such Credit Party with respect to, or the receipt of notice by such
Person of potential liability or responsibility for violation or alleged violation of, any
federal, state or local law, rule or regulation (including, without limitation, any
Environmental Law) that is likely to be decided adversely to such Credit Party and, if
adversely decided, would have a Material Adverse Effect.
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(g) ERISA. Upon a Credit Party or any ERISA Affiliate obtaining knowledge
thereof, such Credit Party will give written notice to the Agent promptly (and in any event
within five Business Days) of: (i) any event or condition, including, but not limited to,
any Reportable Event, that constitutes, or would be reasonably expected to lead to, a
Termination Event if such Termination Event would have a Material Adverse Effect; (ii) with
respect to any Multiemployer Plan, the receipt of notice as prescribed in ERISA or otherwise
of any withdrawal liability assessed against a Credit Party or any ERISA Affiliate, or of a
determination that any Multiemployer Plan is in reorganization or insolvent (both within the
meaning of Title IV of ERISA); (iii) the failure to make full payment on or before the due
date (including extensions) thereof of all amounts which a Credit Party or any of its
Subsidiaries or ERISA Affiliates is required to contribute to each Plan pursuant to its
terms and as required to meet the minimum funding standard set forth in ERISA and the Code
with respect thereto; or (iv) any change in the funding status of any Plan that would have
or would be reasonably expected to have a Material Adverse Effect; together, with a
description of any such event or condition or a copy of any such notice and a statement by
an officer of a Credit Party briefly setting forth the details regarding such event,
condition, or notice, and the action, if any, which has been or is being taken or is
proposed to be taken with respect thereto. Promptly upon request, a Credit Party shall
furnish the Agent and each of the Lenders with such additional information concerning any
Plan as may be reasonably requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and attachments thereto required
to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA and the Code, respectively, for each plan year (within the meaning of Section 3(39)
of ERISA).
(h) Debt Rating Changes. Upon any change in its Debt Rating, the Parent shall
promptly deliver such information to the Agent.
(i) Other Information. With reasonable promptness upon any such request, such
other information regarding the business, properties or financial condition of the Credit
Parties and their Subsidiaries as the Agent or any Lender may reasonably request.
Information required to be delivered pursuant to Sections 7.1(a), 7.1(b) and 7.1(e) shall be
deemed to have been delivered on the earlier of (A) the date on which such information is posted by
the Agent on behalf of the Credit Parties on IntraLinks, Syndtrak or other electronic medium chosen
by the Administrative Agent or (B) the date on which a Credit Party provides notice to the Agent
for further delivery to each Lender by the Borrower that such information has been posted on the
Securities and Exchange Commission website on the Internet at
ww.sec.gov/edgar/searchedgar/webusers.htm or at another website identified in such notice and
accessible by the Lenders without charge; provided, that (i) any such notice may be
included in a certificate delivered pursuant to Section 7.1(d) and (ii) the Credit Parties shall
deliver paper copies of the information referred to in Sections 7.1(a), 7.1(b) and 7.1(e), to any
Lender that requests such delivery.
7.2 Preservation of Existence and Franchises.
Each Credit Party will, and will cause each Subsidiary to, do all things necessary to preserve
and keep in full force and effect its existence and rights, franchises and authority;
provided, however, that, subject to Section 8.3, a Credit Party shall not be required to
preserve any such existence, right or franchise if it in good faith determines that preservation
thereof is no longer necessary or desirable in the conduct of its business and that the loss
thereof is not disadvantageous in any material respect to the Lenders.
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7.3 Books and Records.
Each Credit Party will keep, and will cause each of its Subsidiaries to keep, complete and
accurate books and records of its transactions in accordance with good accounting practices on the
basis of GAAP (including the establishment and maintenance of appropriate reserves).
7.4 Compliance with Law.
Each Credit Party will comply, and will cause each of its Subsidiaries to comply, with all
laws (including, without limitation, all Environmental Laws and ERISA laws), rules, regulations and
orders, and all applicable restrictions imposed by all Governmental Authorities, applicable to it
and its property, unless (a) the failure to comply would not have or would not reasonably be
expected to have a Material Adverse Effect or (b) the necessity of compliance therewith is being
contested in good faith by appropriate proceedings.
7.5 Payment of Taxes and Other Indebtedness.
Each Credit Party will, and will cause each of its Subsidiaries to, pay, settle or discharge
(a) all taxes, assessments and governmental charges or levies imposed upon it, or upon its income
or profits, or upon any of its properties, before they shall become delinquent, (b) all lawful
claims (including claims for labor, materials and supplies) which, if unpaid, might give rise to a
Lien upon any of its properties, and (c) all of its other Indebtedness as it shall become due;
provided, however, that a Credit Party shall not be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which (i) is being contested in good faith by
appropriate proceedings and as to which adequate reserves therefor have been established in
accordance with GAAP or (ii) the nonpayment of which would not have a Material Adverse Effect.
7.6 Maintenance of Property; Insurance.
(a) Each Credit Party will keep, and will cause each of its Subsidiaries to keep, all
property useful and necessary in its business in good working order and condition, ordinary
wear and tear excepted.
(b) Each Credit Party will, and will cause each of its Subsidiaries to, maintain
(either in the name of such Credit Party or in such Subsidiarys own name) with financially
sound and responsible insurance companies, insurance on all their respective properties in
at least such amounts and against at least such risks (and with such risk retention) as are
usually insured against by companies of established repute engaged in the same or a similar
business; provided, that self-insurance by a Credit Party or any such Subsidiary
shall not be deemed a violation of this covenant to the extent that companies engaged in
similar businesses and owning similar properties in the same general areas in which such
Credit Party or such Subsidiary operates self-insure.
7.7 Use of Proceeds.
The proceeds of the Revolving Loans may be used solely (a) to help fund the purchase of the
Initial Asset Acquisition, (b) to make cash distributions to the general partner of the Parent on
the Effective Date in connection with the Initial Asset Acquisition and (b) for working capital and
other general corporate purposes of the Credit Parties. The proceeds of the Term Loans shall be
used (a) to make cash distributions to the general partner of the Parent and (b) to make cash
distributions to the Parent who will then make cash distributions to or repurchase limited
partnership interests from an affiliate of the general partner of the Parent that is also a partner
of the Parent. The proceeds of the Swingline Loans may be used solely for working
46
capital and other general corporate purposes of the Credit Parties. The Borrower will use the
Letters of Credit solely for the purposes set forth in Section 2.2(a).
7.8 Audits/Inspections.
Upon reasonable notice and during normal business hours, each Credit Party will, and will
cause its Subsidiaries to, permit representatives appointed by the Agent, including, without
limitation, independent accountants, agents, attorneys, and appraisers to visit and inspect the
Credit Parties and their Subsidiaries property, including their books and records, their accounts
receivable and inventory, the Credit Parties and their Subsidiaries facilities and their other
business assets, and to make photocopies or photographs thereof and to write down and record any
information such representatives obtain and shall permit the Agent or its representatives to
investigate and verify the accuracy of information provided to the Lenders and to discuss all such
matters with the officers, employees and representatives of each Credit Party and its Subsidiaries.
7.9 Maintenance of Ownership.
Each Credit Party will maintain ownership of all Capital Stock of each Subsidiary that is a
Credit Party, directly or indirectly, free and clear of all Liens except as permitted by Section
8.3 and Section 8.4.
7.10 Financial Covenants.
(a) Consolidated Leverage Ratio. The Consolidated Leverage Ratio, as at the
end of each fiscal quarter of the Parent (beginning with the fiscal quarter ending March 31,
2006), shall be less than or equal to 4.75 to 1.0; provided that subsequent to the
consummation of a Qualified Acquisition, the Consolidated Leverage Ratio, as at the end of
the three consecutive fiscal quarters following such Qualified Acquisition, shall be less
than or equal to 5.25 to 1.0.
(b) Consolidated Interest Coverage Ratio. The Consolidated Interest Coverage
Ratio, as at the end of each fiscal quarter of the Parent (beginning with the fiscal quarter
ending March 31, 2006), shall (i) prior to the Investment Grade Rating Date, be greater than
or equal to 3.0 to 1.0 and (ii) subsequent to the Investment Grade Rating Date, be greater
than or equal to 2.5 to 1.0.
For purposes of calculating compliance with the financial covenants set forth in this
Section 7.10:
(i) with respect to the Initial Asset Acquisition, Consolidated EBITDA and
Consolidated Interest Expense shall, for the first twelve months subsequent to the
Effective Date, be calculated on an annualized 365 day basis for the number of days
actually elapsed since the Effective Date until the date of determination; and
(ii) with respect to all Permitted Acquisitions subsequent to the Effective
Date, Consolidated EBITDA and Consolidated Interest Expense with respect to such
newly acquired assets shall be calculated on a proforma basis as if such acquisition
had occurred at the beginning of the applicable twelve month period of
determination.
7.11 Material Contracts.
Each Credit Party will comply, and will cause its Subsidiaries to comply, with all contracts
necessary for the ongoing operation and business of such Credit Party or Subsidiary in the
47
ordinary course, except where the failure to comply would not have or would not reasonably be
expected to have a Material Adverse Effect.
7.12 Additional Guarantors.
If (a) as of the end of any fiscal quarter of the Parent or (b) at the time any Qualified
Acquisition is consummated, the Subsidiaries of the Parent that are not Credit Parties hereunder
(the Non-Guarantor Subsidiaries) constitute more than either (collectively, the
Threshold Requirements):
(i) twenty percent (20%), in the aggregate, of Consolidated Net Tangible Assets, or
(ii) twenty percent (20%), in the aggregate, of Consolidated Net Income,
the Borrower shall promptly notify the Agent and shall, within ten Business Days thereof (A) cause
one or more Subsidiaries to become a Guarantor pursuant to a Joinder Agreement in the form of
Exhibit 7.12 and to execute and deliver such other documents as requested by the Agent and
(B) deliver to the Agent documents of the types referred to Section 5.1(b) as well as opinions of
counsel to such Subsidiary (which shall cover, among other things, legality, validity, binding
effect and enforceability), all in form, content and scope satisfactory to the Agent, such that
immediately after the joinder of such Subsidiary or Subsidiaries as Guarantors hereunder, the
remaining Non-Guarantor Subsidiaries shall not exceed, in the aggregate, either of the Threshold
Requirements.
7.13 Cash Collateral.
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(a) The Borrower shall maintain the Cash Collateral Account at all times that any
portion of the Term Loans shall remain outstanding.
(b) The Borrower shall, at all times, maintain Permitted Cash Collateral in the Cash
Collateral Account with a value greater than or equal to the following (the Required
Collateral Amount): (i) if all Permitted Cash Collateral is comprised entirely of Tier
1 Permitted Cash Collateral, 100% of the principal amount of all outstanding Term Loans,
(ii) if Permitted Cash Collateral is not comprised entirely of Tier 1 Permitted Cash
Collateral but is not composed of any Tier 3 Permitted Cash Collateral, 100.5% of the
principal amount of all outstanding Term Loans or (iii) if any Permitted Cash Collateral is
comprised of any Tier 3 Permitted Cash Collateral, 101% of the principal amount of all outstanding Term Loans. If, at any time, the Required Collateral
Amount exceeds the value of the Permitted Cash Collateral, the Borrower shall immediately
deposit additional Permitted Cash Collateral into the Cash Collateral Account to eliminate
such excess. In accordance with the terms of the Account Control Agreement, the Borrower
shall direct the investment of items deposited into the Cash Collateral Account;
provided, that (1) all Cash Collateral shall consist of Permitted Cash Collateral at
all times and (2) the Borrower shall not be permitted to sell any Permitted Cash Collateral
prior to its stated maturity (if any) during the first two months following the Closing Date
except pursuant to Section 7.13(c). The Borrower shall treat all income, gains or losses
from the investment of items in the Cash Collateral Account as its own income or loss, and
the Agent and the Lenders shall have no liability for any such gain or loss.
(c) Upon any prepayment of the Term Loans, the Borrower shall be permitted to liquidate
and/or withdraw Cash Collateral from the Cash Collateral Account in an amount up to such
prepayment; provided, that after such withdrawal, the value of the Permitted Cash
Collateral shall be greater than or equal to the Required Collateral Amount, as calculated
after giving effect of such prepayment of the Term Loans. In the event that the Borrower
shall elect to make such a withdrawal, the Agent shall direct the Intermediary to liquidate
the applicable Cash Collateral and remit the proceeds to the Borrower.
(d) If, at the end of any fiscal quarter of the Parent, the value of the Permitted Cash
Collateral exceeds 102% of the principal amount of the Term Loans outstanding at such time,
then, upon the request of the Borrower, provided no Default or Event of Default has occurred
and is continuing, the Agent shall direct the Intermediary to pay and transfer to the
Borrower cash, to the extent available, in the Cash Collateral Account in an amount equal to
such excess.
(e) To secure the prompt payment in full when due, whether by lapse of time,
acceleration, mandatory prepayment or otherwise, of the Term Loans, the Borrower hereby
grants to the Agent, for the ratable benefit of the Lenders, a continuing security interest
in, and a right to set off against, any and all right, title and interest of the Borrower in
and to the Cash Collateral Account and the Cash Collateral and all other amounts maintained
in the Cash Collateral Account.
SECTION 8.
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit Agreement is in
effect and until the Loans and LOC Obligations, together with interest, fees and other obligations
hereunder, have been paid in full and the Commitments and Letters of Credit shall have terminated:
49
8.1 Nature of Business.
No Credit Party will, nor will it permit any of its Subsidiaries to (whether now owned or
acquired or formed subsequent to the Closing Date), materially alter the character of their
business on a consolidated basis from the midstream energy business.
8.2. Liens.
No Credit Party will create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it or any of its Subsidiaries, except for the following:
(a) Liens in favor of the Lenders securing Indebtedness under this Credit Agreement.
(b) any Lien arising out of the refinancing, extension, renewal or refunding of any
Indebtedness secured by any Lien permitted by any of the foregoing clauses of this Section
8.2; provided, that such Indebtedness is not increased and is not secured by any
additional assets.
(c) Liens for taxes, assessments or other governmental charges or levies not yet due or
which are being contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in accordance with
GAAP.
(d) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
materialmen and interest owners of oil and gas production and other Liens imposed by law,
created in the ordinary course of business and for amounts not past due for more than 60
days or which are being contested in good faith by appropriate proceedings which are
sufficient to prevent imminent foreclosure of such Liens, are promptly instituted and
diligently conducted and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP.
(e) Liens incurred or deposits made in the ordinary course of business (including,
without limitation, surety bonds and appeal bonds) in connection with workers compensation,
unemployment insurance and other types of social security benefits or to secure the
performance of tenders, bids, leases, contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar obligations or arising as a result of
progress payments under government contracts.
(f) easements (including, without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations, encroachments,
variations and other restrictions, charges or encumbrances (whether or not recorded)
affecting the use of real property.
(g) Liens with respect to judgments and attachments which do not result in an Event of
Default.
(h) Liens, deposits or pledges to secure the performance of bids, tenders, contracts
(other than contracts for the payment of money), leases (permitted under the terms of this
Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or
other obligations arising in the ordinary course of business.
(i) rights of first refusal entered into in the ordinary course of business.
(j) Liens consisting of any (i) rights reserved to or vested in any municipality or
governmental, statutory or public authority to control or regulate any property of a Credit
Party or
50
any Subsidiary or to use such property in any manner which does not materially impair
the use of such property for the purpose for which it is held by a Credit Party or any such
Subsidiary, (ii) obligations or duties to any municipality or public authority with respect
to any franchise, grant, license, lease or permit and the rights reserved or vested in any
Governmental Authority or public utility to terminate any such franchise, grant, license,
lease or permit or to condemn or expropriate any property, or (iii) zoning laws, ordinances
or municipal regulations.
(k) Liens on deposits required by any Person with whom a Credit Party or any Subsidiary
enters into forward contracts, futures contracts, swap agreements or other commodities
contracts in the ordinary course of business.
(l) other Liens, including Liens imposed by Environmental Laws, arising in the ordinary
course of its business which (i) do not secure Indebtedness (other than Liens on cash and
cash equivalents that secure letters of credit), (ii) do not secure any obligation in an
amount exceeding $10,000,000 at any time and (iii) do not in the aggregate materially
detract from the value of its assets or materially impair the use thereof in the operation
of its business.
(m) (i) prior to the Investment Grade Rating Date only, Liens securing, or in respect
of, purchase money obligations for fixed or capital assets and obligations under Capital
Leases; provided, that (A) any such Lien attaches to such property concurrently with such
acquisition; (B) such Lien attaches solely to the property so acquired in such transaction;
(C) the Indebtedness secured thereby does not exceed the cost or fair market value,
whichever is lower, of the property being acquired on the date of such acquisition and (D)
the aggregate Indebtedness being secured by such Liens does not exceed at any one time 3% of
Consolidated Tangible Net Assets or (ii) subsequent to the Investment Grade Debt Rating
only, other Liens securing Indebtedness or obligations in an amount not to exceed, in the
aggregate, at any one time 10% of Consolidated Tangible Net Assets.
(n) after the Investment Grade Rating Date, any Lien on any asset of any Person
existing at the time such Person is merged or consolidated with or into the Borrower, the
Parent or any Subsidiary and not created in contemplation of such event.
(o) after the Investment Grade Rating Date, any Lien existing on any asset prior to the
acquisition thereof by the Borrower, the Parent or any Subsidiary and not created in
contemplation of such acquisition.
8.3 Consolidation and Merger.
A Credit Party will not, and will not permit any of its Subsidiaries to, (a) enter into any
transaction of merger or (b) consolidate, liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution); provided, that: (i) a Person (including a Subsidiary of the
Borrower) may be merged or consolidated with or into the Borrower or the Parent so long as (A) the
Borrower or the Parent, as the case may be, shall be the continuing or surviving entity, (B) no
Default or Event of Default shall exist or be caused thereby, (C) if the Parent has a Debt Rating
at the time of such merger or consolidation, the Parent is not downgraded by a Designated Rating
Agency as a result of such transaction to a rating below an Investment Grade Rating (or equivalent
rating if the Parent has selected a Designated Rating Agency other than S&P or Moodys), as
applicable and (D) the Borrower remains liable for its obligations under this Credit Agreement and
all the rights and remedies hereunder remain in full force and effect, and (ii) a Subsidiary of the
Parent may merge with or into another Subsidiary of the Parent; provided that if one of such
Subsidiaries is a Guarantor, the surviving entity must be a Guarantor.
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8.4 Dispositions.
A Credit Party will not make, nor permit its Subsidiaries to make any Disposition except:
(a) Dispositions of inventory in the ordinary course of business;
(b) Dispositions of machinery and equipment no longer used or useful in the conduct of
business of a Credit Party and its Subsidiaries that are Disposed of in the ordinary course
of business;
(c) Dispositions of assets to a Credit Party;
(d) Dispositions of Investments permitted under Section 8.7;
(e) Dispositions of accounts receivable in connection with the collection or compromise
thereof;
(f) Dispositions of licenses, sublicenses, leases or subleases granted to others not
interfering in any material respect with the business of a Credit Party and its
Subsidiaries;
(g) Dispositions of Cash Equivalents for fair market value;
(h) Dispositions in which: (i) the assets being disposed are used
simultaneously in exchange for replacement assets or (ii) the net proceeds
thereof are either (A) reinvested within 180 days from such Disposition in
assets to be used in the ordinary course of the business of the Parent and its
Subsidiaries and/or (B) used to permanently reduce the Revolving Committed
Amount on a dollar for dollar basis.
(i) other Dispositions not exceeding in the aggregate for all Credit Parties and their
Subsidiaries (i) 10% of Consolidated Net Tangible Assets in any fiscal year and (ii) 25% of
Consolidated Net Tangible Assets during the term of this Credit Agreement.
8.5 Transactions with Affiliates.
A Credit Party will not, and will not permit any Subsidiary to, directly or indirectly, pay
any funds to or for the account of, make any investment in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction
with, any officer, director, employee or Affiliate (other than another Credit Party) unless any and
all such transactions between a Credit Party and its Subsidiaries on the one hand and any officer,
director, employee or Affiliate (other than another Credit Party) on the other hand, shall be on an
arms-length basis and on terms no less favorable to such Credit Party or such Subsidiary than could
have been obtained from a third party who was not an officer, director, employee or Affiliate
(other than another Credit Party); provided, that the foregoing provisions of this Section
shall not (a) prohibit a Credit Party and each Subsidiary from declaring or paying any lawful
dividend or distribution otherwise permitted hereunder, (b) prohibit a Credit Party or a Subsidiary
from providing credit support for its Subsidiaries as it deems appropriate in the ordinary course
of business, (c) prohibit a Credit Party or a Subsidiary from engaging in a transaction or
transactions that are not on an arms-length basis or are not on terms as favorable as could have
been obtained from a third party, provided that such transaction or transactions occurs within a
related series of transactions, which, in the aggregate, are on an arms-length basis and are on
terms as favorable as could have been obtained from a third party, (d) prohibit a Credit Party or a
Subsidiary from engaging in non-material transactions with any Credit Party that are not on an
arms-length
52
basis or are not on terms as favorable as could have been obtained from a third party but are
in the ordinary course of such Credit Partys or such Subsidiarys business, so long as, in each
case, after giving effect thereto, no Default or Event of Default shall have occurred and be
continuing, (e) prohibit a Credit Party from entering into any of the agreements to be entered into
by various Credit Parties in connection with the Initial Asset Acquisition and the transactions
related thereto, (f) prohibit a Credit Party from engaging in a transaction with an Affiliate if
such transaction has been approved by the Conflicts Committee, or (g) prohibit a Credit Party from
entering into any of the agreements listed on Schedule 8.5.
8.6 Indebtedness.
No Credit Party will, nor will it permit its Subsidiaries to, create, incur, assume or suffer
to exist any Indebtedness, except:
(a) Indebtedness under the Credit Documents;
(b) Investments permitted under Section 8.7 that would constitute Indebtedness;
(c) obligations (contingent or otherwise) of a Credit Party or any Subsidiary existing
or arising under (i) any Credit Facility Swap Contract or (ii) any other Swap Contract;
provided that with respect to clauses (i) and (ii) above (A) such obligations are
(or were) entered into by such Person in the ordinary course of business for the purpose of
directly mitigating risks associated with liabilities, commitments, investments, assets, or
property held or reasonably anticipated by such Person, or changes in the value of
securities issued by such Person, and not for purposes of speculation or taking a market
view and (B) such Credit Facility Swap Contract or Swap Contract does not contain any
provision exonerating the non-defaulting party from its obligation to make payments on
outstanding transactions to the defaulting party;
(d) current liabilities of the Credit Parties or their respective Subsidiaries incurred
in the ordinary course of business but not incurred through (i) the borrowing of money or
(ii) the obtaining of credit except for credit on an open account basis customarily extended
and in fact extended in connection with normal purchases of goods and services;
(e) Indebtedness in respect of taxes, assessments, governmental charges or levies and
claims for labor, materials and supplies to the extent that payment therefor shall not at
the time be required to be made in accordance with the provisions of this Credit Agreement;
(f) Indebtedness in respect of judgments or awards only to the extent, for the period
and for an amount not resulting in a Default or Event of Default;
(g) other unsecured Indebtedness in an aggregate amount not to exceed, at any one time
outstanding, the greater of (i) $50,000,000 and (ii) 10% of Consolidate Net Tangible Assets;
and
(h) secured Indebtedness to the extent permitted by Section 8.2(m).
8.7 Investments.
No Credit Party will, nor will it permit its Subsidiaries to, make any Investments, except:
(a) Investments held by a Credit Party or a Subsidiary in the form of cash or Cash
53
Equivalents;
(b) Investments in any Subsidiary.
(c) Investments consisting of extensions of credit in the nature of accounts receivable
or notes receivable arising from the grant of trade credit in the ordinary course of
business, and Investments received in satisfaction or partial satisfaction thereof from
financially troubled account debtors to the extent reasonably necessary in order to prevent
or limit loss;
(d) Investments in Permitted Acquisitions and capital expenditures in the ordinary
course.
(e) Investments in Credit Facility Swap Contracts and other Swap Contracts permitted by
Section 8.6;
(f) Loans and advances to the general partner of the Borrower or the Parent to enable
such general partner of the to pay general and administrative costs and expenses pursuant to
the partnership agreement of the Borrower or Parent, as applicable; and
(g) other Investments in an aggregate amount not to exceed, at any one time
outstanding, $25,000,000.
8.8 Restricted Payments.
No Credit Party will, nor will it permit its Subsidiaries to, declare or make, directly or
indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so,
except that:
(a) a Credit Party or Subsidiary may make Restricted Payments to a Credit Party;
(b) a Credit Party or Subsidiary may declare and make dividend payments or other
distributions payable solely in the Capital Stock of such Person;
(c) cash distributions may be made and redemption of limited partnership units may
occur with the proceeds of the Term Loan, the initial draw of Revolving Loans on the Closing
Date and the proceeds of the IPO, in each case in connection with the Initial Asset
Acquisition;
(d) as long as no Default or Event of Default exists and is continuing, the Credit
Parties may make quarterly cash distributions in an amount not to exceed Available Cash for
such period; and
(e) the Parent or Borrower may repurchase their respective limited partnership units in
an aggregate amount not exceeding $5,000,000 in any fiscal year.
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SECTION 9.
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the following specified events
(each an Event of Default):
(a) Payment. A Credit Party shall: (i) default in the payment when due of any
principal amount of any of the Loans or of any reimbursement obligation arising from
drawings under any Letters of Credit; or (ii) default, and such default shall continue for
five or more Business Days, in the payment when due of any interest on the Loans or of any
fees or other amounts owing hereunder, under any of the other Credit Documents or in
connection herewith.
(b) Representations. Any representation, warranty or statement made or deemed
to be made by a Credit Party herein, in any of the other Credit Documents, or in any
statement or certificate delivered or required to be delivered pursuant hereto or thereto
shall prove to have been untrue in any material respect on the date as of which it was
deemed to have been made.
(c) Covenants. A Credit Party shall:
(i) default in the due performance or observance of any term, covenant or
agreement contained in Section 7.1(f), 7.8, 7.10, 7.11, 8.1, 8.2, 8.3, 8.4, 8.5,
8.6, 8.7 or 8.8; or
(ii) default in the due performance or observance by it of any term, covenant
or agreement (other than those referred to in subsections (a), (b), or (c)(i) of
this Section 9.1) contained in this Credit Agreement or any other Credit Document
and such default shall continue unremedied for a period of at least 30 days after
the earlier of (A) a Responsible Officer of a Credit Party becoming aware of such
default or (B) notice of such default is given by the Agent or a Lender to the
Borrower.
(d) Credit Documents.
(i) Any Credit Document shall fail to be in full force and effect or a Credit
Party shall so assert or any Credit Document shall fail to give the Agent and/or the
Lenders the rights, powers and privileges purported to be created thereby; or
(ii) The Agent shall cease to have a valid, perfected, first priority Lien on
the Cash Collateral in the Cash Collateral Account for any reason.
(e) Bankruptcy, etc. The occurrence of any of the following with respect to a
Credit Party or a Subsidiary (i) a court or governmental agency having jurisdiction in the
premises shall enter a decree or order for relief in respect of such Credit Party or
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appoint a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of such Credit Party or Subsidiary or
for any substantial part of its property or ordering the winding up or liquidation of its
affairs; or (ii) an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect is commenced against such Credit Party or Subsidiary
55
and such petition remains unstayed and in effect for a period of 90 consecutive days;
or (iii) such Credit Party or Subsidiary shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any such law, or
consent to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of such Person or any substantial part
of its property or make any general assignment for the benefit of creditors; or (iv) such
Credit Party or Subsidiary shall admit in writing its inability to pay its debts generally
as they become due or any action shall be taken by such Person in furtherance of any of the
aforesaid purposes.
(f) Defaults under Other Agreements. With respect to any Indebtedness,
including any Off Balance Sheet Indebtedness, in excess of the greater of (i) $10,000,000 or
(ii) the lesser of (x) three percent (3%) of Consolidated Net Tangible Assets and (y)
$100,000,000 (other than Indebtedness outstanding under this Credit Agreement) of a Credit
Party or any Subsidiary such Credit Party or such Subsidiary shall (A) default in any
payment (beyond the applicable grace period with respect thereto, if any) with respect to
any such Indebtedness or fail to timely pay such Indebtedness when due, or (B) default
(after giving effect to any applicable grace period) in the observance or performance of any
covenant or agreement relating to such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event or condition shall
occur or condition exist, the effect of which default or other event or condition in this
clause (B) is to cause any such Indebtedness to become due prior to its stated maturity.
(g) Judgments. One or more judgments, orders, or decrees shall be entered
against a Credit Party or a Subsidiary involving a liability, in the aggregate, in excess of
the greater of (i) $10,000,000 or (ii) the lesser of (x) three percent (3%) of Consolidated
Net Tangible Assets and (y) $50,000,000 (to the extent not paid or covered by insurance
provided by a carrier who has acknowledged coverage) and such judgments, orders or decrees
shall continue unsatisfied, undischarged and unstayed for a period ending on the first to
occur of (i) the last day on which such judgment, order or decree becomes final and
unappealable and, where applicable, with the status of a judicial lien or (ii) 45 days.
(h) ERISA. The occurrence of:
(i) any of the following events or conditions which could result in a liability
of a Credit Party or an ERISA Affiliate, in the aggregate, in excess of the greater
of (i) $10,000,000 or (ii) the lesser of (x) three percent (3%) of Consolidated Net
Tangible Assets and (y) $25,000,000: (A) any accumulated funding deficiency, as
such term is defined in Section 302 of ERISA and Section 412 of the Code, whether or
not waived, shall exist with respect to any Plan, or any lien shall arise on the
assets of the Borrower or any ERISA Affiliate in favor of the PBGC or a Plan; or (B)
any prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or breach of fiduciary responsibility shall occur which would be
reasonably expected to subject the Borrower or any ERISA Affiliate to any liability
under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which the Borrower or any ERISA
Affiliate has agreed or is required to indemnify any person against any such
liability; or
(ii) any of the following events or conditions which could result in a
liability of a Credit Party or an ERISA Affiliate, in the aggregate, in excess of
the greater of (i) $10,000,000 or (ii) the lesser of (x) three percent (3%) of
Consolidated Net Tangible
56
Assets and (y) $50,000,000: (A) a Termination Event shall occur with respect to
a Single Employer Plan which is, in the reasonable opinion of the Agent, likely to
result in the termination of such Plan for purposes of Title IV of ERISA; or (B) a
Termination Event shall occur with respect to a Multiemployer Plan or Multiple
Employer Plan which is, in the reasonable opinion of the Agent, likely to result in
(x) the termination of such Plan for purposes of Title IV of ERISA, or (y) the
Borrower or any ERISA Affiliate incurring any liability in connection with a
withdrawal from, reorganization of (within the meaning of Section 4241 of ERISA), or
insolvency (within the meaning of Section 4245 of ERISA) of such Plan.
(i) Change of Control. The occurrence of any Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter unless and until such
Event of Default has been waived by the Required Lenders (or the Lenders as may be required
hereunder), the Agent may, with the consent of the Required Lenders, and shall, upon the request
and direction of the Required Lenders, by written notice to the Borrower take any of the following
actions without prejudice to the rights of the Agent or any Lender to enforce its claims against
the Borrower, except as otherwise specifically provided for herein:
(i) Termination of Commitments. Declare the Commitments and the
obligation of the Issuing Bank to issue any Letter of Credit to be terminated
whereupon the Commitments and such obligation of the Issuing Bank to issue any
Letter of Credit shall be immediately terminated.
(ii) Acceleration of Loans and Letters of Credit. Declare the unpaid
principal of and any accrued interest in respect of all Loans, any reimbursement
obligations arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by the Credit Parties to any
of the Lenders hereunder to be due whereupon the same shall be immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower.
(iii) Cash Collateralize Letters of Credit. Direct the Borrower to pay
(and the Borrower agrees that upon receipt of such notice, or upon the occurrence of
an Event of Default under Section 9.1(e), it will immediately pay) to the Issuing
Lender additional cash, to be held by the Issuing Lender, for the benefit of the
Lenders, in a cash collateral account as security for the LOC Obligations in respect
of subsequent drawings under all then outstanding Letters of Credit in an amount
equal to the maximum aggregate amount which may be drawn under all Letters of
Credits then outstanding.
(iv) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents, including, without limitation, all
rights of set-off.
(v) Cash Collateral. Liquidate the Cash Collateral and apply the
proceeds thereof to repay the Term Loans then outstanding.
Notwithstanding the foregoing, if an Event of Default specified in Section 9.1(e) shall occur, then
the Commitments and the obligation of the Issuing Bank to issue any Letter of Credit shall
automatically terminate and all Loans, all reimbursement obligations under Letters of Credit, all
accrued interest in
57
respect thereof, all accrued and unpaid fees and other indebtedness or obligations owing to the
Lenders and the Agent hereunder shall immediately become due and payable without the giving of any
notice or other action by the Agent or the Lenders.
Notwithstanding the fact that enforcement powers reside primarily with the Agent, each Lender has,
to the extent permitted by law, a separate right of payment and shall be considered a separate
creditor holding a separate claim within the meaning of Section 101(5) of the Bankruptcy Code
or any other insolvency statute.
9.3 Allocation of Payments After Event of Default.
Notwithstanding any other provision of this Credit Agreement, after the occurrence of an Event
of Default, all amounts collected or received by the Agent or any Lender on account of amounts
outstanding under any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including
without limitation reasonable attorneys fees) of the Agent and the Lenders in connection
with enforcing the rights of the Lenders under the Credit Documents, pro rata as set forth
below;
SECOND, to payment of any fees owed to the Agent, or any Lender, pro rata as set forth
below;
THIRD, to the payment of all accrued interest payable to the Lenders hereunder, pro
rata as set forth below;
FOURTH, to the payment of the outstanding principal amount of the Loans and to the
payment or cash collateralization of the outstanding LOC Obligations, pro rata, as set forth
below;
FIFTH, to all other obligations which shall have become due and payable under the
Credit Documents and not repaid pursuant to clauses FIRST through FOURTH above; and
SIXTH, to the payment of the surplus, if any, to whomever may be lawfully entitled to
receive such surplus;
provided, that all amounts collected from the proceeds of Cash Collateral shall be
used to repay the Term Loans.
In carrying out the foregoing, (a) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category; (b) each of the
Lenders shall receive an amount equal to its pro rata share (based on the proportion that the then
outstanding Loans and LOC Obligations held by such Lender bears to the aggregate then outstanding
Loans and LOC Obligations), of amounts available to be applied; and (c) to the extent that any
amounts available for distribution pursuant to clause FOURTH above are attributable to the issued
but undrawn amount of outstanding Letters of Credit, such amounts shall be held by the Agent in a
cash collateral account and applied (i) first, to reimburse the Issuing Lender from time to time
for any drawings under such Letters of Credit and (ii) then, following the expiration of all
Letters of Credit, to all other obligations of the types described in clauses FOURTH, FIFTH and
SIXTH above in the manner provided in this Section 9.3.
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SECTION 10.
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints Wachovia Bank, National Association, as agent of
such Lender to act as specified herein and the other Credit Documents, and each such Lender hereby
authorizes the Agent, as the agent for such Lender, to take such action on its behalf under the
provisions of this Credit Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the other Credit
Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary elsewhere herein and in the other Credit Documents, the Agent shall
not have any duties or responsibilities, except those expressly set forth herein and therein, or
any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities,
duties, obligations or liabilities shall be read into this Credit Agreement or any of the other
Credit Documents, or shall otherwise exist against the Agent. The provisions of this Section are
solely for the benefit of the Agent and the Lenders and no Credit Party shall have any rights as a
third party beneficiary of the provisions hereof. In performing its functions and duties under
this Credit Agreement and the other Credit Documents, the Agent shall act solely as agent of the
Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship
of agency or trust with or for any Credit Party. All institutions acting as a Co-Syndication Agent
or Co-Documentation Agent hereunder shall have no obligations in such capacity under the Credit
Documents.
10.2 Delegation of Duties.
The Agent may execute any of its duties hereunder or under the other Credit Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible to the Lenders for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection herewith or in connection with any of the other Credit Documents
(except for its or such Persons own gross negligence or willful misconduct), or responsible in
any manner to any of the Lenders for any recitals, statements, representations or warranties made
by any Credit Party contained herein or in any of the other Credit Documents or in any certificate,
report, statement or other document referred to or provided for in, or received by the Agent under
or in connection herewith or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of any Credit Party
to perform its obligations hereunder or thereunder. The Agent shall not be responsible to any
Lender for the effectiveness, genuineness, validity, enforceability, collectibility or sufficiency
of this Credit Agreement, or any of the other Credit Documents or for any representations,
warranties, recitals or statements made herein or therein or made by any Credit Party in any
written or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith furnished or made by the
Agent to the Lenders or by or on behalf of any Credit Party to the Agent or any Lender or be
required to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any Default or Event of Default
or to inspect the
59
properties, books or records of any Credit Party. The Agent is not a trustee for the Lenders
and owes no fiduciary duty to the Lenders.
10.4 Reliance on Communications.
The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation, counsel to the
Credit Parties, independent accountants and other experts selected by the Agent with reasonable
care). The Agent may deem and treat the Lenders as the owner of its interests hereunder for all
purposes unless a written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent in accordance with Section 11.3(b). The Agent shall be fully justified in
failing or refusing to take any action under this Credit Agreement or under any of the other Credit
Documents unless it shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or under any of the other Credit Documents in accordance with a request of the
Required Lenders (or to the extent specifically provided in Section 11.6, all the Lenders) and such
request and any action taken or failure to act pursuant thereto shall be binding upon all the
Lenders (including their successors and assigns).
10.5 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Agent has received notice from a Lender or the Borrower
referring to the Credit Document, describing such Default or Event of Default and stating that such
notice is a notice of default. In the event that the Agent receives such a notice, the Agent
shall give prompt notice thereof to the Lenders. The Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required Lenders.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it
and that no act by the Agent or any Affiliate thereof hereinafter taken, including any review of
the affairs of the Credit Parties, shall be deemed to constitute any representation or warranty by
the Agent to any Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents and information as
it has deemed appropriate, made its own appraisal of and investigation into the business, assets,
operations, property, financial and other conditions, prospects and creditworthiness of the Credit
Parties and made its own decision to make its Extensions of Credit hereunder and enter into this
Credit Agreement. Each Lender also represents that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Credit Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Credit Parties. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent
shall not have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, assets, property,
60
financial or other conditions, prospects or creditworthiness of the Credit Parties which may
come into the possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
10.7 Indemnification.
Each Lender agrees to indemnify the Agent (including for purposes of this Section 10.7 the
Agent in its capacity as Issuing Lender) in its capacity as such (to the extent not reimbursed by
the Credit Parties and without limiting the obligation of the Credit Parties to do so), ratably
according to its Commitment Percentage, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including without limitation at any time following the payment in
full of the Credit Parties Obligations) be imposed on, incurred by or asserted against the Agent in
its capacity as such in any way relating to or arising out of this Credit Agreement or the other
Credit Documents or any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided, that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Agent. If any indemnity furnished to the Agent for any purpose shall, in the
opinion of the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until such additional
indemnity is furnished. The agreements in this Section 10.7 shall survive the payment of the
Obligations and all other amounts payable hereunder and under the other Credit Documents and the
termination of the Commitments.
10.8 Agent in Its Individual Capacity.
The Agent and its Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with a Credit Party as though the Agent were not Agent hereunder. With
respect to the Loans made, Letters of Credit issued and all Obligations owing to it, the Agent
shall have the same rights and powers under this Credit Agreement as any Lender and may exercise
the same as though it were not the Agent, and the terms Lender and Lenders shall include the
Agent in its individual capacity.
10.9 Successor Agent.
The Agent may, at any time, resign upon 30 days written notice to the Lenders and the
Borrower. Upon any such resignation, the Borrower with the consent of the Required Lenders (such
consent of the Required Lenders not to be unreasonably withheld or delayed) shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed and shall have
accepted such appointment within 30 days after the notice of resignation, then the retiring Agent
shall select a successor Agent provided such successor is a Lender hereunder or qualifies as an
Eligible Assignee (or if no Eligible Assignee shall have been so appointed by the retiring Agent
and shall have accepted such appointment, then the Lenders shall perform all obligations of the
retiring Agent hereunder until such time, if any, as a successor Agent shall have been appointed
and shall have accepted such appointment as provided for above). Upon the acceptance of any
appointment as Agent hereunder by a successor, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations as Agent, as appropriate, under
this Credit Agreement and the other Credit Documents and the provisions of this Section 10.9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under
this Credit Agreement.
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SECTION 11.
MISCELLANEOUS
11.1 Notices.
(a) Except as otherwise expressly provided herein, all notices and other communications
shall have been duly given and shall be effective (i) when delivered, (ii) when transmitted
via telecopy (or other facsimile device), (iii) the Business Day following the day on which
the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable
national overnight air courier service, or (iv) the third Business Day following the day on
which the same is sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on Schedule 11.1, or
at such other address as such party may specify by written notice to the other parties
hereto.
(b) Notwithstanding anything herein to the contrary, notices and other communications to the
Agent, the Lenders and the Credit Parties, may be delivered or furnished by electronic
communication (including email, Internet or intranet website) pursuant to procedures approved by
the Agent; provided that the certificate required to be delivered by Section 7.1(d) must be
delivered in original form.
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable law or otherwise, and not
by way of limitation of any such rights, upon the occurrence of an Event of Default and the
commencement of remedies described in Section 9.2, each Lender is authorized at any time and from
time to time, without presentment, demand, protest or other notice of any kind (all of which rights
being hereby expressly waived), to set-off and to appropriate and apply any and all deposits
(general or special) and any other indebtedness at any time held or owing by such Lender
(including, without limitation branches, agencies or Affiliates of such Lender wherever located) to
or for the credit or the account of the Borrower against obligations and liabilities of the
Borrower to the Lenders hereunder, under the Notes, the other Credit Documents or otherwise,
irrespective of whether the Agent or the Lenders shall have made any demand hereunder and although
such obligations, liabilities or claims, or any of them, may be contingent or unmatured, and any
such set-off shall be deemed to have been made immediately upon the occurrence of an Event of
Default even though such charge is made or entered on the books of such Lender subsequent thereto.
11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the parties
hereto; provided, that the Borrower may not assign and transfer any of its interests
without the prior written consent of the Lenders; and provided, further,
that the rights of each Lender to transfer, assign or grant participations in its rights
and/or obligations hereunder shall be limited as set forth below in this Section 11.3.
(b) Assignments. Each Lender may assign to one or more Eligible Assignees all
or a portion of its rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of its Loans, its Notes, its LOC Obligations and its
Commitment); provided, however, that:
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(i) each such assignment shall be to an Eligible Assignee;
(ii) all assignments of the Term Loans or the Original Revolving Committed
Amount must be pro rata among such Lenders Commitment with respect to the Term
Loans and Original Revolving Committed Amount.
(iii) except in the case of an assignment to another Lender or an assignment of
all of a Lenders rights and obligations under this Credit Agreement, any such
partial assignment shall be in an amount at least equal to $10,000,000 (or, if less,
the remaining amount of the Commitment (which for this purpose includes Loans and
LOC Obligations) being assigned by such Lender) and an integral multiple of
$1,000,000 in excess thereof; and
(iv) the parties to such assignment shall execute and deliver to the Agent for
its acceptance an Assignment Agreement in substantially the form of Exhibit
11.3(b), together with a processing fee from the assignor of $3,500.
Upon execution, delivery, and acceptance of such Assignment Agreement, the assignee thereunder
shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and
benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment,
relinquish its rights (except those rights hereunder which by their terms expressly survive) and be
released from its obligations under this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 11.3(b), the assignor, the Agent and the Borrower shall make appropriate
arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the
assignee is not incorporated under the laws of the United States of America or a state thereof, it
shall deliver to the Borrower and the Agent certification as to exemption from deduction or
withholding of taxes in accordance with Section 4.4.
By executing and delivering an assignment agreement in accordance with this Section 11.3(b),
the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree
with each other and the other parties hereto as follows: (A) such assigning Lender warrants that it
is the legal and beneficial owner of the interest being assigned thereby free and clear of any
adverse claim created by such assigning Lender and the assignee warrants that it is an Eligible
Assignee; (B) except as set forth in clause (A) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any statements, warranties
or representations made in or in connection with this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or thereto, or the
execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Credit Documents or any other instrument or document furnished pursuant
hereto or thereto or the financial condition of the Borrower or the performance or observance by
the Borrower of any of its obligations under this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or thereto; (C) such
assigning Lender and such assignee represents and warrants that it is legally authorized to enter
into such assignment agreement; (D) such assignee confirms that it has received a copy of this
Credit Agreement, the other Credit Documents and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into such assignment
agreement; (E) such assignee will independently and without reliance upon the Agent, such assigning
Lender or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under this Credit Agreement and the other Credit Documents; (F) such assignee appoints and
authorizes the Agent to take such action on its behalf and to exercise such powers under this
Credit Agreement or any other Credit Document as are delegated to the Agent by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto; and (G) such assignee
agrees that it will perform in accordance with their
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terms all the obligations which by the terms of this Credit Agreement and the other Credit
Documents are required to be performed by it as a Lender.
(c) Register. The Agent shall maintain a copy of each Assignment Agreement
delivered to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the Register). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Acceptance. Upon its receipt of an Assignment Agreement executed by the
parties thereto, together with any Note subject to such assignment and payment of the
processing fee, the Agent shall, if such Assignment Agreement has been completed and is in
substantially the form of Exhibit 11.3(b) hereto, (i) accept such Assignment
Agreement, (ii) record the information contained therein in the Register and (iii) give
prompt notice thereof to the parties thereto.
(e) Participations. Each Lender may sell participations to one or more Persons
in all or a portion of its rights, obligations or rights and obligations under this Credit
Agreement (including all or a portion of its Commitment, its Notes, its LOC Obligations and
its Loans); provided, however, that (i) such Lenders obligations under this
Credit Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) the participant
shall be entitled to the benefit of the yield protection provisions contained in Sections
4.1 through 4.4, inclusive, but shall not be entitled to receive any amount greater than
such Lender would have been able to receive, and (iv) the Borrower shall continue to deal
solely and directly with such Lender in connection with such Lenders rights and obligations
under this Credit Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans, its Notes and its LOC Obligations and to
approve any amendment, modification, or waiver of any provision of this Credit Agreement
(other than amendments, modifications, or waivers decreasing the amount of principal of or
the rate at which interest is payable on such Loans or Notes, extending any scheduled
principal payment date or date fixed for the payment of interest on such Loans or Notes, or
extending its Commitment).
(f) Nonrestricted Assignments. Notwithstanding any other provision set forth
in this Credit Agreement, any Lender may at any time assign and pledge all or any portion of
its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such
assignment shall release the assigning Lender from its obligations hereunder.
(g) Information. Subject to Section 11.17, any Lender may furnish any
information concerning the Borrower in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing between the
Borrower and the Agent or any Lender shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or under any other Credit Document
preclude any other or further exercise thereof or the
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exercise of any other right, power or privilege hereunder or thereunder. The rights and
remedies provided herein are cumulative and not exclusive of any rights or remedies which the Agent
or any Lender would otherwise have. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
11.5 Payment of Expenses, etc.
The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and expenses of the Agent
in connection with (A) the negotiation, preparation, execution and delivery, syndication and
administration of this Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable fees and expenses of
counsel to the Agent) and (B) any amendment, waiver or consent relating hereto and thereto
including, but not limited to, any such amendments, waivers or consents resulting from or related
to any work-out, renegotiation or restructure relating to the performance by the Borrower under
this Credit Agreement, (ii) pay all reasonable out-of-pocket costs and expenses of the Agent and
each Lender in connection with (A) enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, in connection with any such
enforcement, the reasonable fees and disbursements of counsel for the Agent and each of the Lenders
(including the allocated cost of internal counsel)) and (B) any bankruptcy or insolvency proceeding
of the Borrower and (iii) indemnify the Agent and each Lender, their respective Affiliates and the
respective officers, directors, employees, representatives and agents of the foregoing from and
hold each of them harmless against any and all losses, liabilities, claims, damages or expenses
incurred by any of them as a result of, or arising out of, or in any way related to, or by reason
of, any investigation, litigation or other proceeding (whether or not the Agent or any Lender is a
party thereto) related to the entering into and/or performance of any Credit Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the consummation of any
other transactions contemplated in any Credit Document, including, without limitation, the
reasonable fees and disbursements of counsel and settlement costs incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified).
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement, nor any other Credit Document nor any of the terms hereof or
thereof may be amended, changed, waived, discharged or terminated unless such amendment, change,
waiver, discharge or termination is in writing and signed by the Required Lenders and the Borrower
(and if the rights or duties of the Issuing Bank are affected thereby, by it); provided,
that no such amendment, change, waiver, discharge or termination shall without the consent of each
Lender affected thereby:
(a) extend the Maturity Date, or postpone or extend the time for any payment or
prepayment of principal (except pursuant to
Section 3.3(b)) or the time of payment of any
reimbursement obligation, or any portion thereof, arising from drawings under Letters of
Credit;
(b) reduce the rate or extend the time of payment of interest thereon or fees or other
amounts payable hereunder;
(c) reduce or waive the principal amount of any Loan or of any reimbursement
obligation, or any portion thereof, arising from drawings under Letters of Credit;
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(d) increase or extend the Commitment of a Lender (it being understood and agreed that
a waiver of any Default or Event of Default or a waiver of any mandatory reduction in the
Commitments shall not constitute a change in the terms of any Commitment of any Lender);
(e) consent to the assignment or transfer by the Borrower of any of its rights and
obligations under (or in respect of) the Credit Documents or release the Borrower from its
obligations under the Credit Documents;
(f) amend, modify or waive any provision of this Section 11.6 or Section 3.6, 3.8, 5.2,
9.1(a), 11.2, 11.3 or 11.5;
(g) reduce any percentage specified in, or otherwise modify, the definition of Required
Lenders;
(h) release the Cash Collateral except as specifically permitted hereunder and by the
Collateral Documents; or
(i) release the Parent from its obligations under the Credit Documents or release all
or substantially all of the other Guarantors from their obligations.
No provision of Section 10 may be amended or modified without the consent of the Agent.
No provision of Section 2.2 may be amended or modified without the consent of each Issuing Lender
affected thereby.
No provision of Section 2.8 may be amended or modified without the consent of the Swingline Lender.
Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances
as set forth above, (x) each Lender is entitled to vote as such Lender sees fit on any
reorganization plan that affects the Loans or the Letters of Credit, and each Lender acknowledges
that the provisions of Section 1126(c) of the Bankruptcy Code supersede the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to allow the Borrower to use
cash collateral in the context of a bankruptcy or insolvency proceeding.
11.7 Counterparts/Telecopy.
This Credit Agreement may be executed in any number of counterparts, each of which where so
executed and delivered shall be an original, but all of which shall constitute one and the same
instrument. Delivery of executed counterparts by telecopy shall be as effective as an original and
shall constitute a representation that an original will be delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for convenience only and
shall not in any way affect the meaning or construction of any provision of this Credit Agreement.
11.9 Defaulting Lender.
Each Lender understands and agrees that if such Lender is a Defaulting Lender then it shall
not be entitled to vote on any matter requiring the consent of the Required Lenders or to object to
any matter
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requiring the consent of all the Lenders; provided, however, that (a) a
Lenders Commitment may not be increased without its consent whether or not it is a Defaulting
Lender and (b) all other benefits and obligations under the Credit Documents shall apply to such
Defaulting Lender.
11.10 Survival of Indemnification and Representations and Warranties.
All indemnities set forth herein and all representations and warranties made herein shall
survive the execution and delivery of this Credit Agreement, the making of the Loans, the issuance
of the Letters of Credit and the repayment of the Loans, LOC Obligations and other obligations and
the termination of the Commitments hereunder.
11.11 Governing Law; Venue.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Any legal action or proceeding with
respect to this Credit Agreement or any other Credit Document may be brought in the courts
of the State of New York, or of the United States for the Southern District of New York,
and, by execution and delivery of this Credit Agreement, the Borrower hereby irrevocably
accepts for itself and in respect of its property, generally and unconditionally, the
jurisdiction of such courts. The Borrower further irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to it at the
address for notices pursuant to Section 11.1, such service to become effective 30 days after
such mailing. Nothing herein shall affect the right of a Lender to serve process in any
other manner permitted by law or to commence legal proceedings or to otherwise proceed
against the Borrower in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Credit Agreement or any other Credit Document brought in the courts
referred to in subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum.
11.12 Waiver of Jury Trial; Waiver of Consequential Damages.
EACH OF THE PARTIES TO THIS CREDIT AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT,
ANY OF THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY. The Borrower agrees not
to assert any claim against the Agent, any Lender, any of their Affiliates, or any of their
respective directors, officers, employees, attorneys or agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise relating to any of
the transactions contemplated hereby or by the other Credit Documents.
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11.13 Severability.
If any provision of any of the Credit Documents is determined to be illegal, invalid or
unenforceable, such provision shall be fully severable and the remaining provisions shall remain in
full force and effect and shall be construed without giving effect to the illegal, invalid or
unenforceable provisions.
11.14 Further Assurances.
The Borrower agrees, upon the request of the Agent, to promptly take such actions, as
reasonably requested, as are necessary to carry out the intent of this Credit Agreement and the
other Credit Documents.
11.15 Entirety.
This Credit Agreement together with the other Credit Documents represent the entire agreement
of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or
written, if any, including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.
11.16 Binding Effect; Continuing Agreement.
(a) This Credit Agreement shall become effective at such time when all of the
conditions set forth in Section 5.1 have been satisfied or waived by the Lenders and it
shall have been executed by the Borrower, the Agent and the Lenders, and thereafter this
Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Agent
and each Lender and their respective successors and permitted assigns.
(b) This Credit Agreement shall be a continuing agreement and shall remain in full
force and effect until all Loans, LOC Obligations, interest, fees and other Obligations have
been paid in full and all Commitments and Letters of Credit have been terminated. Upon such
termination, the Borrower shall have no further obligations (other than those provisions
that expressly survive the termination thereof) under the Credit Documents;
provided, that should any payment, in whole or in part, of the Obligations be
rescinded or otherwise required to be restored or returned by the Agent or any Lender,
whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then
the Credit Documents shall automatically be reinstated and all amounts required to be
restored or returned and all costs and expenses incurred by the Agent or any Lender in
connection therewith shall be deemed included as part of the Obligations.
11.17 Confidentiality; USA PATRIOT Act.
(a) The Agent and each Lender will keep any information delivered or made available by
the Borrower pursuant to this Credit Agreement confidential from anyone other than persons
employed or retained by the Agent or such Lender and its Affiliates who are engaged in
evaluating, approving, structuring or administering this Credit Agreement; provided,
that the Agent and the Lenders shall be entitled to disclose such information (a) to any
other Lender or to the Agent, (b) upon the order of any court or administrative agency, (c)
upon the request or demand of any regulatory agency or authority, (d) which had been
publicly disclosed other than as a result of a disclosure by the Agent or any Lender
prohibited by this Agreement, (e) in connection with any litigation to which the Agent, any
Lender or its subsidiaries or parent may be a party, (f) to the extent necessary in
connection with the exercise of any remedy under this Agreement, (g) to such Lenders
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or Agents legal counsel and independent auditors and (h) subject to provisions
substantially similar to this Section 11.17, to any actual or proposed participant or
assignee.
(b) Each Lender hereby notifies the Borrower that pursuant to the requirements of the
USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the
Patriot Act), it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in accordance with
the Patriot Act.
SECTION 12.
GUARANTY
12.1 The Guaranty.
Each of the Guarantors hereby jointly and severally guarantees to each Lender, each Affiliate
of a Lender that enters into a Credit Facility Swap Contract or a Treasury Management Agreement
with a Credit Party, and the Administrative Agent as hereinafter provided, as primary obligor and
not as surety, the prompt payment of the Obligations in full when due (whether at stated maturity,
as a mandatory prepayment, by acceleration, as a mandatory cash collateralization or otherwise)
strictly in accordance with the terms thereof. The Guarantors hereby further agree that if any of
the Obligations are not paid in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or otherwise), the Guarantors
will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and
that in the case of any extension of time of payment or renewal of any of the Obligations, the same
will be promptly paid in full when due (whether at extended maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) in accordance with the terms of
such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any other of the Credit
Documents, Credit Facility Swap Contracts or Treasury Management Agreements, the obligations of
each Guarantor under this Agreement and the other Credit Documents shall be limited to an aggregate
amount equal to the largest amount that would not render such obligations subject to avoidance
under the Bankruptcy Code or any comparable provisions of any applicable state law.
12.2 Obligations Unconditional.
The obligations of the Guarantors under Section 12.1 are joint and several, absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of
any of the Credit Documents, Credit Facility Swap Contracts or Treasury Management Agreements, or
any other agreement or instrument referred to therein, or any substitution, release, impairment or
exchange of any other guarantee of or security for any of the Obligations, and, to the fullest
extent permitted by applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being
the intent of this Section 12.2 that the obligations of the Guarantors hereunder shall be absolute
and unconditional under any and all circumstances. Each Guarantor agrees that such Guarantor shall
have no right of subrogation, indemnity, reimbursement or contribution against either the Borrower
or any other Guarantor for amounts paid under this Section 12 until such time as the Obligations
have been paid in full and the Commitments have expired or terminated. Without limiting the
generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the liability of any
Guarantor hereunder, which shall remain
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absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any Guarantor, the time for any
performance of or compliance with any of the Obligations shall be extended, or such
performance or compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of the Credit Documents,
any Credit Facility Swap Contract or Treasury Management Agreement between Credit Party and
any Lender, or any Affiliate of a Lender, or any other agreement or instrument referred to
in the Credit Documents, such Credit Facility Swap Contracts or such Treasury Management
Agreements shall be done or omitted;
(c) the maturity of any of the Obligations shall be accelerated, or any of the
Obligations shall be modified, supplemented or amended in any respect, or any right under
any of the Credit Documents, any Credit Facility Swap Contract or Treasury Management
Agreement between any Credit Party and any Lender, or any Affiliate of a Lender, or any
other agreement or instrument referred to in the Credit Documents, such Credit Facility Swap
Contracts or such Treasury Management Agreements shall be waived or any other guarantee of
any of the Obligations or any security therefor shall be released, impaired or exchanged in
whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Administrative Agent or any Lender or
Lenders as security for any of the Obligations shall fail to attach or be perfected; or
(e) any of the Obligations shall be determined to be void or voidable (including,
without limitation, for the benefit of any creditor of any Guarantor) or shall be
subordinated to the claims of any Person (including, without limitation, any creditor of any
Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly waives diligence,
presentment, demand of payment, protest and all notices whatsoever, and any requirement that the
Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Person
under any of the Credit Documents, any Credit Facility Swap Contract or any Treasury Management
Agreement between any Credit Party and any Lender, or any Affiliate of a Lender, or any other
agreement or instrument referred to in the Credit Documents, such Credit Facility Swap Contracts or
such Treasury Management Agreements, or against any other Person under any other guarantee of, or
security for, any of the Obligations.
12.3 Reinstatement.
The obligations of the Guarantors under this Section 12 shall be automatically reinstated if
and to the extent that for any reason any payment by or on behalf of any Person in respect of the
Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations,
whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and each
Guarantor agrees that it will indemnify the Administrative Agent and each Lender on demand for all
reasonable costs and expenses (including, without limitation, the reasonable fees, charges and
disbursements of counsel) incurred by the Administrative Agent or such Lender in connection with
such rescission or restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent transfer or similar
payment under any bankruptcy, insolvency or similar law.
12.4 Certain Additional Waivers.
Each Guarantor further agrees that such Guarantor shall have no right of recourse to security
for the
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Obligations, except through the exercise of rights of subrogation pursuant to Section 12.2 and
through the exercise of rights of contribution pursuant to Section 12.6.
12.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors,
on the one hand, and the Administrative Agent and the Lenders, on the other hand, the Obligations
may be declared to be forthwith due and payable as provided in Section 9.2 (and shall be deemed to
have become automatically due and payable in the circumstances provided in said Section 9.2) for
purposes of Section 12.1 notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Obligations being deemed to
have become automatically due and payable), the Obligations (whether or not due and payable by any
other Person) shall forthwith become due and payable by the Guarantors for purposes of Section
12.1. The Guarantors acknowledge and agree that their obligations hereunder are secured in
accordance with the terms hereof and of the Collateral Documents and that the Lenders may exercise
their remedies thereunder in accordance with the terms thereof.
12.6 Rights of Contribution.
The Guarantors agree among themselves that, in connection with payments made hereunder, each
Guarantor shall have contribution rights against the other Guarantors as permitted under applicable
law. Such contribution rights shall be subordinate and subject in right of payment to the
obligations of such Guarantors under the Credit Documents and no Guarantor shall exercise such
rights of contribution until all Obligations have been paid in full and the Commitments have
terminated.
12.7 Guarantee of Payment; Continuing Guarantee.
The guarantee in this Section 12 is a guaranty of payment and not of collection, is a
continuing guarantee, and shall apply to all Obligations whenever arising.
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Each of the parties hereto has caused a counterpart of this Credit Agreement to be duly
executed and delivered as of the date first above written.
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DCP MIDSTREAM OPERATING, LP |
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DCP Midstream Operating, LLC its General Partner
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DCP Midstream Partners, LP its Sole Member |
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DCP Midstream GP, LP its General Partner |
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DCP Midstream GP, LLC its General Partner |
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GUARANTORS: |
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DCP MIDSTREAM PARTNERS, LP |
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By:
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DCP Midstream GP, LP its General Partner |
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By:
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DCP Midstream GP, LLC its General Partner |
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By: |
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Michael J. Bradley |
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President and Chief Executive Officer |
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[others] |
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LENDERS:
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WACHOVIA BANK, NATIONAL
ASSOCIATION, as Agent and as a Lender |
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By: |
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Name: |
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SUNTRUST BANK, as a Lender
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Name: |
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4
exv10w2
Exhibit 10.2
DCP MIDSTREAM PARTNERS, LP
LONG-TERM INCENTIVE PLAN
SECTION 1. Purpose of the Plan.
The DCP Midstream Partners, LP Long-Term Incentive Plan (the Plan) has been adopted by DCP
Midstream GP, LLC, a Delaware limited liability company (the Company), the general partner of DCP
Midstream GP, LP, a Delaware limited partnership (the General Partner) which is the general
partner of DCP Midstream Partners, LP, a Delaware limited partnership (the Partnership), and is
intended to promote the interests of the Partnership and the Company by providing to Employees,
Consultants and Directors incentive compensation awards for superior performance that are based on
Units. The Plan is also contemplated to enhance the ability of the Company, the Partnership and
their Affiliates to attract and retain the services of individuals who are essential for the growth
and profitability of the Partnership and to encourage them to devote their best efforts to
advancing the business of the Partnership.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth below:
Affiliate means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with, the
Person in question. As used herein, the term control means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
Award means an Option, Restricted Unit, Phantom Unit, Substitute Award or DERs granted under
the Plan.
Award Agreement means the written or electronic agreement by which an Award shall be
evidenced.
Board means the Board of Directors of the Company.
Committee means the Board, the Compensation Committee of the Board or such other committee
as may be appointed by the Board to administer the Plan.
Consultant means an individual, other than an Employee or a Director, who provides services
to the Company, the Partnership or an Affiliate.
DER means a contingent right to receive an amount in cash equal to the cash distributions
made by the Partnership with respect to a Unit during the period such Award is outstanding.
Director means a member of the Board who is not an Employee or a Consultant.
Employee means an employee of the Company or an Affiliate.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value means the closing sales price of a Unit on the applicable date (or if
there is no trading in the Units on such date, on the next preceding date on which there was
trading) as reported in The Wall Street Journal (or other reporting service approved by the
Committee). In the event Units are not traded on a national securities market at the time a
determination of fair market value is required to be made hereunder, the determination of fair
market value shall be made in good faith by the Committee.
Option means an option to purchase Units granted under the Plan.
Participant means an Employee, Consultant or Director granted an Award under the Plan.
Partnership Agreement means the Amended and Restated Agreement of Limited Partnership of DCP
Midstream Partners, LP, as it may be amended or amended and restated from time to time.
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.
Phantom Unit means a phantom (notional) Unit granted under the Plan which upon vesting
entitles the Participant to receive a Unit or an amount of cash equal to the Fair Market Value of a
Unit, as determined by the Committee in its discretion.
Restricted Period means the period established by the Committee with respect to an Award
during which the Award remains subject to forfeiture and is either not exercisable by or payable to
the Participant, as the case may be.
Restricted Unit means a Unit granted under the Plan that is subject to a Restricted Period.
Rule 16b-3 means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor
rule or regulation thereto as in effect from time to time.
SEC means the Securities and Exchange Commission, or any successor thereto.
Substitute Award means an award granted pursuant to Section 6(d)(viii) of the Plan.
UDR means a distribution made by the Partnership with respect to a Restricted Unit.
Unit means a Common Unit of the Partnership.
-2-
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the Committee shall constitute
a quorum, and the acts of the members of the Committee who are present at any meeting thereof at
which a quorum is present, or acts unanimously approved by the members of the Committee in writing,
shall be the acts of the Committee. Subject to the following and applicable law, the Committee, in
its sole discretion, may delegate any or all of its powers and duties under the Plan, including the
power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to
such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any
such delegation all references in the Plan to the Committee, other than in Section 7, shall be
deemed to include the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive Officers right to receive Awards under the Plan. Notwithstanding the
foregoing, the Chief Executive Officer may not grant Awards to, or take any action with respect to
any Award previously granted to, a person who is an officer subject to Rule 16b-3 or a member of
the Board. Subject to the terms of the Plan and applicable law, and in addition to other express
powers and authorizations conferred on the Committee by the Plan, the Committee shall have full
power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to
be granted to a Participant; (iii) determine the number of Units to be covered by Awards; (iv)
determine the terms and conditions of any Award; (v) determine whether, to what extent, and under
what circumstances Awards may be settled, exercised, canceled, or forfeited; (vi) interpret and
administer the Plan and any instrument or agreement relating to an Award made under the Plan; (vii)
establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (viii) make any other determination
and take any other action that the Committee deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or an Award Agreement in such manner and extent the Committee deems
necessary or appropriate. Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to the Plan or any Award
shall be within the sole discretion of the Committee, may be made at any time and shall be final,
conclusive, and binding upon all Persons, including the Company, the Partnership, any Affiliate,
any Participant, and any beneficiary of any Award.
SECTION 4. Units.
(a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c),
the number of Units that may be delivered with respect to Awards under the Plan is 850,000. Units
withheld from an Award to satisfy the Companys minimum tax withholding obligations with respect to
the Award shall not be considered to be Units delivered under the Plan for this purpose. If any
Award is forfeited, cancelled, exercised or otherwise terminates or expires without the actual
delivery of Units pursuant or with respect to such Award, the Units subject to such Award shall
again be available for Awards under the Plan. There shall not be any limitation on the number of
Awards that may be granted and paid in cash.
(b) Sources of Units Deliverable Under Awards. Any Units delivered pursuant to an
Award shall consist, in whole or in part, of Units acquired in the open market, from any Affiliate,
-3-
the Partnership or any other Person, or any combination of the foregoing, as determined by the
Committee in its discretion.
(c) Adjustments. In the event of any distribution (whether in the form of cash,
Units, other securities, or other property), recapitalization, split, reverse split,
reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of
Units or other securities of the Partnership, issuance of warrants or other rights to purchase
Units or other securities of the Partnership, or other similar transaction or event, the Committee
shall, in such manner as it may deem equitable, adjust the number and type of Units (or other
securities or property) with respect to which Awards may be granted.
SECTION 5. Eligibility.
Any Employee, Consultant or Director shall be eligible to be designated a Participant and
receive an Award under the Plan.
SECTION 6. Awards.
(a) Options. The Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Options shall be granted, the number of Units to be covered by
each Option, the purchase price therefor and the Restricted Period and other conditions and
limitations applicable to the exercise of the Option, including the following terms and conditions
and such additional terms and conditions, as the Committee shall determine, that are not
inconsistent with the provisions of the Plan.
(i) Exercise Price. The exercise price per Unit purchasable under an Option
shall be determined by the Committee at the time the Option is granted but, except with
respect to a Substitute Award, may not be less than its Fair Market Value as of the date of
grant.
(ii) Time and Method of Exercise. The Committee shall determine the Restricted
Period with respect to an Option grant, which may include, without limitation, the provision
for accelerated vesting upon the achievement of specified performance goals or other events,
and the method or methods by which payment of the exercise price with respect thereto may be
made or deemed to have been made, which may include, without limitation, cash, check
acceptable to the Company, a cashless-broker exercise through procedures, including
limitations, approved by the Company, withholding Units from the Award upon exercise, or any
combination of methods, having a Fair Market Value on the exercise date equal to the
relevant exercise price.
(iii) Forfeitures. Except as otherwise provided in the terms of the Option
grant, upon termination of a Participants employment with or consulting services to the
Company and its Affiliates or membership on the Board, whichever is applicable, for any
reason during the applicable Restricted Period, all Options shall be forfeited by the
Participant. The Committee may, in its discretion, waive in whole or in part such
forfeiture with respect to a Participants Options.
-4-
(b) Restricted Units and Phantom Units. The Committee shall have the authority to
determine the Employees, Consultants and Directors to whom Restricted Units or Phantom Units shall
be granted, the number of Restricted Units or Phantom Units to be granted to each such Participant,
the Restricted Period, the conditions under which the Restricted Units or Phantom Units may become
vested or forfeited and such other terms and conditions as the Committee may establish with respect
to such Awards.
(i) UDRs. To the extent provided by the Committee, in its discretion, a grant
of Restricted Units may provide that distributions made by the Partnership with respect to
the Restricted Units shall be subject to the same forfeiture and other restrictions as the
Restricted Unit and, if restricted, such distributions shall be held, without interest,
until the Restricted Unit vests or is forfeited with the UDR being paid or forfeited at the
same time, as the case may be. Absent such a restriction on the UDRs in the grant
agreement, UDRs shall be paid to the holder of the Restricted Unit without restriction.
(ii) Forfeitures. Except as otherwise provided in the terms of the Restricted
Units or Phantom Units grant, upon termination of a Participants employment with or
consulting services to the Company and its Affiliates or membership on the Board, whichever
is applicable, for any reason during the applicable Restricted Period, all outstanding
Restricted Units and Phantom Units awarded the Participant shall be automatically forfeited
on such termination. The Committee may, in its discretion, waive in whole or in part such
forfeiture with respect to a Participants Restricted Units and/or Phantom Units.
(iii) Lapse of Restrictions.
(A) Phantom Units. Upon or as soon as reasonably practical following
the vesting of each Phantom Unit, subject to the provisions of Section 8(b), the
Participant shall be entitled to receive from the Company one Unit or cash equal to
the Fair Market Value of a Unit, as determined by the Committee in its discretion.
(B) Restricted Units. Upon or as soon as reasonably practical
following the vesting of each Restricted Unit, subject to satisfying the tax
withholding obligations of Section 8(b), the Participant shall be entitled to have
the restrictions removed from his or her Unit certificate so that the Participant
then holds an unrestricted Unit.
(c) DERs. The Committee shall have the authority to determine the Employees,
Consultants and Directors to whom DERs are granted, whether such DERs are tandem or separate
Awards, whether the DERs shall be paid directly to the Participant, be credited to a bookkeeping
account (with or without interest in the discretion of the Committee) the vesting restrictions
applicable to the Award, and such other provisions or restrictions as determined by the Committee
in its discretion.
-5-
(d) General.
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in tandem with, or
in substitution for any other Award granted under the Plan or any award granted under any
other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with
other Awards or awards granted under any other plan of the Company or any Affiliate may be
granted either at the same time as or at a different time from the grant of such other
Awards or awards.
(ii) Limits on Transfer of Awards.
(A) Except as provided in Paragraph (C) below, each Option shall be exercisable
only by the Participant during the Participants lifetime, or by the person to whom
the Participants rights shall pass by will or the laws of descent and distribution.
(B) Except as provided in Paragraph (C) below, no Award and no right under any
such Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company, the Partnership or any Affiliate.
(C) To the extent specifically provided by the Committee with respect to an
Option, an Option may be transferred by a Participant without consideration to
immediate family members or related family trusts, limited partnerships or similar
entities or on such terms and conditions as the Committee may from time to time
establish.
(iii) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee.
(iv) Unit Certificates. All certificates for Units or other securities of the
Partnership delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other requirements of the SEC, any
stock exchange upon which such Units or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(v) Consideration for Grants. Awards may be granted for such consideration,
including services, as the Committee determines.
(vi) Delivery of Units or other Securities and Payment by Participant of
Consideration. Notwithstanding anything in the Plan or any grant agreement to the
contrary, delivery of Units pursuant to the exercise or vesting of an Award may be deferred
for any period during which, in the good faith determination of the Committee, the Company
is not reasonably able to obtain Units to deliver pursuant to such Award
-6-
without violating the rules or regulations of any applicable law or securities
exchange. No Units or other securities shall be delivered pursuant to any Award until
payment in full of any amount required to be paid pursuant to the Plan or the applicable
Award grant agreement (including, without limitation, any exercise price or tax withholding)
is received by the Company.
(vii) Substitute Awards. Awards may be granted under the Plan in substitution
of similar awards held by individuals who become Employees, Consultants or Directors as a
result of a merger, consolidation or acquisition by the Company or an Affiliate of another
entity or the assets of another entity. Such Substitute Awards that are Options may have
exercise prices less than the Fair Market Value of a Unit on the date of such substitution.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law:
(a) Amendments to the Plan. Except as required by the rules of the principal
securities exchange on which the Units are traded and subject to Section 7(b) below, the
Board may amend, alter, suspend, discontinue, or terminate the Plan in any manner, including
increasing the number of Units available for Awards under the Plan, without the consent of
any partner, Participant, other holder or beneficiary of an Award, or any other Person.
(b) Amendments to Awards. Subject to Section 7(a), the Committee may waive any
conditions or rights under, amend any terms of, or alter any Award theretofore granted,
provided no change, other than pursuant to Section 7(c), in any Award shall materially
reduce the benefit to Participant without the consent of such Participant.
(c) Actions Upon the Occurrence of Certain Events. In connection with any
event described in Section 4(c) of the Plan, or a Change of Control, any changes in
applicable laws, regulations, or accounting principles affecting the financial statements of
the Partnership, the Committee, in its sole discretion and on such terms and conditions as
it deems appropriate, may take any one or more of the following actions in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available
under the Plan or an outstanding Award:
(A) provide for either (i) the termination of any Award in exchange for an
amount of cash, if any, equal to the amount that would have been attained upon the
exercise of such Award or realization of the Participants rights (and, for the
avoidance of doubt, if as of the date of the occurrence of such transaction or event
the Committee determines in good faith that no amount would have been attained upon
the exercise of such Award or realization of the Participants rights, then such
Award may be terminated by the Company without payment) or (ii) the replacement of
such Award with other rights or property selected by the Committee in its sole
discretion;
-7-
(B) provide that such Award be assumed by the successor or survivor entity, or
a parent or subsidiary thereof, or be substituted for by similar options, rights or
awards covering the equity of the successor or survivor, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of equity interests
and prices;
(C) make adjustments in the number and type of Units (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding
Awards and/or in the terms and conditions of (including the exercise price), and the
vesting/performance criteria included in, outstanding Awards;
(D) provide that such Award shall be exercisable or payable, notwithstanding
anything to the contrary in the Plan or the applicable Award Agreement; and
(E) provide that the Award cannot be exercised or become payable after such
event, i.e., shall terminate upon such event.
SECTION 8. General Provisions.
(a) No Rights to Award. No Person shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and
conditions of Awards need not be the same with respect to each recipient.
(b) Tax Withholding. Unless other arrangements have been made that are acceptable to
the Company, the Company or any Affiliate is authorized to withhold from any Award, from any
payment due or transfer made under any Award or from any compensation or other amount owing to a
Participant the amount (in cash, Units, Units that would otherwise be issued pursuant to such Award
or other property) of any applicable taxes payable in respect of the grant of an Award, its
exercise, the lapse of restrictions thereon, or any payment or transfer under an Award or under the
Plan and to take such other action as may be necessary in the opinion of the Company to satisfy its
withholding obligations for the payment of such taxes.
(c) No Right to Employment or Services. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or any Affiliate,
continue consulting services or to remain on the Board, as applicable. Further, the Company or an
Affiliate may at any time dismiss a Participant from employment or consulting free from any
liability or any claim under the Plan, unless otherwise expressly provided in the Plan, any Award
agreement or other agreement.
(d) Governing Law. The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the laws of the State
of Delaware without regard to its conflict of laws principles.
(e) Severability. If any provision of the Plan or any Award is or becomes or is
deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed applicable by the
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Compensation Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, person or award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any Units or other
consideration under an Award if, in its sole discretion, it determines that the issuance or
transfer of such Units or such other consideration might violate any applicable law or regulation,
the rules of the principal securities exchange on which the Units are then traded, or entitle the
Partnership or an Affiliate to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in connection with
the exercise of such Award shall be promptly refunded to the relevant Participant, holder or
beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be
construed to create a trust or separate fund of any kind or a fiduciary relationship between the
Company or any participating Affiliate and a Participant or any other Person. To the extent that
any Person acquires a right to receive payments from the Company or any participating Affiliate
pursuant to an Award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating Affiliate.
(h) No Fractional Units. No fractional Units shall be issued or delivered pursuant to
the Plan or any Award, and the Committee shall determine whether cash, other securities, or other
property shall be paid or transferred in lieu of any fractional Units or whether such fractional
Units or any rights thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the Plan solely
as a convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.
(j) Facility Payment. Any amounts payable hereunder to any person under legal
disability or who, in the judgment of the Committee, is unable to properly manage his financial
affairs, may be paid to the legal representative of such person, or may be applied for the benefit
of such person in any manner which the Committee may select, and the Company shall be relieved of
any further liability for payment of such amounts.
(k) Participation by Affiliates. In making Awards to Employees employed by an entity
other than by the Company, the Committee shall be acting on behalf of the Affiliate, and to the
extent the Partnership has an obligation to reimburse the Company for compensation paid for
services rendered for the benefit of the Partnership, such payments or reimbursement payments may
be made by the Partnership directly to the Affiliate, and, if made to the Company, shall be
received by the Company as agent for the Affiliate.
(l) Gender and Number. Words in the masculine gender shall include the feminine
gender, the plural shall include the singular and the singular shall include the plural.
-9-
(m) Compliance with Section 409A. Nothing in the Plan or any Award Agreement shall
operate or be construed to cause the Plan or an Award to fail to comply with the requirements of
Section 409A of the Internal Revenue Code. The applicable provisions of Section 409A and the
regulations thereunder are hereby incorporated by reference and shall control over any Plan or
Award Agreement provision in conflict therewith.
SECTION 9. Term of the Plan.
The Plan shall be effective on the date of its approval by the Board and shall continue until
the earliest of (i) the date terminated by the Board, (ii) all Units available under the Plan have
been paid to Participants, or (iii) the 10th anniversary of the date the Plan is approved by the
unitholders of the Company. However, unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted prior to such termination, and the authority of the
Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive
any conditions or rights under such Award, shall extend beyond such termination date.
-10-
exv10w3
Exhibit 10.3
CONTRIBUTION, CONVEYANCE
AND ASSUMPTION AGREEMENT
THIS CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT, dated as of December ___, 2005,
is entered into by and among DCP MIDSTREAM PARTNERS, LP, a Delaware limited partnership
(MLP), DCP MIDSTREAM OPERATING, LP, a Delaware limited partnership (OLP), DCP
MIDSTREAM GP, LLC, a Delaware limited liability company (DCP GP LLC), DCP MIDSTREAM GP,
LP, a Delaware limited partnership (DCP GP LP), DUKE ENERGY FIELD SERVICES, LLC, a
Delaware limited liability company (DEFS), DEFS HOLDINGS 1, LLC (formerly named DEFS
Holding 1 LLC), a Delaware limited liability company (DEFS Holdings 1), DEFS HOLDINGS 2,
LLC (formerly named DEFS Holding, LLC), a Delaware limited liability company (DEFS Holdings
2), DCP ASSETS HOLDINGS, LP (formerly named DEFS Assets Holding, LP), a Delaware limited
partnership (DCP Assets Holdings), DCP ASSETS HOLDINGS GP, LLC, a Delaware limited
liability company (DCP Assets Holdings GP), DUKE ENERGY NGL SERVICES, LP, a Delaware
limited partnership (DENGL), DCP BLACK LAKE HOLDINGS, LLC, a Delaware limited liability
company (Black Lake Holdings), DCP LP HOLDINGS, LP, a Delaware limited partnership
(DCP LP Holdings), and DUKE ENERGY GUADALUPE PIPELINE HOLDINGS, INC., a Delaware
corporation (Guadalupe Holdings). The parties to this agreement are collectively
referred to herein as the Parties. Capitalized terms used herein shall have the meanings
assigned to such terms in Section 1.1.
RECITALS
WHEREAS, DEFS and DCP GP LP have formed MLP, pursuant to the Delaware Revised Uniform Limited
Partnership Act (the Delaware Act), for the purpose of engaging in any business activity
that is approved by DCP GP LP and that lawfully may be conducted by a limited partnership organized
pursuant to the Delaware Act.
WHEREAS, in order to accomplish the objectives and purposes in the preceding recital, the
following actions have been taken prior to the date hereof:
1. DEFS formed DCP GP LLC, under the terms of the Delaware Limited Liability Company Act (the
Delaware LLC Act), and contributed $1,000 in exchange for all of the member interests in
DCP GP LLC.
2. DCP GP LLC and DEFS formed DCP GP LP, under the terms of the Delaware Act, to which DCP GP
LLC contributed $0.01 and DEFS contributed $999.99 in exchange for a 0.001% general partner
interest and 99.999% limited partner interest, respectively.
3. DCP GP LP and DEFS formed MLP, under the terms of the Delaware Act, to which DCP GP LP
contributed $40 and DEFS contributed $1,960 in exchange for a 2% general partner interest and 98%
limited partner interest, respectively.
4. MLP formed DCP Midstream Operating, LLC, a Delaware limited liability company (OLP
GP), under the terms of the Delaware LLC Act, and contributed $1,000 in exchange for all of
the member interests in OLP GP.
5. OLP GP and MLP formed OLP, under the terms of the Delaware Act, to which OLP GP contributed
$0.01 and MLP contributed $999.99 in exchange for a 0.001% general partner interest and 99.999%
limited partner interest, respectively.
6. DEFS Holdings 2 formed DCP Assets Holdings GP under the terms of the Delaware LLC Act, and
contributed $1,000 in exchange for all of the member interests in DCP Assets GP Holdings.
7. DEFS formed Guadalupe Holdings, under the terms of the Delaware General Corporation Law
(the Delaware Law), and contributed $1,000 in exchange for all of the stock in Guadalupe
Holdings.
8. DEFS and Guadalupe Holdings formed DCP LP Holdings, under the terms of the Delaware Act, to
which DEFS contributed $500 and Guadalupe Holdings contributed $500 in exchange for a 50% general
partner interest and 50% limited partner interest, respectively.
9. DENGL formed Black Lake Holding, under the terms of the Delaware LLC Act, and contributed
$1,000 in exchange for all of the member interests in Black Lake Holding.
WHEREAS, concurrently with the consummation of the transactions contemplated hereby, each of
the following matters shall occur:
1. DCP Assets Holdings will distribute all of its stock in Duke Energy Guadalupe Pipeline,
Inc., a Delaware corporation (DEGP), and its member interests in (a) Discovery Producer
Services, LLC, a Delaware limited liability company (Discovery), (b) PanEnergy Dauphin
Island LLC, a Delaware limited liability company (PanEnergy), (c) Gulf Coast NGL
Pipeline, LLC, a Delaware limited liability company (Gulf Coast), (d) Centana Gathering
LLC, a Delaware limited liability company (Centana), (e) DEFS Industrial Gas Co. LLC, a
Delaware limited liability company (DIGC), and (f) Centana Intrastate Pipeline LLC, a
Delaware limited liability company (CIP), to DEFS (of which 0.5% of each of these
distributions will be made to DEFS on behalf of DEFS Holdings 2).
2. DEFS will convey all of its stock in DEGP to Guadalupe Holdings as a capital contribution.
3. DEGP will file a certificate of conversion under Delaware Law to convert into a Delaware
limited liability company named Duke Energy Guadalupe Pipeline, LLC (DEGP LLC).
4. Gas Supply Resources Inc., a Texas corporation (Resources), and GSRI
Transportation Inc., a Texas corporation (Transportation), each will file articles of
conversion under the Texas Business Corporation Act (TBCA) to convert into Texas limited
2
liability companies, named Gas Supply Resources LLC (Resources LLC), and GSRI
Transportation LLC (Transportation LLC), respectively.
5. DCP Assets Holdings and all of its subsidiaries will distribute approximately $[39.3]
million of its working capital assets, consisting of cash and accounts receivable to DEFS [flows
through intermediaries].
6. DEFS Holdings 2 will convey its 0.5% general partner interest in DCP Assets Holdings to DCP
Assets Holdings GP as a capital contribution.
7. DENGL will contribute a 45% partnership interest in Black Lake Pipe Line Company, a Texas
general partnership (Black Lake), to Black Lake Holdings as a capital contribution.
8. DENGL will distribute its member interest in Black Lake Holdings to DEFS Holdings 1 and
DEFS Holdings 2, on a pro rata basis based on their respective ownership interests in DENGL (99.5%
and 0.5% for DEFS Holdings 1 and DEFS Holdings 2, respectively), and DEFS Holdings 1 will
distribute its member interest in Black Lake Holdings to DEFS; in turn, DEFS and DEFS Holdings 2
will convey their member interests in Black Lake Holdings to DCP Assets Holdings as a capital
contribution.
9. DEFS will convey a limited partner interest in DCP Assets Holdings with a value equal to 2%
of the equity of MLP plus the amount of any cash distributed to DCP GP LP by MLP (the
Interest) to DCP GP LP as a capital contribution (of which 0.001% of such conveyance will
be made to DEFS on behalf of DCP GP LLC).
10. DEFS will convey its remaining limited partner interest in DCP Assets Holdings to DCP LP
Holdings as a capital contribution.
11. DEFS Holdings 2 will convey its member interests in DCP Assets Holdings GP to DCP LP
Holdings in exchange for a limited partner interest in DCP LP Holdings.
12. Guadalupe Holdings will convey its member interest in DEGP LLC to DCP LP Holdings as a
capital contribution.
13. DCP GP LP will contribute the Interest to MLP in exchange for (a) a continuation of its 2%
general partner interest in MLP, (b) the issuance of the IDRs of the MLP, (c) the right to receive
$4.0 million to reimburse DCP GP LP for certain capital expenditures and (d) the right to receive
$171.0 million sourced to new indebtedness recourse to DCP GP LP (the Initial Recourse
Debt).
14. DCP
LP Holdings will contribute its partner interests in DCP Assets
Holdings, its member interest in DCP Assets Holdings GP and its
member interests in DEGP LLC to MLP in exchange for (a) 1,357,143 Common Units in MLP (representing
a 7.6% interest), (b) 7,142,857 Sub Units in MLP (representing a 40% interest) and (c) the right to
receive $4.0 million to reimburse DCP LP Holdings for certain capital expenditures.
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15. The public, through the Underwriters, will contribute approximately $[180.0] million in
cash, less the Underwriters spread of $[11.7] million in exchange for 9,000,000 Common Units in
MLP (representing a 50.4% interest).
16. MLP will (a) pay transaction expenses associated with the transactions contemplated by
this Agreement in the amount of approximately $[4.3] million (exclusive of the Underwriters spread
but including debt placement costs), (b) distribute $4.0 million to DCP GP LP to reimburse DCP GP
LP for certain capital expenditures, (c) distribute $4.0 million to DCP LP Holdings to reimburse
DCP LP Holdings for certain capital expenditures, (d) contribute $[62.5] million in the aggregate
to DCP LP Holdings to replenish working capital (of which 0.001% of such contribution will be made
to DCP LP Holdings on behalf of DCP Assets Holdings GP); and (f) contribute $61.0 million in cash,
its member interest in DCP Assets Holdings GP and its limited partner interest in DCP Assets
Holdings to OLP as a capital contribution (of which 0.001% of such contribution will be made to OLP
on behalf of OLP GP).
17. OLP will buy U.S. Treasury securities or other qualifying securities permitted to be
pledged as collateral pursuant to the terms of the Term Loan Facility (the Securities)
for $61.0 million in cash and will incur the Initial Recourse Debt by borrowing $171.0 million from
lenders, of which $61.0 million will be borrowed pursuant to the Term Loan Facility and the
remainder will be borrowed pursuant to the Revolving Credit Facility, using the Securities as
collateral security for $61.0 million of borrowings under the Term Loan Facility with MLP
guaranteeing the Initial Recourse Debt.
18. OLP will distribute the borrowed funds of $171.0 million to MLP (of which 0.001% of such
distribution will be made to MLP on behalf of OLP GP) and MLP, in turn, will distribute the funds
to DCP GP LP.
19. DCP GP LP will loan the funds distributed to it pursuant to the preceding paragraph 18 and
will distribute other cash received to DEFS (of which 0.001% of such distribution will be made to
DEFS on behalf of DCP GP LLC), and DEFS will use the proceeds to retire its indebtedness.
20. If the Underwriters exercise their option to purchase up to an additional 1,350,000 Common
Units (the Option), the proceeds of that exercise, net of the applicable Underwriters
spread, shall be contributed by MLP to OLP and then the OLP will buy additional Securities, which
will be used as collateral for borrowings by OLP of up to $[25.2] million pursuant to the Term Loan
Facility guaranteed by MLP (the Subsequent Recourse Debt); the funds borrowed by OLP will
then be distributed to MLP which will use them to redeem from DCP LP Holdings a number of Common
Units sold by MLP pursuant to the exercise of the Shoe.
21. DCP LP Holdings will loan the funds received from the sale of the Common Units pursuant to
the preceding paragraph 20 to DEFS.
22. DCP Assets Holdings will distribute a 0.001% member interest in Black Lake Holdings to OLP
and DCP Assets Holdings GP on a pro rata basis in accordance with their percentage ownership
interests in DCP Assets Holdings.
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23. OLP will convey its interest in Black Lake Holdings to DCP Assets Holdings GP.
24. Black Lake Holdings will file a certificate of conversion under Delaware Law to convert
into a Delaware limited partnership named DCP Black Lake Holdings, LP and to designate DCP Assets
Holdings GP as the general partner thereof and DCP Assets Holdings as the sole limited partner
thereto.
25. The agreements of limited partnership and the limited liability company agreements of the
aforementioned entities will be amended and restated to the extent necessary to reflect the
applicable matters set forth above and as contained in this Agreement.
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NOW, THEREFORE, in consideration of their mutual undertakings and agreements hereunder, the
Parties undertake and agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 The following capitalized terms shall have the meanings given below.
(a) Acquisition means consummation of the transactions contemplated by the terms of
this Agreement.
(b) Agreement means this Contribution, Conveyance and Assumption Agreement.
(c) Common Unit has the meaning assigned to such term in the Partnership Agreement.
(d) Credit Agreement means the Credit Agreement, dated as of December ___, 2005,
among the OLP, the MLP, the subsidiaries of the MLP, Wachovia Bank, National Association, as
administrative agent for the lenders named therein.
(e) Effective Time shall mean 8:00 a.m. New York, New York time on , 2005.
(f) IDRs means Incentive Distribution Rights as such term is defined in the
Partnership Agreement.
(g) MLP has the meaning assigned to such term in the opening paragraph of this
Agreement.
(h) Offering means the initial public offering by MLP of Common Units.
(i) Omnibus Agreement means that certain Omnibus Agreement of even date herewith,
among DEFS, DCP GP LLC, DCP GP LP, MLP and OLP.
(j) Partnership Agreement means the First Amended and Restated Agreement of Limited
Partnership of DCP Midstream Partners, LP dated as of December ___, 2005.
(k) Partnership Group has the meaning assigned to such term in the Omnibus
Agreement.
(l) Registration Statement means the registration statement on Form S-1
(Registration No. 333-128378) filed by MLP relating to the Offering.
(m) Revolving Credit Facility means the [$250.0] million revolving credit facility
under the Credit Agreement.
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(n) Sub Unit means Subordinated Unit as such term is defined in the Partnership
Agreement.
(o) Term Loan Facility means the $[150.0] million term loan facility under the
Credit Agreement.
(p) Underwriters means Lehman Brothers Inc., Citigroup Global Markets Inc., UBS
Securities LLC, Wachovia Capital Markets, LLC, A.G. Edwards & Sons, Inc. and KeyBanc Capital
Markets, a division of McDonald Investments, Inc.
ARTICLE 2
CONTRIBUTIONS, ACKNOWLEDGMENTS AND DISTRIBUTIONS
Section 2.1 Distribution of DEGP by DCP Assets Holdings. DCP Assets Holdings hereby
distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS, its
successors and assigns, for its use forever, all right, title and interest in and to all of its
shares of DEGP common stock (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such shares of common stock in DEGP as a distribution.
Section 2.2 Distribution of Discovery by DCP Assets Holdings. DCP Assets Holdings
hereby distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS,
its successors and assigns, for its use forever, all right, title and interest in and to all of its
member interests in Discovery (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such member interests in Discovery as a distribution.
Section 2.3 Distribution of PanEnergy by DCP Assets Holdings. DCP Assets Holdings
hereby distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS,
its successors and assigns, for its use forever, all right, title and interest in and to all of its
member interests in PanEnergy (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such member interests in PanEnergy as a distribution.
Section 2.4 Distribution of Gulf Coast by DCP Assets Holdings. DCP Assets Holdings
hereby distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS,
its successors and assigns, for its use forever, all right, title and interest in and to all of its
member interests in Gulf Coast (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such member interests in Gulf Coast as a distribution.
Section 2.5 Distribution of Centana by DCP Assets Holdings. DCP Assets Holdings
hereby distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS,
its successors and assigns, for its use forever, all right, title and interest in and to all of its
member interests in Centana (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such member interests in Centana as a distribution.
Section 2.6 Distribution of DIGC by DCP Assets Holdings. DCP Assets Holdings hereby
distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers
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to DEFS, its successors and assigns, for its use forever, all right, title and interest in and
to all of its member interests in DIGC (of which 0.5% of such distribution is being made on behalf
of DEFS Holdings 2). DEFS hereby accepts such member interests in DIGC as a distribution.
Section 2.7 Distribution of CIP by DCP Assets Holdings. DCP Assets Holdings hereby
distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to DEFS, its
successors and assigns, for its use forever, all right, title and interest in and to all of its
member interests in CIP (of which 0.5% of such distribution is being made on behalf of DEFS
Holdings 2). DEFS hereby accepts such member interests in CIP as a distribution.
Section 2.8 Contribution of DEGP Common Stock to Guadalupe Holdings. DEFS hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to Guadalupe
Holdings, its successors and assigns, for its and their own use forever, all right, title and
interest in and to all of its shares of DEGP common stock, as a capital contribution, and Guadalupe
Holdings hereby accepts such DEGP shares as a contribution to the capital of Guadalupe Holdings.
Section 2.9 Conversion of DEGP to DEGP LLC. The Parties acknowledge that DEGP has
adopted articles of conversion in the form attached hereto as Exhibit A and pursuant
thereto has converted to DEGP LLC, a Delaware limited liability company, having Guadalupe Holdings
as a sole member.
Section 2.10 Conversion of Resources to Resources LLC. The Parties acknowledge that
Resources has adopted articles of conversion in the form attached hereto as Exhibit B and
pursuant thereto has converted to Resources LLC, a Texas limited liability company, having DEGP LLC
as a sole member.
Section 2.11 Conversion of Transportation to Transportation LLC. The Parties
acknowledge that Transportation has adopted articles of conversion in the form attached hereto as
Exhibit C and pursuant thereto has converted to Transportation LLC, a Texas limited
liability company, having DEGP LLC as a sole member.
Section 2.12 Distribution of Working Capital Assets by DCP Assets Holdings and its
Subsidiaries. DCP Assets Holdings and its subsidiaries hereby distribute, grant, bargain,
convey, assign, transfer, set over and deliver to DEFS, its successors and assigns, for its use
forever, [$39.3] million of working capital assets, consisting of (a) $___in cash and (b) $___
in accounts receivable. DEFS hereby accepts such working capital assets as a distribution.
Section 2.13 Contribution of General Partner Interest in DCP Assets Holdings to DCP Assets
Holdings GP. DEFS Holdings 2 hereby grants, contributes, bargains, conveys, assigns,
transfers, sets over and delivers to DCP Assets Holdings GP, its successors and assigns, for its
and their own use forever, all right, title and interest in and to its 0.5% general partner
interest in DCP Assets Holdings, as a capital contribution, and DCP Assets Holdings GP hereby
accepts such general partner interest as a contribution to the capital of DCP Assets Holdings GP.
8
Section 2.14 Contribution of Black Lake Interest to Black Lake Holding. DENGL hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to Black Lake
Holding, its successors and assigns, for its and their use forever, all right, title and interest
in and to a 45% partner interest in Black Lake (the Black Lake Interest), as a capital
contribution, and Black Lake Holding hereby accepts the Black Lake Interest as a contribution to
the capital of Black Lake Holding.
Section 2.15 Conveyance of Member Interest Black Lake Holdings to DEFS Holdings 1 and DEFS
Holdings 2. DENGL hereby distributes, grants, bargains, conveys, assigns, transfers, sets over
and delivers to DEFS Holdings 1 and DEFS Holdings 2, their successors and assigns, for their own
use forever, all right, title and interest in and to Black Lake Holdings, on a pro rata basis based
on their respective 99.5% and 0.5% ownership interests in DENGL, and DEFS Holdings 1 and DEFS
Holdings 2 hereby accept such member interests in Black Lake Holdings.
Section 2.16 Distribution of Member Interests in Black Lake Holdings by DEFS Holdings
1. DEFS Holdings 1 hereby distributes, grants, bargains, conveys, assigns, transfers, sets
over and delivers to DEFS, its successors and assigns, for its use forever, all right, title and
interest in and to all of its 99.5% member interest in Black Lake Holdings, and DEFS hereby accepts
such interest in Black Lake as a distribution.
Section 2.17 Contribution of Black Lake Holdings to DCP Assets Holdings. DEFS Holding
2 hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to DCP
Assets Holdings, its successors and assigns, for its and their own use forever, all right, title
and interest in and to its 0.5% interest in Black Lake Holdings, as a capital contribution, and DCP
Assets Holdings hereby accepts such interest as a contribution to the capital of DCP Assets
Holdings.
Section 2.18 Contribution of Black Lake Holdings to DCP Assets Holdings. DEFS hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to DCP Assets
Holdings, its successors and assigns, for its and their own use forever, all right, title and
interest in and to its 99.5% interest in Black Lake Holdings, as a capital contribution, and DCP
Assets Holdings hereby accepts such interest as a contribution to the capital of DCP Assets
Holdings.
Section 2.19 Contribution of the Interest to DCP GP LP. DEFS hereby grants,
contributes, bargains, conveys, assigns, transfers, sets over and delivers to DCP GP LP, its
successors and assigns, for its and their own use forever, all right, title and interest in and to
the Interest (of which 0.001% of such contribution is being made on behalf of DCP GP LLC), as a
capital contribution, and DCP GP LP hereby accepts the Interest as a contribution to the capital of
DCP GP LP.
Section 2.20 Contribution of Remaining Interest in DCP Assets Holdings to DCP LP
Holdings. DEFS hereby grants, contributes, bargains, conveys, assigns, transfers, sets over
and delivers to DCP LP Holdings, its successors and assigns, for its and their own use forever, all
right, title and interest in and to its remaining interest in DCP Assets Holdings after
9
the contribution of the Interest to DCP GP LP, as a capital contribution, and DCP LP Holdings
hereby accepts such member interest as a contribution to the capital of DCP LP Holdings.
Section 2.21 Contribution of Member Interest in DCP Assets Holdings to DCP LP
Holdings. DEFS Holdings 2 hereby grants, contributes, bargains, conveys, assigns, transfers,
sets over and delivers to DCP LP Holdings, its successors and assigns, for its and their own use
forever, all right, title and interest in and to its membership interest in DCP Assets Holdings GP
in exchange for a ___% limited partner interest in DCP LP Holdings, and DCP LP Holdings hereby
accepts such member interest as a contribution to the capital of DCP LP Holdings.
Section 2.22 Contribution of DEGP LLC Member Interest to DCP LP Holdings. Guadalupe
Holdings hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers
to DCP LP Holdings, its successors and assigns, for its and their own use forever, all right, title
and interest in and to its member interest in DEGP LLC, as a capital contribution, and DCP LP
Holdings hereby accepts such member interest as a contribution to the capital of DCP LP Holdings.
Section 2.23 Contribution of the Interest by DCP GP LP to MLP. DCP GP LP hereby
grants, contributes, bargains, conveys, assigns, transfers, sets over and delivers to MLP, its
successors and assigns, for its and their own use forever, all right, title and interest in and to
the Interest, as a capital contribution, in exchange for (a) a continuation of its 2% general
partner interest in MLP, (b) the issuance of the IDRs,
(c) the right to receive $4.0 million to
reimburse DCP GP LP for certain capital expenditures, (d) the right to receive the Initial Recourse
Debt and (e) other good and valuable consideration, the sufficiency of which is hereby
acknowledged, and MLP hereby accepts the Interest as a contribution to the capital of MLP.
Section 2.24 Contribution of Interests in DCP Assets Holdings and DEGP LLC to MLP.
DCP LP Holdings hereby grants, contributes, bargains, conveys, assigns, transfers, sets over and
delivers to MLP, its successors and assigns, for its and their own use forever, all right, title
and interest in and to its partner interests in DCP Assets Holdings,
its member interests in DCP Assets Holdings GP and member interests in DEGP
LLC in exchange for (a) 1,357,143 Common Units, representing a 7.6% interest in MLP, (b) 7,142,857
Sub Units, representing a 40% interest in MLP, (c) the right to
receive $4.0 million to reimburse DCP LP Holdings for certain capital expenditures and (d) other good and valuable consideration, the
sufficiency of which is hereby acknowledged, and MLP hereby accepts such membership interests in
DCP Assets Holdings and DEGP LLC as a contribution to the capital of MLP.
Section 2.25 Public Cash Contribution. The Parties acknowledge a capital contribution
by the public through the Underwriters to MLP of approximately $[180.0] million in cash ($[168.3]
million net to MLP after the underwriters spread of $[11.7] million) in exchange for 9,000,000
Common Units, representing a 50.4% interest in MLP.
Section 2.26 Payment of Transaction Costs. The Parties acknowledge (a) the payment by
MLP, in connection with the Acquisition, of transaction expenses in the amount of approximately
$4.3 million (exclusive of the Underwriters spread but including debt placement costs), (b) the
distribution by MLP of approximately $4.0 million to DCP GP LP to
10
reimburse it for certain capital expenditures, (c) the distribution by MLP of approximately
$4.0 million to DCP LP Holdings to reimburse it for certain capital expenditures and (d) the
contribution by MLP of approximately $[62.5] million to DCP Assets Holdings (of which 0.001% is
being contributed on behalf of DCP Assets Holdings GP) to replenish working capital.
Section 2.27 Contribution of Member Interest in DCP Assets Holdings, Limited Partner
Interest in DCP Assets Holdings and Cash to OLP. MLP hereby grants, contributes, bargains,
conveys, assigns, transfers, sets over and delivers to OLP, its successors and assigns, for its and
their own use forever, all right, title and interest in and to its member interest in DCP Assets
Holdings GP, its limited partner interest in DCP Assets Holdings and $61.0 million in cash (of
which 0.001% is being contributed on behalf of OLP GP), as a capital contribution, and DCP LP
Holdings hereby accepts such membership interest, limited partner interest and cash as a
contribution to the capital of DCP LP Holdings.
Section 2.28 Purchase of Securities by OLP and Incurrence of Initial Recourse Debt by
OLP. The Parties acknowledge (i) the purchase by OLP of $61.0 million in principal amount of
Securities, (ii) the incurrence of the Initial Recourse Debt by OLP, (iii) the pledge of the
Securities referred to in clause (i) of this Section 2.28 as collateral for the borrowings under
the Term Loan Facility and (iv) the guarantee of the Initial Recourse Debt by MLP.
Section 2.29 Distribution of Proceeds from Initial Recourse Debt by OLP to MLP. OLP
hereby distributes, grants, bargains, conveys, assigns, transfers, sets over and delivers to MLP,
its successors and assigns, for its use forever, all right, title and interest in and to cash in an
amount equal to the principal amount of the Initial Recourse Debt (of which 0.001% of such
distribution is being made on behalf of OLP GP).
Section 2.30 Distribution of Cash by MLP to DCP GP LP. MLP hereby distributes, grants,
bargains, conveys, assigns, transfers, sets over and delivers to DCP GP LP, its successors and
assigns, for its use forever, all right, title and interest in and to cash in an amount equal to
amount received by MLP pursuant to Section 2.29.
Section 2.31 Loan of Cash by DCP GP LP to DEFS. DCP GP LP hereby loans to DEFS cash
in an amount equal to amount received by DCP GP LP pursuant to Section 2.30 and, in connection
therewith, DEFS agrees to execute a promissory note in the form attached hereto as Exhibit
D as completed to reflect the principal amount of the loan from DCP GP LP to DEFS.
Section 2.32 Distribution of Member Interest in Black Holdings by DCP Assets Holdings to
OLP and DCP Assets Holdings GP. DCP Assets Holdings hereby distributes, grants, bargains,
conveys, assigns, transfers, sets over and delivers to OLP and DCP Assets Holdings GP, their
successors and assigns, for their use forever, all right, title and interest in and to a 0.001%
member interest in Black Lake Holdings, on a pro rata basis in accordance with their respective
ownership interests in DCP Assets Holdings, and each of OLP and DCP Assets Holdings GP hereby
accept such distribution.
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Section 2.33 Conveyance of Member Interest in Black Lake Holdings by OLP to DCP Assets
Holdings GP. OLP hereby grants, bargains, conveys, assigns, transfers, sets over and delivers
to DCP Assets Holdings GP, its successors and assigns, for its and their own use forever, all
right, title and interest in and to its member interest in Black Lake Holdings, as a capital
contribution, and DCP Assets Holdings GP hereby accepts such member interest as a contribution to
the capital of DCP Assets Holdings GP.
Section 2.34 Conversion of Black Lake Holdings to a Limited Partnership. The Parties
acknowledge that Black Lake Holdings has adopted articles of conversion in the form attached hereto
as Exhibit E and pursuant thereto (i) has converted to Black Lake Holdings, LP, a Delaware limited
partnership, and (ii) has designated DCP Assets Holdings GP as the general partner thereof and DCP
Assets Holdings as the sole limited partner thereof.
ARTICLE 3
ADDITIONAL TRANSACTIONS
Section 3.1 Purchase of Additional Common Units. If the Option is exercised in whole
or in part, the public, through the Underwriters, will contribute additional cash to MLP in
exchange for up to an additional 1,350,000 Common Units.
Section 3.2 Purchase of Securities by OLP and Incurrence of Recourse Debt by OLP. The
Parties acknowledge, in the event that the Option is exercised in whole or in part, (i) the
contribution by MLP to OLP an amount of cash equal to the net proceeds received by MLP pursuant to
Section 3.1, (ii) the purchase of OLP of up to $[25.2] million in principal amount of Securities
utilizing the cash received by OLP from MLP pursuant to clause (i) of this Section 3.2, (iii) the
incurrence of the Subsequent Recourse Debt by OLP, (iv) the pledge of the Securities referred to in
clause (ii) of this Section 3.2 as collateral for the borrowings under the Term Loan Facility and
(v) the guarantee of the Subsequent Recourse Debt, if any, by MLP.
Section 3.3 Distribution of Proceeds from Additional Borrowings by OLP to MLP. In the
event the Option is exercised in whole or in part, OLP hereby agrees to distribute, grant, bargain,
convey, assign, transfer, set over and deliver to MLP, its successors and assigns, for its use
forever, all right, title and interest in and to cash in an amount equal to the principal amount of
the Subsequent Recourse Debt (of which 0.001% of such distribution is being made on behalf of OLP
GP).
Section 3.4 Redemption of Common Units. MLP hereby agrees to redeem a number of Common
Units held by DCP LP Holdings equal to the number of Common Units issued to the public, through the
underwriters, upon exercise of the Option, if any, at a redemption price per Common Unit equal to
the initial public offering price per Common Unit, net of underwriting discounts.
Section 3.5 Loan of Cash by DCP GP LP to DEFS. DCP LP Holdings hereby agrees to loan
to DEFS cash in an amount equal to amount received by DCP LP Holdings pursuant to Section 3.4, if
any, and, in connection therewith, DEFS agrees to execute a promissory note in the form attached
hereto as Exhibit D as completed to reflect the principal amount of the loan from DCP LP
Holdings to DEFS.
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ARTICLE 4
TITLE MATTERS
Section 4.1 Encumbrances.
(a) Except to the extent provided in any other document executed in connection with this
Agreement or the Offering, the contribution and conveyance (by operation of law or otherwise) of
the various physical assets owned as reflected in this Agreement (collectively, the Assets) are
made expressly subject to all recorded and unrecorded liens (other than consensual liens),
encumbrances, agreements, defects, restrictions, adverse claims and all laws, rules, regulations,
ordinances, judgments and orders of governmental authorities or tribunals having or asserting
jurisdictions over the Assets and operations conducted thereon or in connection therewith, in each
case to the extent the same are valid and enforceable and affect the Assets, including all matters
that a current survey or visual inspection of the Assets would reflect.
(b) To the extent that certain jurisdictions in which the Assets are located may require that
documents be recorded in order to evidence the transfers of title reflected in this Agreement, then
the provisions set forth in Section 4.1(a) immediately above shall also be applicable to the
conveyances under such documents.
Section 4.2 Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales Laws.
(a) EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION
WITH THIS AGREEMENT OR THE OFFERING INCLUDING, WITHOUT LIMITATION THE OMNIBUS AGREEMENT, THE
PARTIES ACKNOWLEDGE AND AGREE THAT NONE OF THE PARTIES HAS MADE, DOES NOT MAKE, AND EACH SUCH PARTY
SPECIFICALLY NEGATES AND DISCLAIMS, ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS,
AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS, IMPLIED OR
STATUTORY, ORAL OR WRITTEN, PAST OR PRESENT, REGARDING (A) THE VALUE, NATURE, QUALITY OR CONDITION
OF THE ASSETS INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL, GEOLOGY OR ENVIRONMENTAL CONDITION OF
THE ASSETS GENERALLY, INCLUDING THE PRESENCE OR LACK OF HAZARDOUS SUBSTANCES OR OTHER MATTERS ON
THE ASSETS, (B) THE INCOME TO BE DERIVED FROM THE ASSETS, (C) THE SUITABILITY OF THE ASSETS FOR ANY
AND ALL ACTIVITIES AND USES THAT MAY BE CONDUCTED THEREON, (D) THE COMPLIANCE OF OR BY THE ASSETS
OR THEIR OPERATION WITH ANY LAWS (INCLUDING WITHOUT LIMITATION ANY ZONING, ENVIRONMENTAL
PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS, ORDERS OR REQUIREMENTS), OR (E) THE
HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF
THE ASSETS. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION WITH THIS AGREEMENT OR THE OFFERING INCLUDING, WITHOUT LIMITATION, THE OMNIBUS
AGREEMENT, THE PARTIES ACKNOWLEDGE AND
13
AGREE THAT EACH HAS HAD THE OPPORTUNITY TO INSPECT THE RESPECTIVE ASSETS, AND EACH IS RELYING
SOLELY ON ITS OWN INVESTIGATION OF THE RESPECTIVE ASSETS AND NOT ON ANY INFORMATION PROVIDED OR TO
BE PROVIDED BY ANY OF THE PARTIES. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR
DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING INCLUDING, WITHOUT LIMITATION, THE
OMNIBUS AGREEMENT, NONE OF THE PARTIES IS LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN
STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE ASSETS FURNISHED BY ANY AGENT,
EMPLOYEE, SERVANT OR THIRD PARTY. EXCEPT TO THE EXTENT PROVIDED IN ANY OTHER DOCUMENT EXECUTED OR
DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE OFFERING INCLUDING, WITHOUT LIMITATION, THE
OMNIBUS AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW,
THE CONTRIBUTION OF THE ASSETS AS PROVIDED FOR HEREIN IS MADE IN AN AS IS, WHERE IS CONDITION
WITH ALL FAULTS, AND THE ASSETS ARE CONTRIBUTED AND CONVEYED SUBJECT TO ALL OF THE MATTERS
CONTAINED IN THIS SECTION. THIS SECTION SHALL SURVIVE SUCH CONTRIBUTION AND CONVEYANCE OR THE
TERMINATION OF THIS AGREEMENT. THE PROVISIONS OF THIS SECTION HAVE BEEN NEGOTIATED BY THE PARTIES
AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY
REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS
THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE, EXCEPT AS SET FORTH IN
THIS AGREEMENT OR ANY OTHER DOCUMENT EXECUTED OR DELIVERED IN CONNECTION WITH THIS AGREEMENT OR THE
OFFERING, INCLUDING, WITHOUT LIMITATION, THE OMNIBUS AGREEMENT.
(b) The contributions of the Assets made under this Agreement are made with full rights of
substitution and subrogation of the respective parties receiving such contributions, and all
persons claiming by, through and under such parties, to the extent assignable, in and to all
covenants and warranties by the predecessors-in-title of the parties contributing the Assets, and
with full subrogation of all rights accruing under applicable statutes of limitation and all rights
of action of warranty against all former owners of the Assets.
(c) Each of the Parties agrees that the disclaimers contained in this Section 4.2 are
conspicuous disclaimers. Any covenants implied by statute or law by the use of the words
grant, convey, bargain, sell, assign, transfer, deliver, or set over or any of them
or any other words used in this Agreement or any exhibits hereto are hereby expressly disclaimed,
waived or negated.
(d) Each of the Parties hereby waives compliance with any applicable bulk sales law or any
similar law in any applicable jurisdiction in respect of the transactions contemplated by this
Agreement.
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ARTICLE 5
FURTHER ASSURANCES
Section 5.1 Further Assurances. From time to time after the Effective Time, and
without any further consideration, the Parties agree to execute, acknowledge and deliver all such
additional deeds, assignments, bills of sale, conveyances, instruments, notices, releases,
acquittances and other documents, and will do all such other acts and things, all in accordance
with applicable law, as may be necessary or appropriate (a) more fully to assure that the
applicable Parties own all of the properties, rights, titles, interests, estates, remedies, powers
and privileges granted by this Agreement, or which are intended to be so granted, or (b) more fully
and effectively to vest in the applicable Parties and their respective successors and assigns
beneficial and record title to the interests contributed and assigned by this Agreement or intended
so to be and to more fully and effectively carry out the purposes and intent of this Agreement.
Section 5.2 Other Assurances. From time to time after the Effective Time, and without
any further consideration, each of the Parties shall execute, acknowledge and deliver all such
additional instruments, notices and other documents, and will do all such other acts and things,
all in accordance with applicable law, as may be necessary or appropriate to more fully and
effectively carry out the purposes and intent of this Agreement. Without limiting the generality
of the foregoing, the Parties acknowledge that the parties have used their good faith efforts to
attempt to identify all of the assets being contributed to the MLP or its subsidiaries as required
in connection with the Offering. However, due to the age of some of those assets and the
difficulties in locating appropriate data with respect to some of the assets it is possible that
assets intended to be contributed to the MLP or its subsidiaries were not identified and therefore
are not included in the assets contributed to the MLP or its subsidiaries. It is the express
intent of the Parties that the MLP or its subsidiaries own all assets necessary to operate the
assets that are identified in this Agreement and in the Registration Statement. To the extent any
assets were not identified but are necessary to the operation of assets that were identified, then
the intent of the Parties is that all such unidentified assets are intended to be conveyed to the
appropriate members of the Partnership Group. To the extent such assets are identified at a later
date, the Parties shall take the appropriate actions required in order to convey all such assets to
the appropriate members of the Partnership Group. Likewise, to the extent that assets are
identified at a later date that were not intended by the parties to be conveyed as reflected in the
Registration Statement, the Parties shall take the appropriate actions required in order to convey
all such assets to the appropriate party.
ARTICLE 6
EFFECTIVE TIME
Notwithstanding anything contained in this Agreement to the contrary, none of the provisions
of Article 2 or Article 3 of this Agreement shall be operative or have any effect until the
Effective Time, at which time all the provisions of Article 2 and Article 3 of this Agreement shall
be effective and operative in accordance with Article 7, without further action by any party
hereto.
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ARTICLE 7
MISCELLANEOUS
Section 7.1 Order of Completion of Transactions. The transactions provided for in
Article 2 and Article 3 of this Agreement shall be completed immediately following the Effective
Time in the following order: first, the transactions provided for in Article 2 shall be completed
in the order set forth therein; and second, following the completion of the transactions as
provided in Article 2, the transactions, if they occur, provided for in Article 3 shall be
completed.
Section 7.2 Costs. Except for the transaction costs set forth in Section 2.26, the
OLP shall pay all expenses, fees and costs, including but not limited to, all sales, use and
similar taxes arising out of the contributions, conveyances and deliveries to be made hereunder and
shall pay all documentary, filing, recording, transfer, deed, and conveyance taxes and fees
required in connection therewith. In addition, the OLP shall be responsible for all costs,
liabilities and expenses (including court costs and reasonable attorneys fees) incurred in
connection with the implementation of any conveyance or delivery pursuant to Section 5.1 or Section
5.2.
Section 7.3 Headings; References; Interpretation. All Article and Section headings in
this Agreement are for convenience only and shall not be deemed to control or affect the meaning or
construction of any of the provisions hereof. The words hereof, herein and hereunder and
words of similar import, when used in this Agreement, shall refer to this Agreement as a whole,
including, without limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Agreement. All references herein to Articles, Sections, Schedules and
Exhibits shall, unless the context requires a different construction, be deemed to be references to
the Articles and Sections of this Agreement and the Schedules and Exhibits attached hereto, and all
such Schedules and Exhibits attached hereto are hereby incorporated herein and made a part hereof
for all purposes. All personal pronouns used in this Agreement, whether used in the masculine,
feminine or neuter gender, shall include all other genders, and the singular shall include the
plural and vice versa. The use herein of the word including following any general statement,
term or matter shall not be construed to limit such statement, term or matter to the specific items
or matters set forth immediately following such word or to similar items or matters, whether or not
non-limiting language (such as without limitation, but not limited to, or words of similar
import) is used with reference thereto, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of such general statement,
term or matter.
Section 7.4 Successors and Assigns. The Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and assigns.
Section 7.5 No Third Party Rights. The provisions of this Agreement are intended to
bind the Parties as to each other and are not intended to and do not create rights in any other
person or confer upon any other person any benefits, rights or remedies and no person is or is
intended to be a third party beneficiary of any of the provisions of this Agreement.
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Section 7.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on the parties hereto.
Section 7.7 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado applicable to contracts made and to be performed
wholly within such state without giving effect to conflict of law principles thereof.
Section 7.8 Severability. If any of the provisions of this Agreement are held by any
court of competent jurisdiction to contravene, or to be invalid under, the laws of any political
body having jurisdiction over the subject matter hereof, such contravention or invalidity shall not
invalidate the entire Agreement. Instead, this Agreement shall be construed as if it did not
contain the particular provision or provisions held to be invalid and an equitable adjustment shall
be made and necessary provision added so as to give effect to the intention of the Parties as
expressed in this Agreement at the time of execution of this Agreement.
Section 7.9 Amendment or Modification. This Agreement may be amended or modified from
time to time only by the written agreement of all the Parties. Each such instrument shall be
reduced to writing and shall be designated on its face as an Amendment to this Agreement.
Section 7.10 Integration. This Agreement and the instruments referenced herein
supersede all previous understandings or agreements among the Parties, whether oral or written,
with respect to their subject matter. This document and such instruments contain the entire
understanding of the Parties with respect to the subject matter hereof and thereof. No
understanding, representation, promise or agreement, whether oral or written, is intended to be or
shall be included in or form part of this Agreement unless it is contained in a written amendment
hereto executed by the parties hereto after the date of this Agreement.
Section 7.11 Deed; Bill of Sale; Assignment. To the extent required and permitted by
applicable law, this Agreement shall also constitute a deed, bill of sale or assignment of
the assets and interests referenced herein.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date
first above written.
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DCP MIDSTREAM PARTNERS, LP |
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DCP MIDSTREAM OPERATING, LP |
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DCP MIDSTREAM GP, LLC |
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DCP MIDSTREAM GP, LP |
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DUKE ENERGY FIELD SERVICES, LLC |
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[Signature Page to the Contribution Agreement]
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DEFS HOLDINGS 1, LLC |
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DEFS HOLDINGS 2, LLC |
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DCP ASSETS HOLDINGS, LP |
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DUKE ENERGY GUADALUPE PIPELINE HOLDINGS, INC. |
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DCP ASSETS HOLDINGS GP, LLC |
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[Signature Page to the Contribution Agreement]
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DUKE ENERGY NGL SERVICES, LP |
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DCP LP HOLDINGS, LP |
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DCP BLACK LAKE HOLDINGS, LP |
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[Signature Page to the Contribution Agreement]
exv10w4
Exhibit 10.4
OMNIBUS AGREEMENT
AMONG
DUKE ENERGY FIELD SERVICES, LLC
DCP MIDSTREAM GP, LLC
DCP MIDSTREAM GP, LP
DCP MIDSTREAM PARTNERS, LP
AND
DCP MIDSTREAM OPERATING, LP
OMNIBUS AGREEMENT
THIS OMNIBUS AGREEMENT (Agreement) is entered into on, and effective as of, the Closing Date
(as defined herein), and is by and among Duke Energy Field Services, LLC, a Delaware limited
liability company (DEFS), DCP Midstream GP, LLC, a Delaware limited liability company (DCP
LLC), DCP Midstream GP, LP, a Delaware limited partnership (the General Partner), DCP Midstream
Partners, LP, a Delaware limited partnership (the MLP) and DCP Midstream Operating, LP (the
OLP). The above-named entities are sometimes referred to in this Agreement each as a Party and
collectively as the Parties.
R E C I T A L S:
The Parties desire by their execution of this Agreement to evidence their understanding, (i)
as more fully set forth in Article II and Article III of this Agreement, with respect to certain
indemnification and reimbursement obligations of the Parties, and (ii) as more fully set forth in
Article IV of this Agreement, with respect to DEFS obligation to maintain certain specified credit
support for the Partnership Group (as defined herein).
In consideration of the premises and the covenants, conditions, and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
Definitions
1.1 Definitions. (a) Capitalized terms used herein but not defined shall have the meanings
given them in the MLP Agreement.
(b) As used in this Agreement, the following terms shall have the respective meanings set
forth below:
Agreement means this Omnibus Agreement, as it may be amended, modified or
supplemented from time to time in accordance with the terms hereof.
Black Lake Holdings means Black Lake Holdings, LLC, a Delaware limited liability
company.
Black Lake Pipeline means the NGL pipeline located in Louisiana and Texas that is
owned by BLPLC.
BLPLC means Black Lake Pipe Line Company, a Texas general partnership.
Cause has the meaning ascribed thereto in the Partnership Agreement.
Cap has the meaning given such term in Section 2.4(a).
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-1-
Change of Control means, with respect to any Person (the Applicable Person), any of
the following events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the Applicable Persons
assets to any other Person, unless immediately following such sale, lease, exchange or other
transfer such assets are owned, directly or indirectly, by the Applicable Person; (ii) the
dissolution or liquidation of the Applicable Person; (iii) the consolidation or merger of
the Applicable Person with or into another Person pursuant to a transaction in which the
outstanding Voting Securities of the Applicable Person are changed into or exchanged for
cash, securities or other property, other than any such transaction where (a) the
outstanding Voting Securities of the Applicable Person are changed into or exchanged for
Voting Securities of the surviving Person or its parent and (b) the holders of the Voting
Securities of the Applicable Person immediately prior to such transaction own, directly or
indirectly, not less than a majority of the outstanding Voting Securities of the surviving
Person or its parent immediately after such transaction; and (iv) a person or group
(within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) being or becoming the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of more than
50% of all of the then outstanding Voting Securities of the Applicable Person, except in a
merger or consolidation which would not constitute a Change of Control under clause (iii)
above.
Closing Date means the date of the closing of the initial public offering of common
units representing limited partner interests in the MLP.
Common Unit has the meaning given such term in the MLP Agreement.
Conflicts Committee has the meaning given such term in the MLP Agreement.
Covered Environmental Losses means all environmental losses, damages, liabilities,
claims, demands, causes of action, judgments, settlements, fines, penalties, costs and
expenses (including, without limitation, costs and expenses of any Environmental Activity,
court costs and reasonable attorneys and experts fees) of any and every kind or character,
by reason of or arising out of:
(i) any violation or correction of violation, including without limitation performance
of any Environmental Activity, of Environmental Laws; or
(ii) any event, omission or condition associated with ownership or operation of the MLP
Assets or the Black Lake Pipeline (including, without limitation, the exposure to or
presence of Hazardous Substances on, under, about or migrating to or from the MLP Assets or
the Black Lake Pipeline or the exposure to or Release of Hazardous Substances arising out of
operation of the MLP Assets or the Black Lake Pipeline at non-MLP Asset locations)
including, without limitation, (A) the cost and expense of any Environmental Activities, (B)
the cost or expense of the preparation and implementation of any closure, remedial or
corrective action or other plans required or necessary under Environmental Laws and (C) the
cost and expense for any environmental or toxic tort pre-trial, trial or appellate legal or
litigation support work; provided, in the
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-2-
case of clauses (A) and (B), such cost and expense shall not include the costs of and
associated with project management and soil and ground water monitoring;
but only to the extent that such violation complained of under clause (i), or such events or
conditions included in clause (ii), occurred before the Closing Date.
DCP LLC has the meaning given such term in the introduction to this Agreement.
DEFS has the meaning given such term in the introduction to this Agreement.
Environmental Activities shall mean any investigation, study, assessment, evaluation,
sampling, testing, monitoring, containment, removal, disposal, closure, corrective action,
remediation (regardless of whether active or passive), natural attenuation, restoration,
bioremediation, response, repair, corrective measure, cleanup or abatement that is required
or necessary under any applicable Environmental Law, including, but not limited to,
institutional or engineering controls or participation in a governmental voluntary cleanup
program to conduct voluntary investigatory and remedial actions for the clean-up, removal or
remediation of Hazardous Substances that exceed actionable levels established pursuant to
Environmental Laws, or participation in a supplemental environmental project in partial or
whole mitigation of a fine or penalty.
Environmental Laws means all federal, state, and local laws, statutes, rules,
regulations, orders, judgments, ordinances, codes, injunctions, decrees, Environmental
Permits and other legally enforceable requirements and rules of common law relating to (a)
pollution or protection of the environment or natural resources including, without
limitation, the federal Comprehensive Environmental Response, Compensation and Liability
Act, the Superfund Amendments and Reauthorization Act, the Resource Conservation and
Recovery Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Toxic
Substances Control Act, the Oil Pollution Act of 1990, the Hazardous Materials
Transportation Act, the Marine Mammal Protection Act, the Endangered Species Act, the
National Environmental Policy Act and other environmental conservation and protection laws,
each as amended through the Closing Date, (b) any Release or threatened Release of, or any
exposure of any Person or property to, any Hazardous Substances and (c) the generation,
manufacture, processing, distribution, use, treatment, storage, transport or handling of any
Hazardous Substances.
Environmental Permit means any permit, approval, identification number, license,
registration, consent, exemption, variance or other authorization required under or issued
pursuant to any applicable Environmental Law.
Exchange Act means the Securities Exchange Act of 1934, as amended.
G&A Expenses Limit has the meaning given such term in Section 3.3.
General Partner has the meaning given such term in the introduction to this
Agreement.
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-3-
Hazardous Substance means (a) any substance that is designated, defined or classified
as a hazardous waste, solid waste, hazardous material, pollutant, contaminant or toxic or
hazardous substance, or terms of similar meaning, or that is otherwise regulated under any
Environmental Law, including, without limitation, any hazardous substance as defined under
the Comprehensive Environmental Response, Compensation and Liability Act, as amended, (b)
oil as defined in the Oil Pollution Act of 1990, as amended, including oil, gasoline,
natural gas, fuel oil, motor oil, waste oil, diesel fuel, jet fuel and other refined
petroleum hydrocarbons and petroleum products and (c) radioactive materials, asbestos
containing materials or polychlorinated biphenyls.
Indemnified Party means either the Partnership Group or DEFS, as the case may be, in
their capacity as the parties entitled to indemnification in accordance with Article II.
Indemnifying Party means either the Partnership Group or DEFS, as the case may be, in
their capacity as the parties from whom indemnification may be required in accordance with
Article II.
Losses means any losses, damages, liabilities, claims, demands, causes of action,
judgments, settlements, fines, penalties, costs and expenses (including, without limitation,
court costs and reasonable attorneys and experts fees) of any and every kind or character.
MLP has the meaning given such term in the introduction to this Agreement.
MLP Agreement means the Amended and Restated Agreement of Limited Partnership of the
MLP, dated as of the Closing Date, as such agreement is in effect on the Closing Date, to
which reference is hereby made for all purposes of this Agreement. An amendment or
modification to the MLP Agreement subsequent to the Closing Date shall be given effect for
the purposes of this Agreement only if it has received the approval of the Conflicts
Committee that would be required, if any, pursuant to Section 6.6 hereof if such amendment
or modification were an amendment or modification of this Agreement.
MLP Assets means the pipelines, processing plants or related equipment or assets, or
portions thereof, conveyed, contributed or otherwise transferred or intended to be conveyed,
contributed or otherwise transferred to any member of the Partnership Group, or owned by or
necessary for the operation of the business, properties or assets or any member of the
Partnership Group, prior to or as of the Closing Date; provided, the MLP Assets do not
include the Partnership Groups direct or indirect ownership interest in Black Lake
Holdings, BLPLC or the Black Lake Pipeline.
OLP has the meaning given such term in the introduction to this Agreement.
Organizational Documents means certificates of incorporation, by-laws, certificates
of formation, limited liability company operating agreements, certificates of
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-4-
limited partnership or limited partnership agreements or other formation or governing
documents of a particular entity.
Partnership Entities means DCP LLC, the General Partner and each member of the
Partnership Group.
Partnership Group means the MLP, the OLP and any Subsidiary of the MLP or the OLP.
Partnership Indemnitee means any Person who is an Indemnitee (as defined in the
Partnership Agreement); provided, that the term Partnership Indemnitee shall exclude DEFS
and any Affiliate of DEFS (as defined in the Partnership Agreement) which is not a member of
the Partnership Group.
Party or Parties have the meaning given such terms in the introduction to this
Agreement.
Person means an individual, corporation, partnership, joint venture, trust, limited
liability company, unincorporated organization or any other entity.
Release means any depositing, spilling, leaking, pumping, pouring, placing, emitting,
discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching,
dumping or disposing into the environment.
Seabreeze Pipeline the NGL pipeline located in Texas that is owned, directly or
indirectly, by the OLP.
Subsidiary has the meaning given such term in the MLP Agreement.
Voting Securities means securities of any class of Person entitling the holders
thereof to vote in the election of, or to appoint, members of the board of directors or
other similar governing body of the Person.
ARTICLE II
Indemnification
2.1 Environmental Indemnification.
(a) Subject to the provisions of Section 2.4 and Section 2.5, DEFS shall indemnify, defend and
hold harmless the Partnership Group and the Partnership Indemnitees from and against any Covered
Environmental Losses suffered or incurred by the Partnership Group or any Partnership Indemnitee
relating to the MLP Assets or the Black Lake Pipeline for a period of three (3) years from the
Closing Date; provided that, for purposes of determining the amount of any Covered Environmental
Loss suffered or incurred by the Partnership Group or any Partnership Indemnitee with respect to
the Black Lake Pipeline, the Partnership Groups indirect ownership of only 45% of the partnership
interests in BLPLC shall be taken into account such that any Covered Environmental Loss suffered or
incurred by the Partnership Group or any
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-5-
Partnership Indemnitee with respect to the Black Lake Pipeline would be determined in a
proportionate manner to the Covered Environmental Loss suffered or incurred by BLPLC with respect
to the same matter.
(b) The Partnership Group shall indemnify, defend and hold harmless DEFS and its Subsidiaries,
other than any Subsidiary constituting part of the Partnership Group, from and against any Covered
Environmental Losses suffered or incurred by DEFS and its Subsidiaries, other than any Subsidiary
constituting part of the Partnership Group, relating to the MLP Assets and the Black Lake Pipeline
occurring after the Closing Date, except to the extent that the Partnership Group is indemnified
with respect to any of such Covered Environmental Losses under Section 2.1(a), provided that in no
event shall the Partnership Group indemnify, defend or hold harmless DEFS and its Subsidiaries from
and against any Covered Environmental Losses relating to the Black Lake Pipeline arising from or
attributable to the 5% interest in BLPLC owned by DEFS and its Subsidiaries from and after the
Closing Date.
2.2 Indemnification for Certain Repair Costs. Subject to the provisions of Section 2.4 and
Section 2.5, DEFS shall also indemnify, defend and hold harmless the Partnership Group and the
Partnership Indemnitees from and against:
(a) any capital contributions required to be made by the Partnership Group to fund any repair
and/or replacement costs associated with, resulting from or identified during the 2006 pipeline
integrity testing of the Black Lake Pipeline that is ongoing as of the Closing Date and expected to
be completed in 2006 as required under the Pipeline Safety Improvement Act of 2002; provided that
the maximum amount that DEFS shall be required to contribute to the Partnership Group and the
Partnership Indemnitees pursuant to this Section 2.2(a) shall be $5.3 million; and
(b) any repair and/or replacement costs suffered or incurred by the Partnership Group or
Partnership Indemnitees associated with, resulting from or identified during the 2006 pipeline
integrity testing of the Seabreeze Pipeline scheduled for 2006 as required under the Pipeline
Safety Improvement Act of 2002; provided that, for purposes of this subsection (a), DEFS shall not
be obligated to indemnify the Partnership Group or any Partnership Indemnitee for any incremental
operating costs suffered or incurred by the Partnership Group associated with or resulting from any
of the repair or replacement of all or any portion of the Seabreeze Pipeline, provided further
that, the maximum amount that DEFS shall be required to contribute to the Partnership Group and the
Partnership Indemnitees pursuant to this Section 2.2(b) shall be $4.0 million.
2.3 Additional Indemnification
(a) Subject to the provisions of Section 2.4 and Section 2.5, DEFS shall indemnify, defend and
hold harmless the Partnership Group and the Partnership Indemnitees from and against any Losses
suffered or incurred by the Partnership Group or any Partnership Indemnitee by reason of or arising
out of:
(i) the failure of the Partnership Group to be the owner of valid and
indefeasible easement rights, leasehold and/or fee ownership interests in and to
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the lands on which are located any MLP Assets or the Black Lake Pipeline, or to have
valid and indefeasible ownership of a 45% partnership interest in BLPLC, and such
failure renders the Partnership Group liable or unable to use or operate the MLP
Assets or the Black Lake Pipeline in substantially the same manner that the MLP
Assets or the Black Lake Pipeline were used and operated by DEFS and its
Subsidiaries (and BLPLC, with respect to the Black Lake Pipeline) immediately prior
to the Closing Date as described in the Registration Statement; provided that, for
purposes of determining the amount of any Loss suffered or incurred by the
Partnership Group or any Partnership Indemnitee with respect to the Black Lake
Pipeline, the Partnership Groups ownership of only 45% of the partnership interests
in BLPLC shall be taken into account such that any Loss suffered or incurred by the
Partnership Group or any Partnership Indemnitee with respect to the Black Lake
Pipeline would be determined in a proportionate manner to the Loss suffered or
incurred by BLPLC with respect to the same matter;
(ii) the failure of the Partnership Group to have on the Closing Date any
consent or governmental permit necessary to allow (i) the transfer of any of the MLP
Assets or a 45% partnership interest in BLPLC to the Partnership Group on the
Closing Date or (ii) any such MLP Assets or the Black Lake Pipeline to cross the
roads, waterways, railroads and other areas upon which any such MLP Assets or the
Black Lake Pipeline are located as of the Closing Date, and any such failure
specified in such clause (ii) renders the Partnership Group unable to use or operate
the MLP Assets or the Black Lake Pipeline in substantially the same manner that the
MLP Assets or the Black Lake Pipeline were owned and operated by DEFS and its
Subsidiaries (and BLPLC, with respect to the Black Lake Pipeline) immediately prior
to the Closing Date as described in the Registration Statement; provided, that, for
purposes of determining the amount of any Loss suffered or incurred by the
Partnership Group or any Partnership Indemnitee with respect to the Black Lake
Pipeline, the Partnership Groups ownership of only 45% of the partnership interests
in BLPLC shall be taken into account such that any Loss suffered or incurred by the
Partnership Group or any Partnership Indemnitee with respect to the Black Lake
Pipeline would be determined in a proportionate manner to the Loss suffered or
incurred by BLPLC with respect to the same matter;
(iii) all federal, state and local income tax liabilities attributable to the
ownership or operation of the MLP Assets or the Black Lake Pipeline prior to the
Closing Date, including any such income tax liabilities of DEFS and its Subsidiaries
that may result from the consummation of the formation transactions for the
Partnership Group occurring on or prior to the Closing Date, but excluding any
federal, state and local income taxes reserved on the books of the Partnership Group
as of the Closing Date;
(iv) the assets, liabilities, business or operations of any of (a) Discovery
Producer Services, LLC, a [ ] limited liability company (Discovery), (b)
PanEnergy Dauphin Island LLC, a Delaware limited liability company
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(PanEnergy), (c) Gulf Coast NGL Pipeline, LLC, a Delaware limited liability company (Gulf
Coast), (d) Centana Gathering LLC, a Delaware limited liability company
(Centana), (e) DEFS Industrial Gas Co., LLC, a Delaware limited liability company
(DIGC), and (f) Centana Intrastate Pipeline LLC, a Delaware limited liability
company (CIP); and
(v) all currently pending legal actions against one or more members of the
Partnership Group or involving or otherwise relating to the MLP Assets, BLPLC or the
Black Lake Pipeline;
provided, however, that, in the case of clauses (i) and (ii) above, such indemnification
obligations shall survive for three (3) years from the Closing Date; and that in the case of clause
(iii) above, such indemnification obligations shall survive until sixty (60) days after the
expiration of any applicable statute of limitations.
(b) In addition to and not in limitation of the indemnification provided under this Article
II, the Partnership Group shall indemnify, defend, and hold harmless DEFS and its Subsidiaries,
other than any Subsidiary constituting part of the Partnership Group, from and against any Losses
suffered or incurred by DEFS and its Subsidiaries, other than any Subsidiary constituting part of
the Partnership Group, by reason of or arising out of events and conditions associated with the
operation of the MLP Assets or Black Lake Pipeline that occurs on or after the Closing Date;
provided that in no event shall the Partnership Group indemnify, defend or hold harmless DEFS and
its Subsidiaries pursuant to this Section 2.3(b) from and against any Losses relating to the Black
Lake Pipeline arising from or attributable to the 5% interest in BLPLC owned by DEFS and its
Subsidiaries from and after the Closing Date.
2.4 Limitations Regarding Indemnification.
(a) The aggregate liability of DEFS under Sections 2.1(a) shall not exceed $15.0 million (the
Cap).
(b) No claims may be made against DEFS for indemnification pursuant to Sections 2.1(a) unless
the aggregate dollar amount of the Losses suffered or incurred by the Partnership Group or
Partnership Indemnitees exceed $250,000, after such time DEFS shall be liable for the full amount
of such claims, subject to the limitations of Section 2.4(a).
(c) Notwithstanding anything herein to the contrary, in no event shall DEFS have any
indemnification obligations under this Agreement for claims made as a result of additions to or
modifications of Environmental Laws promulgated after the Closing Date.
2.5 Indemnification Procedures.
(a) The Indemnified Party agrees that within a reasonable period of time after it becomes
aware of facts giving rise to a claim for indemnification pursuant to this Article II,
they will provide notice thereof in writing to the Indemnifying Party specifying the nature of
and specific basis for such claim; provided, however, that the Indemnified Party shall not submit
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
-8-
claims more frequently than once a calendar quarter (or twice in the case of the last calendar
quarter prior to the expiration of the applicable indemnity coverage under this Agreement).
(b) The Indemnifying Party shall have the right to control all aspects of the defense of (and
any counterclaims with respect to) any claims brought against the Indemnified Party that are
covered by the indemnification set forth in this Article II, including, without limitation, the
selection of counsel, determination of whether to appeal any decision of any court and the settling
of any such matter or any issues relating thereto; provided, however, that no such settlement shall
be entered into without the consent (which consent shall not be unreasonably withheld, conditioned
or delayed) of the Indemnified Party unless it includes a full release of the Indemnified Party
from such matter or issues, as the case may be.
(c) The Indemnified Party agrees to cooperate fully with the Indemnifying Party with respect
to all aspects of the defense of any claims covered by the indemnification set forth in Article II,
including, without limitation, the prompt furnishing to the Indemnifying Party of any
correspondence or other notice relating thereto that the Indemnified Party may receive, permitting
the names of the Indemnified Party to be utilized in connection with such defense, the making
available to the Indemnifying Party of any files, records or other information of the Indemnified
Party that the Indemnifying Party considers relevant to such defense and the making available to
the Indemnifying Party of any employees of the Indemnified Party; provided, however, that in
connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact
thereof on the operations of the Indemnified Party and further agrees to maintain the
confidentiality of all files, records and other information furnished by the Indemnified Party
pursuant to this Section 2.5. In no event shall the obligation of the Indemnified Party to
cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be
construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in
connection with the defense of any claims covered by the indemnification set forth in this Article
II; provided, however, that the Indemnified Party may, at its own option, cost and expense, hire
and pay for counsel in connection with any such defense. The Indemnifying Party agrees to keep any
such counsel hired by the Indemnified Party reasonably informed as to the status of any such
defense, but the Indemnifying Party shall have the right to retain sole control over such defense.
(d) In determining the amount of any loss, cost, damage or expense for which the Indemnified
Party is entitled to indemnification under this Agreement, the gross amount of the indemnification
will be reduced by (i) any insurance proceeds realized by the Indemnified Party, and such
correlative insurance benefit shall be net of any incremental insurance premium that becomes due
and payable by the Indemnified Party as a result of such claim, (ii) all amounts recovered by the
Indemnified Party under contractual indemnities from third Persons and (iii) any proceeds realized
by the Indemnified Party from rate increases associated with the repair costs set forth in Section
2.2. The Partnership hereby agrees to use commercially reasonable efforts to realize any applicable
insurance proceeds, amounts recoverable under such contractual indemnities or recover any repair
costs incurred to comply with the Pipeline Safety Improvement Act of 2002 through the rates on the
Black Lake Pipeline or the SeaBreeze Pipeline.
DCP MIDSTREAM PARTNERS, LP
Omnibus Agreement
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ARTICLE III
Reimbursement Obligations
3.1 Reimbursement for Operating and General and Administrative Expenses.
(a) DEFS hereby agrees to continue to provide the Partnership Group with certain general and
administrative services, such as legal, accounting, treasury, insurance administration and claims
processing, risk management, health, safety and environmental, information technology, human
resources, credit, payroll, internal audit, taxes and engineering. These general and
administrative services shall be substantially identical in nature and quality to the services of
such type previously provided by DEFS in connection with their management and operation of the MLP
Assets during the one-year period prior to the Closing Date.
(b) Subject to the provisions of Section 3.3, the Partnership Group hereby agrees to reimburse
DEFS for all expenses and expenditures it incurs or payments it makes on behalf of the Partnership
Group for these general and administrative services.
(c) The Partnership Group hereby agrees to reimburse DEFS for all other expenses and
expenditures it incurs or payments it makes on behalf of the Partnership Group, including, but not
limited to, (i) salaries of operational personnel performing services on the Partnership Groups
behalf and the cost of employee benefits for such personnel, (ii) capital expenditures, (iii)
maintenance and repair costs and (iv) taxes.
(d) The General Partner shall be entitled to allocate any such expenses and expenditures
between the Partnership Group, on the one hand, and DEFS, on the other hand, in accordance with the
foregoing provision on any reasonable basis.
3.2 Reimbursement for Insurance. The Partnership Group hereby agrees to reimburse DEFS and
its Subsidiaries other than any Subsidiary constituting part of the Partnership Group for all
expenses it incurs or payments it makes on behalf of the Partnership Group and the Partnership
Indemnitees for (i) insurance coverage with respect to the MLP Assets and the Black Lake Pipeline
(excluding any insurance coverage relating to the 5% interest in BLPLC owned by DEFS and its
Subsidiaries from and after the Closing Date), (ii) insurance coverage with respect to claims
related to fiduciary obligations of officers, directors and control persons of the Partnership
Group and (iii) insurance coverage with respect to claims under federal and state securities laws.
3.3 Limitations on Reimbursement.
(a) The amount for which DEFS shall be entitled to reimbursement from the Partnership Group
pursuant to Section 3.1(b) for general and administrative expenses shall not exceed $4.8 million in
the aggregate in the first year following the date of this Agreement (the
G&A Expenses Limit). Thereafter, the G&A Expenses Limit shall be increased annually over
the next two years by the percentage increase in the Consumer Price Index All Urban Consumers,
U.S. City Average, Not Seasonally Adjusted for the applicable year. In the event that the
Partnership Group makes any acquisitions of assets or businesses or the business of the Partnership
Group otherwise expands during the first three years following the date of this
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Agreement, then the G&A Expenses Limit shall be appropriately increased in order to account for adjustments in the
nature and extent of the general and administrative services by DEFS to the Partnership Group, with
any such increase in the G&A Expense Limit subject to the approval of the Conflicts Committee.
After the third anniversary of the date of this
Agreement, the General Partner will determine the
amount of general and administrative expenses that will be properly allocated to the Partnership in
accordance with the terms of the Partnership Agreement.
(b) The obligation of the Partnership Group to reimburse DEFS and its Subsidiaries pursuant to
Section 3.2 shall not be subject to any monetary limitation.
ARTICLE IV
Continuance of Credit Support
4.1 Credit Support. DEFS shall maintain in full force and effect any and all credit support
arrangements, including without limitation guarantees and letters of credit, in effect as of the
Closing Date with respect to (i) any derivative financial instruments, including swap contracts
relating to the price of natural gas, crude oil or natural gas liquids and other hedging contracts,
related to the business or operations of the Partnership Group until the earlier to occur of (A)
the fifth anniversary of the Closing Date or (B) such time as the MLP obtains a credit rating of at
least B1 by Moodys Investors Services, Inc. or B+ by Standard & Poors Ratings Groups, a division
of The McGraw Hill Companies, with respect to any of its unsecured indebtedness and (ii) any
commercial contract related to the business or operations of the Partnership Group until the
expiration of such commercial contract, without giving effect to any renewal thereof beyond the
stated termination date of such contract.
ARTICLE V
Voting of DEFS Interest in BLPLC
5.1 Voting of DEFS Interest in BLPLC. From and after the Closing Date and so long as DEFS
and its Subsidiaries own any interest in BLPLC, DEFS will, and will cause its Subsidiaries to,
vote, take action by written consent or take any other action pursuant to the terms of the
partnership agreement of BLPLC or otherwise with respect to any such interest in BLPLC as directed
in writing by the Partnership Group to DEFS.
ARTICLE VI
Miscellaneous
6.1 Choice of Law; Submission to Jurisdiction. This Agreement shall be subject to and governed by the laws of the State of Colorado,
excluding any conflicts-of-law rule or principle that might refer the construction or
interpretation of this Agreement to the laws of another state. Each Party hereby submits to the
jurisdiction of the state and federal courts in the State of Colorado and to venue in Colorado.
6.2 Notice. All notices, requests or consents provided for or permitted to be given pursuant
to this Agreement must be in writing and must be given by depositing same in the United States
mail, addressed to the Person to be notified, postpaid, and registered or certified with return
receipt requested or by delivering such notice in person or by telecopier or telegram
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to such Party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice
given by telegram or telecopier shall be effective upon actual receipt if received during the
recipients normal business hours, or at the beginning of the recipients next business day after
receipt if not received during the recipients normal business hours. All notices to be sent to a
Party pursuant to this Agreement shall be sent to or made at the address set forth below or at such
other address as such Party may stipulate to the other Parties in the manner provided in this
Section 6.2.
For notices to DEFS:
370 17th Street, Suite 2500
Denver, Colorado 80202
Phone: (303) 595-3331
Fax: (303) 605-2226
Attention: General Counsel
For notices to DCP LLC, the General Partner, the MLP or the OLP:
370 17th Street, Suite 2775
Denver, Colorado 80202
Phone: (303) 633-2900
Fax: (303) 633-2921
Attention: General Counsel
6.3 Entire Agreement. This Agreement constitutes the entire agreement of the Parties relating
to the matters contained herein, superseding all prior contracts or agreements, whether oral or
written, relating to the matters contained herein.
6.4 Termination. Notwithstanding any other provision of this Agreement, if the General Partner is
removed as general partner of the Partnership under circumstances where Cause does not exist and
Units held by the General Partner and its Affiliates are not voted in favor of such removal, this
Agreement, other than the provisions set forth in Article II hereof, may immediately thereupon
be terminated by DEFS. The provisions of Article III of this Agreement shall also terminate upon a
Change of Control of DCP LLC, the General Partner or the MLP.
6.5 Effect of Waiver or Consent. No waiver or consent, express or implied, by any Party to or
of any breach or default by any Person in the performance by such Person of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a Party to complain of any act of any Person or to declare any
Person in default, irrespective of how long such failure continues, shall not constitute a waiver
by such Party of its rights hereunder until the applicable statute of limitations period has run.
6.6 Amendment or Modification. This Agreement may be amended or modified from time to time
only by the written agreement of all the Parties; provided, however, that the MLP
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and the OLP may
not, without the prior approval of the Conflicts Committee, agree to any amendment or modification
of this Agreement that, in the reasonable discretion of the General Partner, will adversely affect
the holders of Common Units. Each such instrument shall be reduced to writing and shall be
designated on its face an Amendment or an Addendum to this Agreement.
6.7 Assignment; Third Party Beneficiaries. No Party shall have the right to assign its rights
or obligations under this Agreement without the consent of the other Parties. Each of the Parties
hereto specifically intends that DEFS and each entity comprising the Partnership Entities, as
applicable, whether or not a Party to this Agreement, shall be entitled to assert rights and
remedies hereunder as third-party beneficiaries hereto with respect to those provisions of this
Agreement affording a right, benefit or privilege to any such entity.
6.8 Counterparts. This Agreement may be executed in any number of counterparts with the same
effect as if all signatory Parties had signed the same document. All counterparts shall be
construed together and shall constitute one and the same instrument.
6.9 Severability. If any provision of this Agreement or the application thereof to any Person
or circumstance shall be held invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provision to other Persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
6.10 Gender, Parts, Articles and Sections. Whenever the context requires, the gender of all words used in this Agreement shall include
the masculine, feminine and neuter, and the number of all words shall include the singular and
plural. All references to Article numbers and Section numbers refer to Articles and Sections of
this Agreement.
6.11 Further Assurances. In connection with this Agreement and all transactions contemplated
by this Agreement, each Party agrees to execute and deliver such additional documents and
instruments and to perform such additional acts as may be necessary or appropriate to effectuate,
carry out and perform all of the terms, provisions and conditions of this Agreement and all such
transactions.
6.12 Withholding or Granting of Consent. Each Party may, with respect to any consent or
approval that it is entitled to grant pursuant to this Agreement, grant or withhold such consent or
approval in its sole and uncontrolled discretion, with or without cause, and subject to such
conditions as it shall deem appropriate.
6.13 Laws and Regulations. Notwithstanding any provision of this Agreement to the contrary, no
Party shall be required to take any act, or fail to take any act, under this Agreement if the
effect thereof would be to cause such Party to be in violation of any applicable law, statute, rule
or regulation.
6.14 Negation of Rights of Limited Partners, Assignees and Third Parties. The provisions of
this Agreement are enforceable solely by the Parties, and no limited partner, member, or assignee
of DEFS, the MLP or the OLP or other Person shall have the right, separate
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and apart from DEFS, the
MLP or the OLP, to enforce any provision of this Agreement or to compel any Party to comply with
the terms of this Agreement.
6.15 No Recourse Against Officers or Directors. For the avoidance of doubt, the provisions of
this Agreement shall not give rise to any right of recourse against any officer or director of DEFS
or any Partnership Entity.
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IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the
Closing Date.
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DCP MIDSTREAM GP, LLC |
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DCP MIDSTREAM PARTNERS, LP |
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DCP MIDSTREAM OPERATING, LP |
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DCP MIDSTREAM PARTNERS, LP
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exv10w5
Exhibit 10.5
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE
CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE
REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE
APPROPRIATE PLACE WITH [CONFIDENTIAL].
NATURAL GAS GATHERING AGREEMENT
THIS AGREEMENT, is made and entered into this 1st day of June, 1987, by and
between CORNERSTONE NATURAL GAS COMPANY, a Delaware corporation, (hereinafter referred to as
Gatherer) and PHILLIPS PETROLEUM COMPANY, a Delaware corporation, (hereinafter referred
to as Producer) both hereinafter collectively referred to as the Parties, and individually as a
Party.
W I
T N E S S E T
H :
WHEREAS, Producer desires that Gatherer gather volumes of gas produced from wells in a certain
specified area; and
WHEREAS, Gatherer will have available as a gathering system in such area and agrees to gather
such gas for Producer in accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, together with the
other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged
by both Gatherer and Producer, the Parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement, the following definitions shall be applicable.
1.1 The term gas shall include casinghead gas produced with crude oil, natural gas from gas
wells and residue gas resulting from processing both casinghead gas and gas well gas.
1.2 A day shall begin at 7:00 a.m. local time on each calendar day and end at 7:00 a.m.
local time on the following calendar day; a month shall mean that period of time beginning at
7:00 a.m. local time on the first day of a calendar month and ending at 7:00 a.m. local time on the
first day of the following calendar month; a year shall mean a period of twelve (12) consecutive
months beginning on the first day of the month during the occurrence of initial deliveries of gas
hereunder; each succeeding year shall be a succeeding twelve (12) month period; provided, however,
the last year of this Agreement shall end at the termination hereof as provided in Article IX of
this Agreement.
1.3 The term MCF shall mean one thousand (1,000) cubic feet, and MMCF shall mean one million
(1,000,000) cubic feet, at a pressure of fifteen and twenty-five thousandths (15.025) psia and at a
temperature of sixty degrees (60º) Fahrenheit.
1.4 The term BTU shall mean British Thermal Units.
1.5 The term MMBTU shall mean 1,000,000 BTUs.
1.6 The term Heating Value shall mean the gross number of BTUs which would be contained in
a volume of one (1) cubic foot of gas at a temperature of sixty degrees (60º) Fahrenheit when
saturated with water vapor and under a pressure of fifteen and twenty-five thousandths (15.025)
pounds per square inch absolute and adjusted to reflect the actual water vapor content of the gas
delivered; however, if the water vapor content is seven (7) pounds per million cubic feet or less,
the gas shall be deemed dry.
1.7 The term psig shall mean pounds per square inch gauge.
1.8 The term psia shall mean pounds per square inch absolute.
1.9 Equivalent Quantities shall mean the quantities of gas delivered to Producer by Gatherer
at the Points of Delivery, which quantities shall be volumetric equivalent, as measured
2
in MMBTUs of the quantities of gas received by Gatherer at the Points of Receipt, less and
except such quantities of gas (measured in MMBTU) retained by Gatherer as an allowance for
compressor fuel and line loss as provided in section 6.2.
1.10 Points of Receipt shall mean the point or points, as described in paragraph 3.1, at
which Producer will deliver or cause to be delivered, and Gatherer will receive, the volumes of gas
produced from wells subject to this Agreement.
1.11 Points of Delivery shall mean the point or points, as described in paragraph 3.2, at
which Gatherer will redeliver the gas gathered hereunder to Producer or for its account.
1.12 Ada System shall meant that gathering system shown in heavy red lines on Exhibit A
attached hereto.
1.13 Ada Field shall mean that area lying within the heavy black lines on Exhibit A
attached hereto.
1.14 Payout Period shall mean that period of time commencing as of the date first
hereinabove written and continuing until such time as there has been gathered and delivered through
the Ada System a total volume of gas equal to twenty-three billion cubic feet, said total volume to
include Producers gas and gas of third-parties produced from wells located within the Ada Field,
as herein defined. There shall not be credited against said twenty-three (23) billion cubic feet
amount any gas produced from wells located in areas outside such Ada Field, as herein defined.
1.15 The terms gas owned or controlled by Producer or Producers gas shall mean all gas
produced from wells located in the Ada Field, as herein defined, in which Producer now owns or
hereafter acquires an ownership interest or which Producer now has or hereafter acquires the right
to sell or the right to control the gathering thereof; provided, however, there
3
shall not be included within such terms any gas which Producer has, prior to June 1, 1987,
dedicated or committed to third parties by contracts which prevent Producer from performing
hereunder with respect to such gas, it being further provided that such committed or dedicated gas
shall be included within such terms upon the termination of such contracts or other release
therefrom.
ARTICLE II
GATHERING
2.1 Upon the execution hereof, Gatherer shall proceed with due diligence to make available and
to have operational all of the facilities necessary to perform the services contemplated hereunder.
In the event that said facilities are not available and operational within one hundred and twenty
(120) days following the date first hereinabove written (said one hundred and twenty day period to
be extended for periods of delay due to events of force majeure as defined in Article XII),
Producer shall have the right to terminate this Agreement in accordance with the procedures and
subject to the conditions hereinafter set forth.
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a. |
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Producers right of termination shall be effected by giving to Gatherer not
less than ninety days written notice of Producers intent to terminate this Agreement.
Said written notice shall be served upon Gatherer after the expiration of the
above-referenced 120-day period (as such period may be extended by reasons of force
majeure). |
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b. |
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Gatherer shall have a period of ninety days (such ninety day period to be
extended during periods of delay due to events of force majeure as defined in Article
XII) (such period to be hereinafter referred to as the Notice Period) following
Gatherers receipt of Producers written notice to make available and operational all
facilities necessary to perform the services contemplated hereunder. Should |
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Gatherer have such facilities available and operational prior to the expiration of
the Notice Period, as such period may be extended by force majeure, then this
Agreement shall not terminate but shall continue in full force and effect in
accordance with its terms. |
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c. |
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Notwithstanding the provisions of subparagraph b above, in the event that the
facilities are not available and operational upon the expiration of the Notice Period,
Gatherer shall have the right, but not the obligation, to extend the period of time
allowed to have the facilities available and operational beyond the Notice Period by
serving written notice upon Producer on or before the last day of the Notice Period of
Gatherers intent to continue to proceed under this Agreement. In the event that
Gatherer makes such election, and serves written notice upon Producer as herein
provided, Gatherer shall pay to Producer a penalty of five hundred dollars ($500.00)
per day for each day of such extension until the earlier of: (i) the date upon which
such facilities become available and operational, or (ii) the date upon which Gatherer
serves a subsequent written notice upon Producer stating that Gatherer is abandoning
the project and terminating this Agreement. Gatherer shall pay to Producer any amounts
due hereunder within ten days following the occurrence of either of the
above-referenced events. |
In the event that this Agreement is terminated in accordance with the procedures set forth above,
this Agreement shall be of no further force or effect and neither Party hereto shall have any
further rights or obligations hereunder, save and except the obligation of Gatherer to pay for any
periods of extension as provided in subparagraph c above.
5
2.2 Upon the first day that such facilities become operational, and continuing thereafter for
the term of this Agreement, [CONFIDENTIAL] as herein provided. Subject to the other terms hereof,
Gatherer agrees to receive, at the Points of Receipt all such gas owned or controlled by Producer
within said area, and to deliver Equivalent Quantities of gas to Producer (or for its account) at
the Points of Delivery. Such agreements by Producer and by Gatherer apply both to wells presently
producing within said area and to wells hereafter drilled during the term of this agreement within
said area which are connected to the Ada System as provided in paragraph 2.3 below. As stated in
Section 1.9 hereof, Equivalent Quantities refers to that same quantity of gas as was made
available by Producer to Gatherer at the various Points of Receipt, less the allowance for
compressor fuel and line loss, as provided in Section 6.2 hereof.
2.3 As to wells hereafter drilled during the term of this Agreement and as to any wells from
which gas is currently being produced, such gas production, however, not being gas owned or
controlled by Producer as defined in Paragraph 1.15 as of the date hereof but hereafter being
included within such definition, Gatherer agrees to have each such well connected to the Ada System
within ninety (90) days of Gatherers receipt of: (i) all deliverability information; (ii) a plat
showing the precise well location; and (iii) a specific written notice by Producer that such well
is ready for connection; provided, that such obligation of Gatherer to connect such wells is
subject to the following: (1) extension of the ninety (90) day period due to events of force
majeure, including but not limited to difficulties in obtaining rights-of-way; and (2) Gatherer
shall not be obligated to connect any well unless such well is determined by Gatherer, in its sole
opinion, to be capable of producing a minimum of one billion cubic feet of gas owned or controlled
by Producer for each single mile of gathering line which is required to be laid. In the event that
Gatherer determines that any well is not capable of producing at least
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one billion cubic feet of gas owned or controlled by Producer for each mile of gathering line
required and elects not to connect such well in accordance herewith, Producer shall have the right,
at its sole cost, risk and expense to construct the necessary facilities required to connect such
well to Gatherers Ada System. Gatherer hereby agrees that at such time, if ever, that the well
connected by Producer produces a volume of one billion cubic feet of gas owned or controlled by
Producer for each mile of gathering line constructed for such well, Gatherer will reimburse
Producer for Producers actual documented out-of-pocket cost of constructing the facilities
necessary to connect the well in an amount up to, but not to exceed eighty thousand dollars per
mile of gathering line constructed. Upon such payment, Producer shall, at Gatherers request,
convey to Gatherer the subject facilities by the execution of mutually agreeable documents of
title.
2.4 Subject to all other provisions of this Agreement, Producer shall make available to
Gatherer at the Points of Receipt, and Gatherer shall receive such daily quantities of gas owned or
controlled by Producer and produced from wells located in the Ada Field. Gatherer shall, as nearly
as practicable each day, given the operating requirements and constraints of Gatherers Ada System,
redeliver to Producer, or for its account, and Producer shall accept (or cause to be accepted)
delivery at the Points of Delivery Equivalent Quantities of gas, such being the quantity of gas
received, less the quantity of gas retained by Gatherer as an allowance for compressor fuel and
line loss as provided in paragraph 6.2.
ARTICLE III
POINT OF RECEIPT AND DELIVERY
3.1 The Points of Receipt for gas gathered hereunder shall be at the inlet flange of
Gatherers facilities at the points of interconnection between the gathering facilities of Gatherer
with the facilities of Producer at each well and at other mutually agreeable points.
7
3.2 The Points of Delivery for gas gathered hereunder shall be at Gatherers outlet flange of
the measurement and delivery facilities to be located at a point of interconnection of Gatherers
gathering facility with the Texas Gas Transmission Companys twenty-inch pipeline, or some facility
connected thereto, and at any other mutually agreeable points.
3.3 Points of Receipt and Delivery may be at existing points through which other volumes of
gas are being measured; therefore, the measurement of gas under this Agreement may involve the
allocation of gas deliveries. Each Party hereto will furnish or cause to be furnished to the other
Party hereto all data required to accurately account for all gas received and delivered hereunder.
ARTICLE IV
PRESSURE
4.1 Producer shall deliver gas to Gatherer at the Points of Receipt at pressures sufficient to
effect delivery of said gas; provided, however, Producer shall in no event be required to deliver
gas at pressures in excess of 500 psig, nor shall Producer deliver gas at pressures in excess of
1,100 psig.
4.2 Gatherer shall deliver gas to Producer, or for its account, at pressures sufficient to
effect delivery of said gas at the Points of Delivery; provided, however, Gatherer shall in no
event be required to deliver gas at pressures in excess of 1,000 psig.
ARTICLE V
QUALITY OF GAS
5.1 The Parties hereto agree that Producer is obligated to make available to Gatherer gas
which is merchantable and which will, upon delivery, be commercially free of dust, gum, gumforming
constituents, gasoline, water and any other substance of any kind that may become
8
separated from the gas during the handling thereof, and such gas shall conform to the
following specifications:
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a.
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dust, rust and other solids
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none; |
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b.
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carbon dioxide
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not more than 3% by volume; |
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c.
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oxygen
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not more than 2/10 of 1% by volume; |
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d.
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hydrogen sulfide
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not more than 1/4 grain per 100 cubic feet; |
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e.
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total sulfur
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not more than 20 grains per 100 cubic feet; |
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f.
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free water
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none; |
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g.
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heating value
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not less than 950, nor more than 120° BTU per Mcf; |
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h.
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temperature
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not more than 120° F, nor less than 40° F; |
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water vapor
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not more than 7# per million cubic feet; |
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j.
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nitrogen
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not more than 3% by volume. |
5.2 In addition to the above-specifications, all gas delivered to Gatherer shall also conform
to the quality specifications required by any transporting pipeline at the Points of Delivery. If,
at any time, the quality of the gas delivered hereunder is such that it does not meet both the
requirements of Gatherer as stated herein, and the requirements of any such transporting pipeline,
Gatherer, at its option, may refuse to accept deliveries of said gas until Producer corrects such
condition. Gatherer shall give Producer notice of such nonspecification gas before refusing to
accept deliveries.
9
ARTICLE VI
GATHERING FEE
6.1 The fee which Producer shall pay to Gatherer for the gathering and redelivery of gas as
described herein shall be as follows:
a. during the Payout Period, as herein defined, Producer shall pay the following fees
according to the indicated volumes:
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during each calendar month in which Producers average daily
delivery of gas to Gatherer at the Points of Receipt is less than 18 MMCF, the
gathering fee shall be twenty-two cents ($0.22) per MCF; |
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(ii) |
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during each calendar month in which Producers average daily
delivery of gas to Gatherer at the Points of Receipt equals or exceeds 18 MMCF,
but is less than 27 MMCF, the gathering fee shall be eighteen cents ($0.18) per
MCF; and |
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(iii) |
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during each calendar month in which Producers average daily
delivery of gas to Gatherer at the Points of Receipt equals or exceeds 27 MMCF,
then said gathering fee shall be sixteen cents ($0.16) per MCFI. |
b. At the conclusion of the Payout Period, commencing at 7:00 a.m. on the morning
following the final day of the Payout Period, the gathering fee payable hereunder for all of
Producers gas shall be fixed at fifteen ($0.15) cents per MCF for the remaining term of
this Agreement.
In computing the average daily deliveries for the purpose of calculating the fee per MCF due to
Gatherer under this Paragraph 6.1, there shall not be included in the average daily delivery
calculation any day or days (nor any volumes of gas delivered to Gatherer on such day or days)
during which Gatherers performance hereunder was interrupted in whole or in part by reasons of
10
force majeure; provided, that if during such day or days of interruption, Producer had available
for delivery to Gatherer volumes of gas in excess of those volumes actually received by Gatherer,
Producer shall pay Gatherer the applicable fee, calculated in accordance with the foregoing, for
each MCF of Producers gas produced and delivered to Gatherer at the Points of Receipt less the
three percent (3%) retained by Gatherer as an allowance for compressor fuel and line loss as
provided in paragraph 6.2 below.
6.2 As additional consideration for the gathering of gas hereunder, Gatherer shall retain
three percent (3%) of that quantity of gas (measured on an MMBtu basis) delivered to Gatherer at
the Points of Receipt as an allowance for the compressor fuel and line loss. Accordingly, Gatherer
shall redeliver to Producer, or for its account, at the Points of Delivery, Equivalent Quantities
of gas which shall be that volume of gas gathered by Gatherer at the Points of Receipt, less such
three percent (3%) retained hereunder for compressor fuel and line loss.
ARTICLE VII
BILLINGS AND PAYMENTS
7.1 On or before the twenty-fifth (25th) day of each month following the date on which the
gathering of gas commenced hereunder, Gatherer shall render to Producer a statement for the
preceding month properly identifying the applicable receipt location(s) and showing the daily and
total volume of gas received and gathered for Producer hereunder and the amount due therefor.
7.2 Producer shall pay Gatherer for services rendered hereunder, at Gatherers address given
in Article X, on or before the last day of each such month.
7.3 Each Party hereto shall have the right at any and all reasonable times to examine the
books and records of the other Party to the extent necessary to verify the accuracy of any
statement, charge, computation or demand made under or pursuant to this Agreement; provided,
11
however, that any such statement or charge hereunder shall be final as to both Parties unless
questioned within two (2) years from the date such is paid.
ARTICLE VIII
MEASUREMENT AND TESTS
The measurement and tests for quality of gas received and delivered hereunder shall be
governed by the following:
8.1 The volume shall be measured by orifice meters with linear charts, 24-hour rotation, or
other mutually agreeable measuring devices installed and operated, and computations made, as
prescribed by the American Petroleum Institute and published as Gas Measurement Committee Report
No. 3, American Gas Association, as revised and reprinted in September 1969, including any
appendices or amendments thereto, or such other method as may be mutually acceptable.
8.2 The unit of volume for purposes of measurement shall be one (1) cubic foot of gas at a
temperature base of sixty degrees (60°) Fahrenheit and at a pressure base of fifteen and
twenty-five thousandths (15.025) pounds per square inch absolute.
8.3 The arithmetical average of the hourly temperature recorded during each day, and if a
recording gravitometer is installed, the hourly specific gravity recorded each day, the factors for
the average hourly temperature and specific gravity according to the latest test therefor and the
correction for deviation from Boyles Law applicable during each day shall be used to make proper
computations of volumes hereunder. Chart integration and volume computations shall be made by the
Party (or its agent) that owns the measurement facilities at the Points of Receipt and Points of
Delivery as accurately as possible and within the accuracy prescribed by the manufacturer of the
computing equipment used.
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8.4 Temperature shall be determined by a twenty-four (24) hour continuously recording
thermometer installed so as to record the temperature of the gas flowing through the meters. The
average temperature, to the nearest one degree (1°) Fahrenheit, obtained while gas is being
delivered, shall be the applicable flowing gas temperature for the twenty-four (24) hour period
under consideration.
8.5 The specific gravity of the gas delivered hereunder shall be determined at each point of
measurement by spot tests made with an instrument of standard manufacture acceptable to the parties
or by a recording gravitometer or other mutually agreeable means. If spot tests are made, the
specific gravity of the gas delivered hereunder shall be determined monthly or as frequently as is
found necessary in practice to insure accurate measurement.
8.6 Adjustment for the effect of supercompressibility shall be determined by test or by mutual
consent of the parties hereto according to the provisions of said Report No. 3, hereinabove
identified for the average conditions of pressure, flowing temperature and specific gravity at
which the gas was measured during the period under consideration and with the respective
proportionate values for carbon dioxide and nitrogen fraction values and to obtain subsequent
values of these components as may be required from time to time.
8.7 The BTU content of the gas shall be determined by using a continuous accumulator, a spot
sample, a continuously recording calorimeter, or any other method in general use in the gas
industry. Any recording calorimeter required shall be at the Point(s) of Delivery.
8.8 Tests to determine sulfur, hydrogen sulfide, oxygen, carbon dioxide, nitrogen and water
content shall be made by approved standard methods in general use by the gas industry. Such tests
shall be made at the request of any party hereto.
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8.9 All new measuring and testing equipment, housing devices and materials shall be of
standard manufacture and type and shall, with all related equipment, appliances and buildings, be
installed, maintained and operated or caused to be installed, maintained and operated by Gatherer
at the Points of Receipt and by Producer, Gatherer, or such other third persons owning or
controlling same at the Points of Delivery. Either Party may install and operate check measuring
and testing equipment, which shall not interfere with the use of equipment of the Party responsible
for measurement at the point.
8.10 The accuracy of the measuring and testing equipment shall be verified at least once each
month and at other times upon request of Producer or Gatherer. Tests for quality of the gas may be
made at times of testing equipment or at other times. Notices of the time and nature of each test
shall be given by the measuring Party sufficiently in advance to permit convenient arrangement for
the witnessing Party to have a representative present. Measuring and testing equipment shall be
tested by means and methods approved by both Producer and Gatherer (which approval shall not be
unreasonably withheld). Tests and adjustments shall be made in the presence of and observed by
representatives of both Parties, if present. If after proper notice, Producer or Gatherer fails to
have a representative present, the results of the tests shall nevertheless be considered accurate
until the next tests are made. All regular monthly tests of measuring equipment shall be made at
the expense of the owner of same. All tests made at the special request of a Party shall be made
at the expense of the Party requesting same.
8.11 If at any time any of the measuring or testing equipment is found to be out of service or
registering inaccurately in any percentage, it shall be adjusted at once to read accurately within
the limit prescribed by the manufacturer. If such equipment is out of service or inaccurate by an
amount exceeding two percent (2%) at any reading or upon any test, registration
14
thereof and any payment based thereon shall be corrected at the rate of such inaccuracy for
any period which the Parties agree upon, and if the Parties cannot agree, then for a period
extending back one-half (1/2) of the time elapsed since the date of the last calibration, not
exceeding, however, sixteen (16) days. The volume of gas received during such period shall be
estimated: (i) by using the data recorded by any check measuring equipment if installed arid
accurately registering; or, if not installed or if registering inaccurately, (ii) by correcting the
error if the percentage of error is ascertainable by calibration, test or mathematical calculation;
or, if neither such method is feasible, (iii) by estimating the quantity delivered based upon
deliveries under similar conditions during a period when the equipment was registering accurately.
No adjustment shall be made for recorded inaccuracies of two percent (2%) or less.
8.12 Each Party hereto shall have the right to inspect equipment installed or furnished by the
other Party or third parties and the charts and other measurement or testing data of all such
parties at all times during business hours; but the reading, calibration and adjustment of such
equipment and changing of charts shall be done only by the Party installing and furnishing the
same. Each Party hereto shall preserve all original test data, charts and other similar records in
such Partys possession for a period of at least twenty-four (24) months.
ARTICLE IX
TERM
9.1 Subject to all of the terms and conditions contained herein, this Agreement shall remain
in full force and effect for a primary term of ten (10) years from the date first hereinabove
written, and shall continue year to year thereafter unless and until either Party terminates this
Agreement effective at the end of such ten (10) year primary term or any successive one (1) year
term by giving written notice of same at least thirty (30) days prior to the last day thereof.
15
ARTICLE X
NOTICE
10.1 Any notice, request, statement, correspondence or payment provided for in this Agreement
shall be given in writing, delivered in person or by United States mail to the Parties hereto at
the addresses shown below or at such other addresses as may be hereafter furnished by one Party to
the other Parties in writing. Notices shall be effective as of the date same is received.
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PRODUCER
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NOTICES AND CORRESPONDENCE: |
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Phillips 66 Natural Gas Company |
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P.O. Box 1967 |
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Houston, Texas 77251-1967 |
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STATEMENTS AND BILLING: |
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Phillips 66 Natural Gas Company |
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910 G-POB |
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Bartlesville, Oklahoma 74004 |
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GATHERER
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Cornerstone Natural Gas Company |
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8080 N. Central Expressway |
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Twelfth Floor, L. B. 47 |
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Dallas, Texas 75206 |
ARTICLE XI
WARRANTY OF TITLE
11.1 Producer hereby warrants that it has good title and the right to produce and deliver all
the gas received by Gatherer hereunder free and clear of all liens, encumbrances and claims
whatsoever and agrees to indemnify Gatherer against any loss or cost incurred by it on account of
any such liens, encumbrances and claims whatsoever. Gatherer warrants that at the time of delivery
for the account of Producer the gas delivered hereunder shall be free and clear of all liens,
encumbrances and claims whatsoever resulting from Gatherers receipt and gathering of
16
the gas pursuant to this Agreement and agrees to indemnify Producer against any loss or cost
incurred by it on account of any such liens, encumbrances and claims whatsoever.
ARTICLE
XII
FORCE MAJEURE
12.1 If either Party is rendered unable, wholly or in part, by force majeure or any other
cause of any kind not reasonably within its control, other than financial, to perform or comply
with any obligation or condition of this Agreement, upon giving notice and reasonably full
particulars to the other Party, as soon as reasonably possible, such obligation or condition shall
be suspended during the continuance of the inability so caused and such Party shall be relieved of
liability and shall suffer no prejudice for failure to perform the same during such period;
provided, obligations to make any payment then due for gas gathered and delivered hereunder shall
not be suspended. The cause for suspension (other than labor disputes, strikes or lockouts) shall
be remedied so far as possible with reasonable dispatch. Settlement of strikes, lockouts and labor
disputes shall be wholly within the discretion of the Party having the difficulty. The term force
majeure shall include, without limitation by the following enumeration, acts of God and the public
enemy, the elements, fire, accidents, breakouts, strikes and any other industrial, civil or public
disturbance, inability to obtain or delay in obtaining rights-of-way, material, supplies, permits
or labor, failure of equipment or markets, any act or omission by parties not subject to control by
the Party having the difficulty, and any laws, orders, rules, regulations, acts or restraints of
any government or governmental body or authority, civil or military.
ARTICLE XIII
GOVERNMENTAL RULES, REGULATIONS, AND AUTHORIZATIONS
13.1 This Agreement is subject to all valid orders, laws, rules and regulations of duly
constituted governmental authorities having jurisdiction or control over the Parties, their
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facilities or gas supplies, this Agreement or any provisions hereof. If at any time during
the term hereof, any such governmental authority shall take any action as to either Party which
subjects the receipt or delivery of gas hereunder to terms, conditions, restraints or regulations,
including rate or price controls or ceilings that in the sole judgment of the Party affected are
unduly burdensome to that Party, such Party may cancel and terminate this Agreement without further
liability hereunder.
13.2 The Parties agree to timely file and prosecute all applications, statements and notices
required by any governmental regulatory authority having appropriate and applicable jurisdiction.
ARTICLE XIV
MISCELLANEOUS
14.1 Any modification of terms or amendment of provisions shall become effective only upon
execution, by both Gatherer and Producer, of a supplemental written agreement.
14.2 No waiver by Producer or Gatherer of any default of the other under this Agreement shall
operate as a waiver of any other default, whether of a like or a different character.
14.3 As between the Parties hereto, Producer shall be in control and in possession of the gas
prior to such gas being received by Gatherer at the Points of Receipt and responsible for any
damages, losses or injuries caused thereby, except injuries and damages which shall be occasioned
solely and proximately by the negligent acts or omissions of Gatherer. Between the Points of
Receipt of said gas and the Points of Delivery, Gatherer shall be deemed to be in exclusive control
and possession of such gas and responsible for any injuries or damages caused thereby, except
injuries and damages which shall be occasioned solely and proximately by the negligent acts or
omissions of Producer (or its agents). At the Points of Delivery of said gas to
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Producer (or its nominees) by Gatherer, and thereafter, Producer shall be deemed to be in
exclusive control and possession of such gas and responsible for any injuries or damages caused
thereby, except injuries and damages which shall be occasioned solely and proximately by the
negligent acts or omissions of Gatherer.
14.4 This agreement to gather gas for Producer, as provided herein, shall not prevent Gatherer
from making similar gathering agreements, or amendments to existing agreements with other parties.
14.5 As to all matters of construction and interpretation, this Agreement shall be
interpreted, construed and governed by the laws of the State of Texas.
14.6 This Agreement may be assigned by either Party hereto but no assignment shall relieve
such Party of its obligations hereunder without the written consent of the other Parties. No
assignment of this Agreement shall be effective as to the other Party until 30 days after written
notice of same is received by the non-assigning Party.
14.7 Gatherer is acting hereunder as an independent contractor and nothing contained herein
shall be construed or is intended to create a partnership, joint venture or relationship other than
that of Gatherer as an independent contractor, as between the Parties hereto.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year
first hereinabove written.
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CORNERSTONE NATURAL GAS COMPANY |
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By:
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/s/ Kelcy L. Warren
Kelcy L. Warren
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President |
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PHILLIPS PETROLEUM COMPANY |
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By:
Its:
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/s/ C. B. Friley
Attorney-In-Fact
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ACKNOWLEDGEMENTS
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STATE OF OKLAHOMA
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) |
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COUNTY OF WASHINGTON
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Personally appeared before me, the undersigned Notary Public in and for the State and County,
the within named C. B. Friley, Attorney-In-Fact, of Phillips Petroleum
Company, who acknowledged that he signed and delivered the foregoing instrument on the day and
year therein mentioned, as the free and voluntary act and deed of said corporation, being thereunto
duly authorized.
Given under my hand and seal this 19th day of May, 1987.
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Connie D. Pignet
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Notary Public |
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My Commission Expires 9-19-88
Personally appeared before me, the undersigned Notary Public in and for the State and County,
the within named Kelcy L. Warren, President of Cornerstone Natural Gas
Company, who acknowledged that he signed and delivered the foregoing instrument on the day and
year therein mentioned, as the free and voluntary act and deed of said corporation, being thereunto
duly authorized.
Given under my hand and seal this 1st day of June, 1987.
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Kimberly H. Johnson
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Notary Public |
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My Commission Expires 2-9-91
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EXHIBIT A
ADA FIELD AND SYSTEM
Webster and Bienville Parishes, Louisiana
[CONFIDENTIAL]
A-1
THIS Amendment to the Natural Gas Gathering Agreement dated June 1, 1987, by and between
NATURAL GAS COMPANY, as Gatherer, and PHILLIPS PETROLEUM COMPANY, as Producer, is made and entered
into effective January 1, 1989.
WITNESSETH:
WHEREAS, Producer is drilling and completing wells on acreage committed under the Natural Gas
Gathering Agreement that will produce gas at pressures sufficient to avoid compression by Gatherer;
NOW, THEREFORE, in consideration of the mutual covenants contained hereinafter, Gatherer and
Producer do hereby agree the terms and conditions of the Natural Gas Gathering Agreement cited
above are amended as follows:
1. In the event Producer drills and completes wells capable of delivering gas at pressures
considerably greater than Gatherers compressor discharge pressure, then Producer will
advise Gatherer of said wells delivery pressure capability in conjunction with Producers
request to Gatherer to connect the well to Gatherers Ada System (as defined in the
Agreement).
2. If Gatherer desires to connect said well to that portion of its Ada System that accepts
gas at the Points of Receipt and redelivers gas at the Points of Delivery without being
compressed, hereinafter defined as Gatherers High Pressure Ada System, then Producer and
Gatherer shall
i) Raise the maximum Point of Receipt pressure specified in Article 4.1 of the
Agreement from 500 psig to 1000 psig, as it applies only to those wells entering
Gatherers High Pressure Ada System, and
ii) Reduce the fuel and line loss quantity specified in Article 6.2 of the Agreement
from three percent (3%) to zero percent (0%) as it applies only to gas from those
wells entering Gatherers High Pressure Ada System.
3. If, in the future, Producer determines that any well then connected to Gatherers High
Pressure Ada System is incapable of satisfactorily producing gas against the pressure
maintained therein, then upon request by Producer, Gatherer will disconnect said well from
its High Pressure Ada System and reconnect the well to its Ada System. Furthermore, the
Agreement conditions affecting Point of Receipt pressure and fuel and line loss as amended
herein shall revert to those of the Agreement as they apply to that well.
4. The terms and conditions as amended herein shall immediately apply to the following four
(4) wells:
[CONFIDENTIAL]
Producer and Gatherer agree to this Amendment as stated above by executing two (2) originals
of this document in the space provided below.
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GATHERER: |
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PRODUCER: |
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CORNERSTONE NATURAL GAS COMPANY
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PHILLIPS PETROLEUM COMPANY |
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By:
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/s/ Kelcy L. Warren
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By:
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/s/ H. F. Zeiler |
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Title:
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President
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Title:
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Attorney-in-Fact
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Date:
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9-27-89
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Date:
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February 21, 1989 |
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WITNESS: |
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WITNESS: |
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/s/ Vanessa Replogle |
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/s/ Karen R. Toby |
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3
[CORNERSTONE NATURAL GAS COMPANY LETTERHEAD]
October 29, 1993
Phillips Petroleum Company
Post Office Box 1967
Houston, TX 77251-1967
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Re: |
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Gas Gathering Agreement by and between Cornerstone Natural Gas
Company and Phillips Petroleum Company, Dated June 1, 1987,
Contract Number CGGA-1000 |
Ladies and Gentlemen:
As you may be aware, Endevco, Inc. and certain of its subsidiaries, excluding however, Cornerstone
Natural Gas Company, filed for relief under Chapter 11 of the United States Bankruptcy code on June
4, 1993. A confirmation hearing on Endevcos First Amended Joint Plan of Reorganization was held
on September 27 and 29, 1993 at which time the Court confirmed the Plan and ordered Endevco, Inc.
and certain of its subsidiary corporations to immediately begin implementing the Plan.
Endevco, Inc.s First Amended Joint Plan of Reorganization requires certain of Endevco, Inc.s and
various subsidiary corporations assets including the Cornerstone Natural Gas Company contract
referenced above (the Contract) to be distributed (Distribution Assets) according to the
direction of holders (Noteholders) of certain Senior and Subordinated Notes of Endevco, Inc. The
Noteholders have in turn directed that the Distribution Assets be conveyed to Associated Natural
Gas Corporation (ANGC) or its subsidiaries, which has its principal offices in Denver, Colorado.
October 29, 1993
Page 2
To effectuate the transfer of the above Contract from Cornerstone Natural Gas Company to ANGC, we
request your consent and verification to both Cornerstone Natural Gas Company and ANGC of the
following:
1. |
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Phillips Petroleum Company consents to the assignment of the Contract to Associated Natural
Gas Corporation or its designated subsidiary and confirms that same shall not constitute a
breach of the Contract. |
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The Contract is in full force and effect. |
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Phillips Petroleum Company has not given notice of any action to terminate or cancel the
Contract. |
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Company acknowledges that ANGC will rely on the foregoing statements in consummating the
purchase of the Distribution Assets. |
To confirm that you are in agreement with the foregoing please sign and return a copy of this
letter to the undersigned.
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Very truly yours, |
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Cornerstone Natural Gas Company |
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By:
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/s/ Kelcy L. Warren |
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By signature hereto, Phillips Petroleum Company agrees and accepts the consents to this assignment
of the referenced Contract to Associated Natural Gas Company or one of its subsidiaries.
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Phillips Petroleum Company |
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October 29, 1993
Page 3
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By:
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/s/ R. D. Wimer
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Name:
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R. D. Wimer |
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Title:
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Attorney-in-Fact |
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Date:
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November 1, 1993 |
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[ENDEVCO, INC. LETTERHEAD]
November 11, 1993
VIA TELECOPY
Phillips Petroleum Company
Post Office Box 1967
Houston, TX 77251-1967
Attention: Rod Wimer
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Re: |
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Natural Gas Gathering Agreement, dated June 1, 1987, between
Cornerstone Natural Gas, Inc. (successor by merger to ANGIC
formerly known as Cornerstone Natural Gas Company) |
Dear Mr. Wimer:
We are in receipt of your telecopied consent and thank you for consenting to the assignment of the
above agreement to Associated Natural Gas, Inc. We, however, request the following clarification
to the consent.
Phillips Petroleum Company acknowledges that Associated Natural Gas, Inc. will have no obligations
or liabilities under the contract relating to the period of time prior to November 1, 1993, the
effective date of the assignment of the contract to Associated Natural Gas, Inc.
Phillips Petroleum Company acknowledges that the party to look to regarding the above gas gathering
agreement prior to November 1, 1993 is Cornerstone Natural Gas, Inc.
Very truly yours,
CORNERSTONE NATURAL GAS COMPANY
October 29, 1993
Page 2
Agreed and Accepted to this 16 day of November, 1993.
Phillips Petroleum Company
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By:
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/s/ R D. Wimer |
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Name:
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R. D. Wimer
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Title:
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Attorney-in-Fact |
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2
SECOND AMENDMENT TO GAS GATHERING AGREEMENT
This Second Amendment to Gas Gathering Agreement (this Second Amendment) is entered into
this 1st day of January, 1995 between Associated Natural Gas, Inc. (as Gatherer) and
Phillips Petroleum Company (as Producer), and amends that certain Gas Gathering Agreement dated
June 1, 1987 between Cornerstone Natural Gas Company, Gatherers predecessor, and Producer
(referred to herein as the Agreement, including any prior amendments).
In consideration of their mutual promises, the parties hereto agree to amend the Agreement as
follows:
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1. |
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A. This Second Amendment shall amend the Agreement as to the following wells,
which wells are referred to herein collectively as the Second Amendment Wells: |
[CONFIDENTIAL]
B. Gatherer shall be obligated to provide high pressure lines as defined herein to
connect the Second Amendment Wells to Gatherers Ada gathering system, subject to
the other provisions of Section 2.3 of the Agreement (Notwithstanding the foregoing,
Gatherer shall not be obligated to receive gas at pressures in excess of the
applicable MAOP). For purposes hereof, where a gathering line to a Second Amendment
Well causes gas production therefrom to flow through Gatherers compression
facilities, such line shall be considered a low pressure line. Where a gathering
line to a Second Amendment Well does not cause Producers gas produced therefrom to
flow through Gatherers compression facilities, such line shall be referred to
herein as a high pressure line.
C. As to those of the Second Amendment Wells whose gas is produced and delivered to
Gatherer into a high pressure line at the applicable Point of Receipt, the gathering
fee shall be ten cents (10¢) per Mcf, notwithstanding Section 6.1 of the Agreement,
and Gatherer shall not retain a portion of Producers gas for compressor fuel,
notwithstanding Section 6.2 of the Agreement.
D. The parties acknowledge that there may be circumstances where one or more of the
Second Amendment Wells are connected to flow gas temporarily to a low pressure line
prior to the well being connected to a high pressure line. As to those of the Second
Amendment Wells whose gas is produced and delivered to Gatherer into a low pressure
line, or at such time that the wellhead pressure of any of the Second Amendment
Wells is incapable of sustaining delivery into a high
October 29, 1993
Page 4
pressure line, the gathering fee for all of Producers gas delivered from such
well(s) shall be fifteen cents (15¢) per Mcf, the compressor fuel charge identified
in Section 6.2 of the Agreement shall apply to gas deliveries from such well(s), and
Gatherer agrees to connect such well(s) to a low pressure line or to convert the
applicable gathering line to a low pressure line as, applicable, if economically
feasible to Gatherer.
E. Producer hereby agrees to spud with the reasonable intent to complete the
Willamette A-l, Bates D-l, Copeland C-2, Walker D-5 and Shaffer E wells during 1995.
In the event Producer fails to spud all of these wells in 1995, the amended
gathering fee of ten cents (10¢) per Mcf described in subparagraph C, above, for
volumes delivered into high pressure lines will be increased by one cent (1¢) per
Mcf for each such well not spudded during 1995 (e.g., if Producer does not spud one
of the five wells, the amended gathering fee will be eleven cents (11¢) per Mcf).
This increased fee will be charged retroactively to the date of first production
under this Second Amendment for all gas delivered into high pressure lines from all
of the Second Amendment Wells.
2. Section 9.1 of the Agreement shall be amended to provide that the primary term of the
Agreement shall last until June 1, 1998.
3. The effective date of this Second Amendment shall be November 1, 1994, notwithstanding its
date of execution.
4. Except as amended hereby, the remaining provisions of the Agreement shall remain in full
force and effect.
4
October 29, 1993
Page 5
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first above
written.
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PRODUCER: |
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PHILLIPS PETROLEUM COMPANY |
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By:
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/s/ R. D. Wimer |
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Name:
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R. D. Wimer
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Title:
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Attorney-in-Fact |
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GATHERER: |
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ASSOCIATED NATURAL GAS, INC. |
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By
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/s/ Kelly J. Krattenmaker |
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Kelly J. Krattenmaker
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Vice President |
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5
AMENDATORY AGREEMENT
This Amendatory Agreement (Amendment), is made and entered into effective September 1, 2000,
by and between Duke Energy Field Services, LP (Gatherer) and Phillips Petroleum Company
(Producer).
WHEREAS, Gatherer and Producer are parties to that certain Natural Gas Gathering Agreement dated
June 1, 1987 as amended on January 1, 1989, January 1, 1995 and on November 1, 1997 (Agreement);
and
WHEREAS, Gatherer and Producer desire to further amend the Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is
mutually agreed between the parties hereto that the Agreement shall be amended as follows:
I.
Paragraph 1.2 of the Agreement, as amended by any previous amendment thereto, shall be further
amended to change the definition of day to begin at 9:00 a.m. Central Clock Time (CCT) and end at
9:00 a.m. Central Clock Time the following day.
The following new paragraph 1.16 shall be added to Article I, Definitions,:
The term well or wells shall mean a single well bore regardless of the number of completions in
that well bore.
II.
Article VI, Paragraphs 6.1 of the Agreement, as amended by any previous amendment thereto, shall be
deleted in its entirety and replaced with the following new provision:
6.1 The fee which Producer shall pay to Gatherer for the gathering and redelivery of gas as
described herein shall be as follows:
(a) The rate for low pressure gathering shall be $0.13 per Mcf. The rate for high pressure
gathering shall be $0.09 per Mcf but shall increase to $0.10/Mcf as of the earlier of (i)
October 29, 1993
Page 7
Gatherer having gathered 10,000,000 Mcf of high pressure gas for Producers account or (ii)
two (2) years from initial deliveries to the plant.
(b) Subject to the terms and conditions below, Gatherer agrees that it will diligently connect
any well of Producer within the lands, leases and other sources described in Exhibit A to
Gatherers Ada System provided that Producer has provided Gatherer with an estimated production
rate and desired line pressure for the subject well. Gatherer shall construct, own and operate the
metering facility and pipeline required to connect such well(s), hereinafter referred to as the
Facilities, provided, however, Gatherer shall only be economically responsible for the costs of
the measurement facilities and the first 1000 feet of pipeline associated with each well connect
project (such 1000 feet shall begin at the point of interconnect with Gatherers system, as such
system exists on the date which Producer requests Gatherer to connect such well(s)) (Gatherers
Connection Cost Obligation). As consideration for Gatherer laying pipeline beyond the first 1000
feet (if necessary) and connecting the subject well, Producer shall pay Gatherer for the actual
costs and expenses associated with the purchase, construction and installation of the pipeline
beyond the first 1000 feet required to connect the subject well(s) to Gatherers Ada System
(Producers Connection Cost Obligation). Such pipeline shall be owned and operated by Gatherer.
Producer shall pay any such invoice to Gatherer within fifteen (15) days after receipt thereof.
Should Producer desire Gatherer to connect any well before such well is proven to be
commercially productive, Producer shall fully indemnify Gatherer for all reasonable costs incurred
by Gatherer to connect such well (regardless of the length of pipe required to connect such well)
if such well proves to be unproductive within thirty (30) days of its connection to Gatherers Ada
System. In such event, in addition to reimbursement of Producers Connection
7
October 29, 1993
Page 8
Cost Obligation as calculated above, Producer shall reimburse Gatherer for the Gatherers
Connection Cost Obligation. Producer shall pay any such invoice to Gatherer within fifteen (15)
days after receipt thereof.
Subject to force majeure, Gatherer shall have all well connects, located within 1000 feet of
Gatherers Ada System, completed and in-service within thirty (30) days after receiving written
notice from Producer that Producer desires Gatherer to connect such well. Any notice received
after 4:00 p.m. CCT or any weekend or holiday shall be deemed to be received the following business
day. For wells located greater than 1000 feet from Gatherers Ada System, Gatherer shall have an
additional ten (10) days for each additional 1000 feet or any portion thereof to complete the
subject well connect.
III.
Article VIII Measurement and Tests, as amended by any previous amendment thereto shall be
deleted in its entirety and replaced with the following new provisions:
8.1 The volume of gas received hereunder for purposes of measurement shall be one (1) cubic foot of
gas and shall be measured by a meter installed and operated, and computations made, as prescribed
in Gas Measurement Committee Report No. 3 of the American Gas Association, including the Appendix
and Amendments thereof. Chart integration and volume computations shall be made by Gatherer as
accurately as possible and within the accuracy prescribed by the manufacturer of the computing
equipment used.
8.2 The specific gravity of the gas received hereunder shall be determined with accuracy to the
nearest one-thousandth (1/1,000) by taking samples of the gas at the point of measurement of by the
use of a method generally accepted in the gas industry or other apparatus approved in
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October 29, 1993
Page 9
advance by both parties at the beginning of receipts, and thereafter once each quarter or as often
as mutually deemed necessary.
8.3 The flowing temperature of the gas shall be determined by periodic tests conducted by Gatherer
with a mercurial thermometer or, by means of a recording thermometer of standard make acceptable to
Producer and Gatherer, in which event the arithmetical average of hourly readings each Day shall be
deemed the gas temperature and shall be used in computing the volumes of gas received during such
Day.
8.4 The gross heating value of the gas received hereunder, shall be determined once each quarter,
or at other intervals agreeable to both parties. The gross heating value shall be determined by
means of a recording chromatograph or by mutual agreement to take a spot sample or composite sample
each month at each Point of Receipt. If a recording chromatograph is used, the arithmetical
average of the hourly gross heating value recorded each Day shall be considered as the heat content
of the gas received during such Day. If spot samples are used, the gross heating value, specific
gravity, and CO2 and N2 content so determined shall be effective the first of
the following month and shall remain effective until the next such determination.
8.5 Tests for water vapor, sulphur and hydrogen sulphide content of the gas received hereunder
shall be made by approved standard methods from time to time as requested by any party hereto, but
not more often than once each quarter.
8.6 Gatherer shall calibrate, maintain and operate at the Points of Receipt, meters and appurtenant
equipment for the measurement of the quantity and quality of the gas received hereunder. Gatherer
shall read such meters and change meter charts as mutually agreed, or cause same to be done. The
meter charts shall at all reasonable times be accessible for inspection and examination by
Producer.
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October 29, 1993
Page 10
8.7 For the purpose of measurement and meter calibration, the atmospheric pressure shall be
assumed, unless otherwise determined by the Standard Gas Measurement Law, to be fourteen and
seventy-three hundredths (14.73) psia.
8.8 At least once each quarter, or at other intervals agreeable to both parties, Gatherer shall
test and calibrate or have tested and calibrated its meters, thermometers and other measuring
devices. Producer shall have the right to require the meters to be calibrated at any time, but
calibrations made at Producers request shall be at the expense of Producer unless the percentage of
inaccuracy is found to be two percent (2%) or more, in which case the calibration shall be made at
the expense of Gatherer. Readings, calibrations, and adjustments of the meters and changing of
charts shall be done only by Gatherer or its agent, but all data with respect thereto shall at all
reasonable times be available to Producer for inspection. If, upon any test, the percentage of
inaccuracy shall be two percent (2%) or more, registrations thereof shall be corrected at the rate
of such inaccuracy for any period which is definitely known or agreed upon, but in case the period
is not definitely known or agreed upon, then for a period extending back one-half (1/2) of the time
elapsed since the last date of calibration. No correction shall be made for recorded inaccuracies
of less than two percent (2%). Gatherer shall cause metering equipment found inaccurate to be
immediately restored to a condition of accuracy. If for any reason any meter is out of service or
out of repair, so that the amount of gas received cannot be ascertained or computed from the
reading thereof, the amount of gas received during the period such meter was out of service or out
of repair shall be estimated based upon the best data available, using the first of the following
methods which is feasible:
8.8.1 By using the data recorded by any check meter, if installed and accurately
registering, or if not installed or registering accurately;
10
October 29, 1993
Page 11
8.8.2 By correcting the error if the percentage of error is ascertainable by calibration,
test or mathematical calculation, or if neither such method is feasible;
8.8.3 By estimating the quantity received based upon receipts during preceding periods under
similar conditions when the equipment was registering accurately.
8.9 Each party shall have the right to be present at the time of installing, reading, cleaning,
changing, repairing, inspecting, testing, calibrating or adjusting done in connection with the
others measuring equipment in measuring receipts hereunder. The records from such measuring
equipment shall remain the property of their owner, who shall keep them on file for a period of not
less than two (2) years, but upon request, each will submit to the other its records and charts,
together with calculations therefrom subject to return within fifteen (15) days after receipt
thereof.
Unless otherwise specified by this Amendment, the terms used herein shall have the same
meaning as provided in the Agreement. Except as herein amended and previously amended, all other
terms and provisions of the Agreement shall remain in full force and effect as originally written.
IN WITNESS HEREOF, the parties have executed this Amendatory Agreement effective as of the date
herein written above.
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GATHERER |
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PRODUCER |
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Duke Energy Field Services, LP |
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Phillips Petroleum Company |
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By
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/s/ Robert Poe Reed
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By:
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/s/ W. W. Hussey |
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Robert Poe Reed
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Name:
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W. W. Hussey |
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Vice President
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Title:
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Attorney-In-Fact |
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11
TENTH AMENDMENT
To
NATURAL GAS GATHERING AGREEMENT
This Tenth Amendment (Amendment) is made and entered into effective August 1, 2004 (the
Effective Date), by and between Duke Energy Services Field Services, LP, (Gatherer) and
ConocoPhillips Company, successor by merger to Phillips Petroleum Company (Producer).
WHEREAS, Gatherer and Producer are parties to that certain Natural Gas Gathering Agreement dated
June 1, 1987, as amended (the Agreement); and
WHEREAS, Gatherer and Producer desire to further amend the Agreement as set forth below.
NOW THEREFORE, in consideration of the premises and mutual covenants set forth herein, it is
mutually agreed between the parties hereto that the Agreement shall be amended as of the Effective
Date, as follows:
1. ARTICLE III, POINTS OF RECEIPT AND DELIVERY, Section 3.4 shall be deleted in its
entirety and replaced with the following new Section 3.4:
3.4 All gas quantities shall be delivered to Gatherer and redelivered to Producer (or on
behalf of Producer) as nearly as practicable at uniform hourly and daily rates of flow. The
parties recognize that certain gas imbalances may occur between the quantity of gas received for
the account of Producer and the quantity of gas delivered by Gatherer. During each month the
parties agree to cooperate with each other and with any interconnecting pipeline to remedy any
imbalance as soon as either party becomes aware of an imbalance.
At the end of each month, any imbalance in MMBtu between the quantity of gas received by
Gatherer hereunder from all Points of Receipt and redelivered by Gatherer hereunder at the Points
of Delivery, less the applicable fuel, loss and unaccounted for as outlined herein, shall be
balanced by means of a payment to Producer from Gatherer or a payment from Producer to Gatherer, as
applicable, valued at the Cash-Out price. The Cash-Out price during the month in
which the imbalance was generated shall be determined using the table below for either the
excess (due Producer) or shortage (due Gatherer from Producer).
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Imbalance % |
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Cash-Out Price due Gatherer |
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Cash-Out Price due Producer |
0% to 3%
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100% of Average Price
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100% of Average Price |
>3% to 5%
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110% of Average Price
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90% of Average Price |
>5% to 10%
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120% of Average Price
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80% of Average Price |
>10%
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150% of Average Price
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50% of Average Price |
The Average Price shall be equal to the arithmetic average during the applicable month of
the daily gas prices per MMBtu for Texas Gas Transmission Co. Zone 1 as published daily by Gas
Daily in the table entitled Daily Price Survey in the column entitled Midpoint. Should the
information necessary to calculate the Average Price cease to be available, Gatherer and Producer
shall mutually agree upon substitute publication(s) providing equivalent data for gas prices for
gas delivered into TGTs system.
2. ARTICLE VI, GATHERING FEE. Commencing October 1, 2004, Sections 6.1 and 6.2 of the
Agreement shall be deemed to be deleted in their entirety and replaced with the following new
Sections 6.1, 6.2 and 6.3.
6.1 Standard Gathering and Compression Service: Producer shall pay Gatherer the following
fees with respect to the provision of gathering and related services as to Producers Gas on the
Ada System (hereafter defined):
(a) Producer shall pay a fee $[CONFIDENTIAL]/MMBtu for gathering, and $[CONFIDENTIAL]/MMBtu
for compressor service (the Fees) plus actual fuel and system loss as allocated by Gatherer;
provided that fuel and system losses allocable to Gatherer under this Section 6.1(a) may not exceed
[CONFIDENTIAL]% of the gas quantity measured in MMBtu at the Points of Receipt (the Standard
Fuel/Loss Reimbursement). All Fees and system fuel and loss calculations shall be assessed based
on the quantities of gas measured at the Points of Receipt.
(b) Subject to the limitations set forth in Sections 6.1(c) and (d) below, Gatherer agrees
that it will diligently connect to Gatherers Ada Field gathering system (the Ada System) any new
well operated by Producer and located within the lands, leases, areas or sources described in
Exhibit A, that Producer has deemed commercially productive (a New Commercial Well). Gatherer
shall pay for the cost to construct a single line, tap and meter for
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each New Commercial Well (at Gatherers initial cost), and Gatherer will own and operate the
metering facility and pipeline required to connect each New Commercial Well (Gatherers Connection
Cost). Producer shall reimburse Gatherer at a rate of [CONFIDENTIAL] to connect each New
Commercial Well to the Ada System (Producers Connection Cost Obligation). If Producer requests
an additional line, interconnect, or meter to the facilities described above, then Producer shall
pay the actual costs of such additional facilities. Gatherer will seek Producers consent prior to
making expenditures that exceed the initial estimate by 10%.
(c) Should Producer desire Gatherer to connect any well before such well is proven to be a New
Commercial Well, Producer shall notify Gatherer to such effect in writing and thereupon become
obligated to fully reimburse Gatherer for Gathers Connection Cost, rather than paying Producers
Connection Cost Obligation if such well is not proven commercially productive with in ninety (90)
days of its connection to the Ada System.
(d) If Gatherer is able to acquire rights of way and associated real estate rights) at or
below market prices predominating in the region (collectively, Land Rights), Gatherer shall cause
any New Commercial Well located within 1,000 feet of the Ada System, to be connected and in-service
within thirty (30) days after receiving Producers written notice instructing Gatherer to connect a
New Commercial Well (a Well Connect). Any notice received after 4:00 p.m. CCT or any weekend or
holiday, shall be deemed to be received the next business day. For New Commercial Wells located
greater than 1,000 feet from the Ada System, Gatherer shall be afforded an additional ten (10) days
(for each additional 1,000 feet or any portion thereof) to complete the connection of the New
Commercial Well. In addition to the foregoing, when Gatherer is unable to acquire Land Rights at
or near the market price predominating in the region in order to undertake a Well Connect, Gatherer
shall inform Producer of such issue in wilting, providing particulars on efforts made to (i)
acquire such Land Rights and/or (ii) implement alternative routes. If Producer is unwilling to
bear the incremental costs of acquiring the Land Rights that exceed market value then Gatherers
obligation set forth in (b) and (c) above shall be deemed to have been satisfied. If Gatherer and
Producer are unable to agree on cost sharing within 30 days then Gatherer shall release such well
from the Agreement.
6.2 Incremental Compression Service: The parties agree to the following terms relating to the
provision of and payment for Incremental Compression (hereafter defined):
(a) Gatherer shall install and operate compression facilities at mutually agreeable locations
on the Ada System to provide Producer with low pressure compression service that meets or is lower
than the QALP, as defined in Section 15.1, (collectively, Incremental Compression). Gatherer
shall install and operate each Incremental Compressor Facility (as defined in Section 15.1) within
the normal operating range of pressures, volumes, and compression ratios for such facilities based
on the quantities of Producers gas available at each location where the same is installed.
Gatherers obligation to operate an Incremental Compressor Facility (hereafter defined) shall be
limited to Gatherers ability to do so within the normal operating conditions of the Ada System and
the specifications of such Incremental Compressor Facility. Gatherer shall begin acquiring right
of way, real estate and compression
14
along with filing all regulatory permits within 30 days of execution of this Agreement.
Construction and installation of a Location, as defined in Article XV, will be completed within
ninety (90) days of receiving all regulatory permits applicable thereto. Actual operation of
equipment will begin within ten (10) days of completion of construction and installation of a
Location. Notice will be provided to Producer as to the status of the air permitting process.
(b) In addition to all other amounts payable under this Agreement (including all amounts
payable pursuant to Section 6.1 above), Producer agrees to pay Gatherer an Incremental Compression
Fee described below and reimburse Gatherer for incremental metered fuel utilized to provide
Incremental Compression, as such fuel is allocated by Gatherer pursuant to the last paragraph of
this Section 6.2(b).
The Incremental Compression Fee shall be per tier for the respective Average Monthly Quantity
which is calculated by taking the average monthly quantity of Producers gas measured in MMBtu at
the Points of Receipt times the rate shown below for the tier.
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Average Monthly Quantity (MMbtu/d) |
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Incremental Compression Fee |
[CONFIDENTIAL]
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[CONFIDENTIAL] |
Average Monthly Quantity means the total quantity of Producers gas, measured in MMbtu at all
Points of Receipt during the flow month, divided by the number of days in such month. During a
month in which a Force Majuere condition occurs the Incremental Compression Fee shall equal the
previous months Tiered Rate and not be adjusted by the Average Monthly Quantity.
Wherever a third party produces natural gas from a Producer operated well which utilizes
Incremental Compression and is dedicated to Gatherer under a separate agreement (a Third Party
Producer), Gatherer will undertake reasonable efforts to enter into a contract with the Third
Party Producer obligating it to pay Gatherer an Incremental Compression Fee and fuel.
Nevertheless, Producer must pay Gatherer for Incremental Compression attributable to all quantities
of gas produced from Producer operated wells plus any fuel to the extent that Gatherer is not able
to collect such amounts from a Third Party Producer, even if this causes Producer to bear more than
its prorate share thereof. The incremental fuel cost that Producer is obligated to
15
pay under this Section 6.2 shall never exceed 3.3% of the quantity of Producers and Third Party
Producers natural gas measured in MMBtu at the Points or Receipt; this cost shall be in addition
to Standard Fuel/Loss Reimbursement.
6.3 Consumer Price Index (CPI). On August 1, 2005 and each anniversary thereof, the Fees as
described in Sections 6.1 and 6.2, shall be adjusted by multiplying such Fees by a fraction, the
numerator of which shall be the Current Years CPI (CYI) and the denominator of which shall be
the Previous Years CPI (PYI) as defined below in this paragraph. The CYI and PYI shall be based
upon the CPI index referred to as the Consumer Prices All Urban Consumers index as published
monthly by the United States Department of Labor, using the All Items (Not seasonally adjusted)
column, or a mutually agreeable successor or substitute measure of inflation. The average monthly
CPI for the twelve (12) consecutive months occurring during calendar year 2003 shall be the PYI for
the 1st price adjustment. The PYI shall be the average monthly CPI for the twelve (12) consecutive
months prior to the CYI after the 1st price adjustment. The CYI will be the average monthly CPI
for the twelve (12) consecutive months occurring in the calendar year prior to the year in which
the CPI calculation is made. Notwithstanding anything to the contrary set forth in this Agreement,
Compressor fuel, incremental compressor fuel, system loss, fee for gathering services in Section
6.1(a), and Producers Connection Cost Obligation, are not subject to the CPI adjustment.
3. ARTICLE IX, TERM, Section 9.1 shall be deleted in its entirety and replaced with the
following new Section 9.1:
9.1
The primary term of this Agreement shall end on July 31, 2011, whereupon this Agreement
shall continue in effect year to year thereafter until either Party terminates the
16
Agreement at the end of the primary term or any successive one (1) year term by giving written
notice of same at least sixty (60) days prior to the last day thereof.
4. ARTICLE X, NOTICE. Section 10.1 shall be deleted in its entirety and replaced with the
following new Section 10.1:
10.1 All notices required by this Agreement shall be in writing, and may be delivered either
personally to the designated representative of the party being notified, by courier or overnight
delivery service, by facsimile (with confirmation of receipt) or sent by first class mail to the
following:
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PRODUCER
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GATHERER |
ConocoPhillips Company
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Duke Energy Field Services, LP |
Physical
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5718 Westheimer, Suite 2000 |
600 N. Dairy Ashford (77079)
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Houston, Texas 77057 |
U.S. Mail
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ATTN: Contract Administration |
P O Box 2197 |
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Houston, Texas 75252-2 197 |
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ATTN: Gas and Power Marketing Contract Administration |
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Telephone: (281) 293-5359
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Telephone: (713) 627-6200 |
Facsimile: (281) 293-3525
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Facsimile: (713) 627-6270 |
The telephone numbers above are solely for information and may not be used for Agreement notices.
5. ARTICLE XII, FORCE MAJEURE, is hereby deleted in its entirety and replaced with the
following:
12.1 Force Majeure. In the event of any party hereto being rendered unable, wholly or in
part, by reason of force majeure, to carry out its obligations under this Agreement, other than the
obligation to make payment of amounts due hereunder, it is agreed that such party shall give notice
and reasonably full particulars of such force majeure, in writing, to the other party within a
reasonable time after the occurrence of the cause relied on, and the obligations of the party
17
giving such notice, so far as they are affected by such force majeure, shall be suspended
during the continuance of any inability so caused, but for no longer period, and such cause shall,
so far as possible, be remedied with all reasonable dispatch. The term force majeure as used in
this Agreement shall mean any delay or default in performance due to any cause beyond the
reasonable control of the party claiming force majeure and without such partys fault or
negligence, including but not restricted to acts of God or the public, civil disturbances, arrests
and restraints by rulers and people; acts of the public enemy, wars, riots, insurrections,
sabotage; acts, requests or interruptions of the federal, state or local government or any agency
thereof; court orders, present and future valid orders of any governmental authority, or any
officer, agency or any instrumentality thereof; floods, fires, storms, epidemics, landslides,
lightning, earthquakes, washouts, explosions, quarantine; strikes, lockouts, or industrial
disturbances; interruption of residue gas transportation downstream of Gatherers processing
facilities, freight embargoes or delays in delivery of equipment or service necessary to the
performance of any provision of this Agreement; inability or delay in securing right of way, labor
shortages, breakage or accident to machinery or lines of pipe, or any other cause, whether of the
kind herein enumerated or otherwise, not reasonably within the control of the party claiming force
majeure. It is understood and agreed that the settlement of strikes or lockouts shall be entirely
within the discretion of the party having the difficulty, and that the above requirement that any
force majeure shall be remedied with all reasonable dispatch shall not require the settlement of
strikes or lockouts by acceding to the demands of the opposing party when such course is
inadvisable in the discretion of the party having the difficulty.
6. A new article entitled, ARTICLE XV, PERFORMANCE GUARANTEE shall be added to the
Agreement providing as follows:
18
ARTICLE XV
PERFORMANCE GUARANTEE
15.1
Pipeline Pressure Obligation. (a) Gatherer will design a
[CONFIDENTIAL] psig system that will
have pipe and compression sized for a compressor suction pressure of [CONFIDENTIAL] psig. The design, when
modeled prior to installation of the compressor facilities and pipelines, results in a predicted
meter pressure within [CONFIDENTIAL] percent ([CONFIDENTIAL]%) at four (4) identified pipeline locations (individually a
Location, collectively the Locations). These Locations are described as [CONFIDENTIAL].
Each of these Locations are associated with one of four (4) facilities used to provide Incremental
Compression (each an Incremental Compressor Facility). The Incremental Compressor Facilities are
identified as and will be deemed to have the following maximum
capacities (i) the [CONFIDENTIAL] Station ([CONFIDENTIAL] mmcfd), (ii) the [CONFIDENTIAL] Station ([CONFIDENTIAL] mmcfd), (iii) the [CONFIDENTIAL] Station ([CONFIDENTIAL] mmcfd)
and (iv) the [CONFIDENTIAL] Station ([CONFIDENTIAL] mmcfd) when each operates at a pressure of [CONFIDENTIAL] psig (hereafter the
Station Capacity). Gatherer agrees to maintain an average Location pressure each calendar
quarter as follows: The QALP consists of the following values: (i) the daily average location
pressure at each individual Location divided by (ii) the number of days in the subject calendar
quarter, with the final result equaling the QALP for such calendar quarter for that Location
(hereinafter, the QALP) of not greater than [CONFIDENTIAL]% of the design Location pressure of [CONFIDENTIAL] psig at
each Location, based on the Producers and Third Party Producers combined maximum capacity at
each individual Incremental Compression Facility set forth above. Gatherers agreement to maintain
the QALP will commence following the completion of installation and final testing of the last
Incremental Compressor Facility (the Commencement Date). The QALP shall commence to be
calculated on the Commencement Date and thirty (30) days after the commencement date Gatherer and
Producer shall confirm the actual pressures and the model pressures are within [CONFIDENTIAL]% of model
expectation. If pressures are within [CONFIDENTIAL]%, Gatherer shall thereafter be obligated by the location
pressure obligation set forth in this Section. If pressures are not
within [CONFIDENTIAL]%, then Gatherer
shall have [CONFIDENTIAL] ([CONFIDENTIAL]) days to remedy the pressure situation or Producer shall receive
[CONFIDENTIAL] as noted below in paragraph c until such time as the actual pressures achieved are
within [CONFIDENTIAL]% of such pressure obligations.
(b) The average daily location pressure and number of days for a Location whose operation on a
given day is affected by a force majeure condition, scheduled overhaul and/or preventive
maintenance shall not be used in calculating the QALP. Preventive maintenance shall not exceed [CONFIDENTIAL]%
of the time in any calendar quarter.
(c) If the QALP of a Location is greater
than [CONFIDENTIAL] psig, then Gatherer shall during the [CONFIDENTIAL] day
period following its being notified of such QALP value by Producer, take steps it deems appropriate
to reduce the Location pressure. If Gatherer fails to reduce the Location pressure to the required
level with such [CONFIDENTIAL] day period, Producer shall have the right (as its sole and exclusive remedy
under this Agreement for Gatherers failure to meet the pipeline pressure obligation of this
Section) to receive a [CONFIDENTIAL] of the [CONFIDENTIAL] payable during the next calendar
quarter. The Incremental Compression Fee shall be computed and applied as follows as to any
affected Location (the Affected Location):
(i) When the QALP indicates a pressure greater
than [CONFIDENTIAL] psig, the portion of the Average
Monthly Quantity that is attributable to the Affected Location only, shall bear an
Incremental Compressor Fee that is $[CONFIDENTIAL] less per MMBtu than is charged to the Average
Monthly Quantity that is not attributable to the Affected Location; and
(ii) To determine the portion of the Average
Monthly Quantity that is attributable to the
Affected Location, the Average Monthly Quantity for the next calendar quarter shall be
multiplied by a fraction, the numerator of which shall be the capacity of the Affected
Location (as shown in this Section above) and the denominator of which shall be [CONFIDENTIAL] mmcfd.
However, if the Affected Location is [CONFIDENTIAL] (which has [CONFIDENTIAL] meter pressures) then only
[CONFIDENTIAL]% of the [CONFIDENTIAL] volume will be used in the numerator. Likewise, if two locations
associated with [CONFIDENTIAL] are greater than [CONFIDENTIAL] psig, then [CONFIDENTIAL]% of the [CONFIDENTIAL] volume will
be used in the numerator, and if all three locations are [CONFIDENTIAL] than [CONFIDENTIAL] psig, then the
[CONFIDENTIAL] volume of [CONFIDENTIAL] shall be used in the numerator.
(d) Notwithstanding any other provision of this Section, any calendar quarter that the volume
of natural gas compressed at an Incremental Compressor Facility exceeds such facilitys maximum
capacity times the number of days in such calendar quarter (taking into account reductions allowed
for force majeure condition, schedule overhaul and/or preventative maintenance) the QALP for such
calendar shall be deemed to be less than [CONFIDENTIAL] psig, regardless of what the computation of QALP
outlined in this Section 15.1(b) above indicates. In no event shall Gatherer be obligated to
monitor or otherwise track the QALP, and unless proven otherwise by Producer, a QALP of [CONFIDENTIAL] psig
will be assumed to exist at all times. Additionally, if Producers operations result in production
of non-conforming gas as defined in Section 5.1, Quality of Gas, then based upon notice as set
forth in Section 5.2 and confirmation that Producers well contaminated the Ada System, then the
location pressure guarantee set forth in this Section is suspended for the relevant calendar
quarter for that Location and Producer shall reimburse Gatherer the reasonable cost to remove and
dispose of such contaminants from the system. Gatherer shall own all hydrocarbon liquids that are
collected and removed from the pipeline.
(e) Should the Locations cease to be applicable, Gatherer and Producer shall mutually agree
upon substitute locations.
(f) Gatherer shall operate the Incremental Compression within normal operating range of
pressures, volumes, and compression ratios for such Incremental Compression Facilities based on the
volume of gas available at each respective Incremental Compressor Facility. Gatherers obligation
to operate the Incremental Compression Facilities shall be limited to Gatherers ability to do such
within normal operating limitations, as determined by Gatherer, of such compressors and the daily
operating conditions of the Ada System.
(g) Should there be unused Station Capacity [CONFIDENTIAL] after the Commencement Date during the
term of this Agreement, Gatherer shall have the option to remove, use, or modify such unused
Station Capacity. Prior to utilization or removal, Gatherer shall notify Producer of Gatherers
intent to reduce the Station Capacity. Producer may elect to utilize or release the unused Station
Capacity at no cost within [CONFIDENTIAL] days of notification. Should Producer not utilize the Station
Capacity in [CONFIDENTIAL] days but wish to retain it Producer may elect to reserve the unused Station
Capacity. Producer shall pay a reserve compression fee of $[CONFIDENTIAL]/bhp per month calculated on the bhp
being reserved. Such charge shall cease when Producer utilizes the bhp or cancels the reserve
compression. If Producer fails to notify Gatherer of its election set forth in this Section
(g), Producer will be deemed to have released the unused Station Capacity.
7. A new article entitled, ARTICLE XVI, COMPRESSOR AND PIPELINE PURCHASE shall be added to
the Agreement providing as follows:
ARTICLE XVI
COMPRESSOR AND PIPELINE PURCHASE
16.1 Property Purchased: In consideration of the payment of $50.00, the receipt of
which Producer hereby acknowledges from Gatherer, Producer grants Gatherer an irrevocable option to
acquire, the compressions, buildings in which they are located, and to the extent transferable,
surface sites and rights of ways, and all appurtenances related thereto that are located at
Producers [CONFIDENTIAL] and [CONFIDENTIAL] locations and as are further described in the Exhibit A, attached
and made a part of this Agreement (the Compressor Facilities) together with those certain
pipelines as further described in the Exhibit B, attached and made a part of this Agreement (the
Pipelines, with the Compressor Facilities and Pipelines hereafter referred to collectively as the
Assets). Producer agrees to afford Gatherer complete and unrestricted access to the sites and
locations of the Assets such as will enable Gatherer to conduct environmental, structural integrity
and valuation due diligence efforts. The option hereby granted by Producer shall remain in effect
through October 15, 2004 for compressors and November 1, 2004 for the pipelines (the Option
Expiration Date). Gatherer may exercise said option at any time before the Option Expiration Date
by delivering notice of such election to Producer. Upon receipt of such notice, the parties shall
finalize negotiations relative to the purchase price and the Assignment and Bill of Sale for use in
transferring the Assets (the initial form of which is attached hereto as Exhibit C). If Gatherer
does elect the option, Producer shall execute and deliver such additional documents as Gatherer may
reasonably require to affect the transfer of good and marketable title in the Assets to Gatherer.
16.2 Purchase Price: If Gatherer exercises its option to purchase the Assets, it agrees to
pay Producer an amount of $[CONFIDENTIAL].
16.3 Inspection and Acceptance: From the date of this Agreement, until the date of Gatherers
exercise of the option and purchase of the Compressor Facilities and Pipelines, Gatherer shall have
the right to inspect and confirm that the Compressors and Pipelines are in good condition and
suitable for Gatherers intended purposes and to assess the environmental impact that the Assets
have had, if any.
8. No Further Changes. Unless otherwise specified by this Amendment, the terms used herein
shall have the same meaning as provided in the Agreement. Except, as herein amended, all other
terms and provisions of the Agreement shall remain in full force and effect.
19
IN WITNESS HEREOF, the parties have executed this Amendment to be effective as of the date
first written above.
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GATHERER |
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PRODUCER |
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Duke Energy Field Services, LP |
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ConocoPhillips Company |
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By:
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/s/ David F. Garrett
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By:
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/s/ Mary Ann Pearce |
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Name:
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David F. Garrett
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Name:
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Mary Ann Pearce |
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Title:
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Vice President Commercial
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Title:
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Commercial Manager |
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This signature is an integral part of the Tenth Amendment
to Natural Gas Gathering Agreement ADA1019GAT
20
EXHIBIT A
PRODUCERS COMPRESSOR LOCATIONS
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LOCATION |
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DESCRIPTION |
[CONFIDENTIAL] |
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A-1
EXHIBIT B
DESCRIPTION OF PURCHASED PIPELINES
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LOCATION |
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PARISH |
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APPROX. LENGTH and DESCRIPTION |
[CONFIDENTIAL] |
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B-1
exv21w1
Exhibit 21.1
SUBSIDIARIES OF DCP MIDSTREAM PARTNERS, LP
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Entity |
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Jurisdiction of Organization |
DCP Midstream Operating, LLC
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Delaware |
DCP Midstream Operating, LP
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Delaware |
DCP Assets Holdings GP, LLC
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Delaware |
DCP Assets Holdings, LP
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Delaware |
DCP Black Lake Holdings, LLC
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Delaware |
Associated Louisiana Intrastate Pipe Line, LLC
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Delaware |
Duke Energy Intrastate Pipeline, LLC
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Delaware |
PanEnergy Louisiana Intrastate, LLC
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Delaware |
exv23w1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent
to the use in this Amendment No. 2 to Registration Statement
No. 333-128378 on Form S-1 of our report
dated November 17, 2005 (which report expresses an unqualified opinion and includes an explanatory paragraph relating
to the preparation of the financial statements of DCP Midstream Partners Predecessor from the
separate records maintained by Duke Energy Field Services, LLC) relating to the financial
statements of DCP Midstream Partners Predecessor, appearing in the Prospectus, which is part of
this Registration Statement, and relating to the financial statement schedule appearing elsewhere
in this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
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/s/ Deloitte & Touche LLP
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Denver, Colorado
November 17, 2005
exv23w2
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent
to the use in this Amendment No. 2 to Registration Statement
No. 333-128378 on Form S-1 of our report
dated September 15,
2005 relating to the balance sheet of DCP Midstream Partners, LP, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
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/s/ Deloitte & Touche LLP
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Denver, Colorado
November 17, 2005
exv23w3
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent
to the use in this Amendment No. 2 to Registration Statement
No. 333-128378 on Form S-1 of our report
dated September 15,
2005 relating to the balance sheet of DCP Midstream GP, LP, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading Experts in such Prospectus.
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/s/ Deloitte & Touche LLP
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Denver, Colorado
November 17, 2005
exv99w1
Exhibit 99.1
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to being named as a person who will become a director of DCP Midstream GP,
LLC, a Delaware limited liability company and the general partner of the general partner of DCP
Midstream Partners, LP, a Delaware limited partnership (the Partnership), in the Registration
Statement on Form S-1 (SEC File No. 333-128378) filed by the Partnership with the Securities and
Exchange Commission (the Registration Statement), to the disclosure under the caption
Management in the Registration Statement and to the filing of this consent as an exhibit to the
Registration Statement.
Date: November 17, 2005
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/s/ Michael J. Bradley
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Michael J. Bradley |
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exv99w2
Exhibit 99.2
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to being named as a person who will become a director of DCP Midstream GP,
LLC, a Delaware limited liability company and the general partner of the general partner of DCP
Midstream Partners, LP, a Delaware limited partnership (the Partnership), in the Registration
Statement on Form S-1 (SEC File No. 333-128378) filed by the Partnership with the Securities and
Exchange Commission (the Registration Statement), to the disclosure under the caption
Management in the Registration Statement and to the filing of this consent as an exhibit to the
Registration Statement.
Date: November 17, 2005
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/s/ William H. Easter III
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William H. Easter III |
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exv99w3
Exhibit 99.3
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to being named as a person who will become a director of DCP Midstream GP,
LLC, a Delaware limited liability company and the general partner of the general partner of DCP
Midstream Partners, LP, a Delaware limited partnership (the Partnership), in the Registration
Statement on Form S-1 (SEC File No. 333-128378) filed by the Partnership with the Securities and
Exchange Commission (the Registration Statement), to the disclosure under the caption
Management in the Registration Statement and to the filing of this consent as an exhibit to the
Registration Statement.
Date: November 17, 2005
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/s/ Paul F. Ferguson Jr.
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Paul F. Ferguson Jr. |
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exv99w4
Exhibit 99.4
CONSENT OF NOMINEE FOR DIRECTOR
I hereby consent to being named as a person who will become a director of DCP Midstream GP,
LLC, a Delaware limited liability company and the general partner of the general partner of DCP
Midstream Partners, LP, a Delaware limited partnership (the Partnership), in the Registration
Statement on Form S-1 (SEC File No. 333-128378) filed by the Partnership with the Securities and
Exchange Commission (the Registration Statement), to the disclosure under the caption
Management in the Registration Statement and to the filing of this consent as an exhibit to the
Registration Statement.
Date: November 17, 2005
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/s/ John E. Lowe
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John E. Lowe |
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corresp
370 17th Street, Suite 2775
Denver, Colorado 80202
November 17, 2005
Via EDGAR and FACSIMILE
Securities And Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, DC 20549
Attention: H. Christopher Owings, Assistant Director
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Re: |
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DCP Midstream Partners, LP
Registration Statement on Form S-l
Filed September 16, 2005
File No. 333-128378 |
Dear Mr. Owings:
On November 2, 2005, DCP Midstream Partners, LP (the Partnership) received the
comments of the staff of the Division of Corporation Finance (the Staff) of the
Securities and Exchange Commission (the Commission) to the Registration Statement on
Amendment No. 1 to Form S-1 (File No. 333-128378) (the Registration Statement).
The
following responses are for the Staffs review. For your convenience, we have repeated
each comment of the Staff exactly as given in the Staffs comment letter. Where applicable, our
responses indicate the additions, deletions or revisions we included in Amendment No. 2 to the
Registration Statement.
Summary, page 1
Summary of Conflicts of Interest and Fiduciary Duties, page 7
1. |
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Please refer to comments 8 and 10 in our letter dated October 14, 2005. The revised
discussion on pages 7-8 on your general partners ability to reset incentive distribution
rights is confusing. Please further revise to simplify the language so that it is more
clearly understandable to readers unacquainted with the more complicated terms of your
partnership agreement. For example, you may enhance the clarity of the disclosure by breaking
the dense information into simpler sentences that briefly address the following information: |
Securities and Exchange Commission
November 17, 2005
Page 2 of 3
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what do you mean by incentive distributions; |
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how are the levels of incentive distributions calculated; |
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on what conditions may your general partner relinquish its rights to incentive
distributions; |
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what do you mean by your general partner resetting the cash target distribution
levels; |
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how are the levels of reset target distribution to be determined; |
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in what circumstances can your general partner exercise this reset right; and |
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what are the direct effects and indirect implications of such resetting on the cash
distribution to your general partner, to you, and to your unaffiliated common unit
holders. |
RESPONSE: The Partnership has revised its disclosure as requested. Please see pages 7
through 9 of the prospectus (Summary of Conflicts of Interest and Fiduciary Duties).
Summary of Historical and Pro Forma Financial and Operating Data, page 13
2. |
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We note your revision made to the Combined Overview in the Managements Discussion and
Analysis section in response to our comment 31. Please make a similar revision to the
impairment of equity method investment line item on the table presentation of your Summary of
Historical and Pro Forma Financial and Operating Data. |
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RESPONSE: The Partnership has revised its disclosure as requested. Please see page 15 of
the prospectus. |
Managements Discussion and Analysis, page 68
Quantitative and Qualitative Disclosures about Market Risk, page 88
3. |
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We note your expanded disclosure of derivative financial instruments designated as cash flow
hedges under Hedging Strategies. Please further expand your disclosure to include the fair
values of the swap contracts you have disclosed on page 91. Additionally, please explain your
statement that you had no hedging contracts at June 30, 2005 in light of the swap contracts
you have disclosed. If these swap contracts were entered into after June 30, 2005, please
clarify your disclosure to indicate this fact. |
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RESPONSE: The Partnership has revised its disclosure as requested. Please see pages 94
through 97 of the prospectus. |
Should the Staff have any questions or comments, please contact Tom Mason of Vinson & Elkins
L.L.P. at (713) 758-4539 or Jeremy Wagers of the same firm at (713) 758-4712.
Securities and Exchange Commission
November 17, 2005
Page 3 of 3
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Very truly yours, |
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DCP MIDSTREAM PARTNERS, LP |
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DCP MIDSTREAM GP, LP
Its General Partner, |
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DCP MIDSTREAM GP, LLC
Its General Partner |
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By:
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/s/ Michael J. Bradley |
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Name:
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Michael J. Bradley |
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Title:
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President and Chief Executive Officer |