Delaware
2911
37-1516132
(State or Other Jurisdiction
of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
David Oelman
Catherine Gallagher Vinson & Elkins L.L.P. 1001 Fannin Street, Suite 2300 Houston, Texas 77002 (713) 758-2222 |
Joshua Davidson
Timothy S. Taylor Baker Botts L.L.P. 910 Louisiana Street Houston, Texas 77002 (713) 229-1234 |
Proposed Maximum | ||||||
Title of Each Class of | Aggregate Offering | Amount of | ||||
Securities to Be Registered | Price(1)(2) | Registration Fee | ||||
Common units representing limited
partner interests
|
$169,280,000 | $19,925 | ||||
(1) | Includes common units issuable upon exercise of the underwriters over-allotment option. |
(2) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o). |
The information in this preliminary
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
preliminary 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.
| We may not have sufficient cash from operations to pay the minimum quarterly distribution following the establishment of cash reserves and payment of fees and expenses, including payments to our general partner. | |
| Refining margins are volatile and at historical highs and a reduction in our refining margins will adversely affect the amount of cash we will have available for distribution. | |
| Our hedging activities may have a material adverse effect on our earnings, profitability, cash flows and financial condition. | |
| We depend on certain key crude oil gatherers for a significant portion of our supply of crude oil. | |
| Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment. | |
| Unitholders have limited voting rights and are not entitled to elect our general partner or its directors. | |
| Even if unitholders are dissatisfied, they cannot remove our general partner without its consent. | |
| You will experience immediate and substantial dilution of $15.41 per common unit. | |
| You may be required to pay taxes on income from us even if you do not receive any cash distributions from us. |
Per Common Unit | Total | |||||||
Initial public offering price
|
$ | $ | ||||||
Underwriting discount(1)
|
$ | $ | ||||||
Proceeds before expenses to Calumet
Specialty Products
Partners, L.P. |
$ | $ |
(1) | Excludes structuring fee of $ to be paid to Goldman, Sachs & Co. |
Page
1
1
2
2
3
4
5
6
7
7
7
8
11
13
14
14
24
32
35
36
37
38
38
39
40
43
46
49
49
50
51
52
52
52
53
53
54
55
57
59
60
60
62
69
73
74
74
i
Page | |||||
77 | |||||
77 | |||||
78 | |||||
80 | |||||
80 | |||||
82 | |||||
82 | |||||
83 | |||||
89 | |||||
89 | |||||
92 | |||||
92 | |||||
93 | |||||
96 | |||||
96 | |||||
96 | |||||
96 | |||||
96 | |||||
97 | |||||
97 | |||||
98 | |||||
99 | |||||
99 | |||||
99 | |||||
99 | |||||
101 | |||||
102 | |||||
103 | |||||
103 | |||||
104 | |||||
104 | |||||
105 | |||||
105 | |||||
105 | |||||
105 | |||||
106 | |||||
106 | |||||
109 | |||||
112 | |||||
112 | |||||
112 | |||||
112 | |||||
114 | |||||
114 | |||||
114 | |||||
114 | |||||
114 | |||||
115 | |||||
116 | |||||
117 | |||||
118 | |||||
120 | |||||
121 |
ii
Page | ||||||||
121 | ||||||||
121 | ||||||||
123 | ||||||||
123 | ||||||||
123 | ||||||||
123 | ||||||||
124 | ||||||||
124 | ||||||||
125 | ||||||||
125 | ||||||||
125 | ||||||||
126 | ||||||||
126 | ||||||||
126 | ||||||||
127 | ||||||||
128 | ||||||||
129 | ||||||||
129 | ||||||||
131 | ||||||||
131 | ||||||||
136 | ||||||||
137 | ||||||||
139 | ||||||||
139 | ||||||||
140 | ||||||||
142 | ||||||||
143 | ||||||||
144 | ||||||||
146 | ||||||||
146 | ||||||||
146 | ||||||||
147 | ||||||||
F-1 | ||||||||
A-1 | ||||||||
B-1 | ||||||||
Certificate of Limited Partnership | ||||||||
Certificate of Formation of Calumet GP, LLC | ||||||||
Consent of Ernst & Young LLP |
iii
1
2
3
4
5
6
7
Princeton Refinery.
Our Princeton refinery, with an
aggregate crude oil throughput capacity of approximately
10,000 barrels per day (bpd) and located in
northwest Louisiana, produces specialty lubricating oils,
including process oils, base oils, transformer oils and
refrigeration oils that are used in a variety of industrial and
automotive applications.
Cotton Valley Refinery.
Our Cotton Valley refinery, with
an aggregate crude oil throughput capacity of approximately
13,500 bpd and located in northwest Louisiana, produces
specialty solvents that are used principally in the manufacture
of paints, cleaners and automotive products.
Shreveport Refinery.
Our Shreveport refinery, with an
aggregate crude oil throughput capacity of approximately
42,000 bpd and located in northwest Louisiana, produces
specialty lubricating oils and waxes, as well as fuel products
such as gasoline, diesel fuel and jet fuel.
Distribution and Logistics Assets.
We own and operate a
terminal in Burnham, Illinois with a storage capacity of
130,000 barrels that facilitates the distribution of our
products in the upper Midwest and East Coast regions of the
United States and in Canada. In addition, we lease approximately
1,200 rail cars to receive crude oil or distribute our products
throughout the United States and Canada. We also have
approximately 4.5 million barrels of aggregate finished
product storage capacity at our refineries.
Table of Contents
Concentrate on stable cash flows.
We intend to continue
to focus on businesses and assets that generate stable cash
flows. Approximately 70.9% of our gross profit for the six
months ended June 30, 2005 was generated by the sale of
specialty products, a segment of our business which is
characterized by stable customer relationships due to their
requirements for highly specialized products. Historically, we
have been able to reduce our exposure to crude oil price
fluctuations in this segment through our ability to pass on
incremental feedstock costs to our specialty products customers
and through our crude oil hedging programs. In our fuel products
business, we seek to mitigate our exposure to fuel margin
volatility by maintaining a long-term crack spread hedging
program. We believe the diversity of our product offerings, our
broad customer base and our hedging activities will contribute
to the stability of our cash flows.
Develop and expand our customer relationships.
Due to the
specialized nature of, and the long lead-time associated with,
the development and production of many of our products, our
customers have an incentive to continue their relationships with
us. We believe that larger competitors do not work as closely
with customers as we do from product design to delivery for
small volume products like ours.
Enhance profitability of our existing assets.
We will
continue to evaluate opportunities to expand our existing asset
base to increase our throughput and cash flow. Following each of
our asset acquisitions, we have undertaken projects designed to
increase the profitability of our acquired assets. We intend to
further increase the profitability of our existing asset base
through various measures which include changing the product mix
of our processing units, debottlenecking units as necessary to
increase throughput and reducing costs by improving operations.
Pursue strategic and complementary acquisitions.
Since
1990, our management team has demonstrated the ability to
identify opportunities to acquire refineries whose operations we
can enhance and whose profitability we can improve. In the
future, we intend to continue to make strategic acquisitions of
refineries that offer the opportunity for operational
efficiencies and the potential for increased utilization and
expansion. In addition, we may pursue selected acquisitions in
new geographic or product areas to the extent we perceive
similar opportunities.
We offer our customers a diverse range of specialty
products.
We offer a wide range of over 250 specialty
products. We believe that our ability to provide our customers
with a more diverse selection of products than our competitors
generally gives us an advantage in competing for new business.
We have strong relationships with a broad customer base.
We have long-term relationships with many of our customers, and
we believe that we will continue to benefit from these
relationships. Our customer base includes over
800 companies and we are continually seeking new customers.
Our refineries have advanced technology.
Our refineries
are equipped with advanced, flexible technology that allows us
to produce high-grade specialty products and to produce gasoline
and diesel products that comply with new fuel regulations. Our
current gasoline
Table of Contents
production satisfies the 2006 low sulfur gasoline standard set
by the Environmental Protection Agency, or EPA, and our
Shreveport and Cotton Valley refineries, as currently
configured, have the processing capability to satisfy the 2006
ultra low sulfur diesel standard.
We have an experienced management team.
Our management
has a proven track record of enhancing value through the
acquisition, exploitation and integration of refining assets and
the development and marketing of specialty products. Our senior
management team, the majority of whom have been working together
since 1990, has an average of over 20 years of industry
experience. After giving effect to this offering, members of our
senior management team will have a substantial economic interest
in us through their combined, direct or indirect, ownership of
a %
limited partner interest in our partnership.
We may not have sufficient cash from operations to enable us to
pay the minimum quarterly distribution following the
establishment of cash reserves and payment of fees and expenses,
including payments to our general partner.
The amount of cash we have available for distribution to
unitholders depends primarily on our cash flow and not solely on
profitability.
Refining margins are volatile and currently at historical highs,
and a reduction in our refining margins will adversely affect
the amount of cash we will have available for distribution to
our unitholders.
The price volatility of fuel and utility services may have a
material adverse effect on our earnings, profitability and cash
flows.
Our hedging activities may have a material adverse effect on our
earnings, profitability, cash flows and financial condition.
We depend on certain key crude oil gatherers for a significant
portion of our supply of crude oil, and the loss of any of these
key suppliers or a material decrease in the supply of crude oil
generally available to our refineries could materially reduce
our ability to make distributions to unitholders.
Distributions to unitholders could be adversely affected by a
decrease in the demand for our specialty products or fuel
products in the markets we serve.
We are subject to compliance with stringent environmental laws
and regulations that may expose us to substantial costs and
liabilities.
Our debt levels may limit our flexibility in obtaining
additional financing and in pursuing other business
opportunities.
Affiliates of our general partner will own a 73.1% limited
partner interest in us and will own and control our general
partner, which has sole responsibility for conducting our
business and managing our operations. Our general partner and
its affiliates have conflicts of interest
Table of Contents
and limited fiduciary duties, which may permit them to favor
their own interests to your detriment.
Affiliates of our general partner may engage in limited
competition with us.
Our partnership agreement limits our general partners
fiduciary duties to our unitholders and restricts the remedies
available to unitholders for actions taken by our general
partner that might otherwise constitute breaches of fiduciary
duty.
Unitholders have limited voting rights and are not entitled to
elect our general partner or its directors.
Even if unitholders are dissatisfied, they cannot remove our
general partner without its consent.
You will experience immediate and substantial dilution in net
tangible book value of $15.41 per common unit.
We may issue additional units without your approval, which would
dilute your existing ownership interests.
Our general partner has a limited call right that may require
you to sell your units at an undesirable time or price.
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, or IRS, 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 you.
A successful 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.
You may be required to pay taxes on income from us even if you
do not receive any cash distributions from us.
Unitholders may be subject to state and local taxes and return
filing requirements.
We have a subsidiary that will be treated as a corporation for
federal income tax purposes and subject to corporate-level
income taxes.
we will issue to the current owners of the Calumet Lubricants
Co., Limited Partnership (the Fehsenfeld and Grube families, The
Heritage Group, a privately-owned general partnership that
invests in a variety of industrial companies, and certain of
their affiliates) 5,706,000 common units and 13,066,000
subordinated units, representing a 73.1% limited partner
interest in us, in exchange for the contribution of their
ownership interests in Calumet Lubricants Co., Limited
Partnership;
Table of Contents
we will issue to our general partner, Calumet GP, 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
$0.495 per unit per quarter;
we will enter into new senior secured credit facilities;
we will enter into an omnibus agreement with The Heritage Group
and certain of its affiliates pursuant to which The Heritage
Group and certain of its affiliates will generally agree not to
compete with us in the business of refining and marketing
certain fuels and specialty hydrocarbon products; and
we will sell 6,400,000 common units to the public in this
offering, representing a 24.9% limited partner interest in us,
and will use the proceeds as described in Use of
Proceeds.
access to public equity and debt capital markets;
a lower cost of capital for expansions and acquisitions;
an enhanced ability to use equity securities as consideration in
future acquisitions; and
an overall lower effective income tax rate to our unitholders
than if we were a corporation.
Table of Contents
Table of Contents
Table of Contents
8
9
10
11
12
13
Common units offered to the public
6,400,000 common units
7,360,000 common units, if the underwriters exercise their
over-allotment option in full.
Units outstanding after this offering
12,106,000 common units representing a 47.1% limited partner
interest in us and 13,066,000 subordinated units representing a
50.9% limited partner interest in us.
13,066,000 common units and 13,066,000 subordinated
units, each representing a 49.0% limited partner interest in us,
if the underwriters exercise their over-allotment option in full.
Use of proceeds
We intend to use the estimated net proceeds of approximately
$125.9 million from this offering, after deducting
underwriting discounts and commissions and estimated offering
and related formation transaction expenses of approximately
$5.0 million, to:
repay $117.6 million in term loans under our
new credit facilities; and
pay $8.3 million of prepayment penalties and
fees to our lenders.
If the underwriters exercise their over-allotment option to
purchase additional common units, we will use the net proceeds
to repay additional borrowings under our term loans.
Cash distributions
We intend to make minimum quarterly distributions of
$0.45 per unit per quarter 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.
Within 45 days after the end of each quarter, beginning
with the quarter ending March 31, 2006, we will distribute
all of our available cash to unitholders of record on the
applicable record date. We will adjust the minimum quarterly
distribution for the period from the closing of the offering
through the end of the quarter in which the offering occurs
based on the actual length of the period.
In general, we will pay any cash distributions we make each
quarter in the following manner:
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 $0.45 plus any arrearages from
prior quarters;
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 $0.45; and
third, 98% to all unitholders, pro rata, and 2% to
our general partner, until each unit has received a distribution
of $0.495.
Table of Contents
Table of Contents
Issuance of additional units
In general, during the subordination period, we may issue up to
6,533,000 additional common units without obtaining unitholder
approval. We can also issue an unlimited number of common units
in connection with acquisitions and capital improvements that
increase cash flow from operations per unit on an estimated pro
forma basis. We can also issue additional common units if the
proceeds are used to repay certain of our indebtedness. Please
read Units Eligible for Future Sale and The
Partnership Agreement Issuance of Additional
Securities.
Limited voting rights
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 removed except by a vote of the holders of at least
66
2
/
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, the owners of our
general partner and certain of their affiliates will own an
aggregate of 74.6% of our common and subordinated units. This
will give our general partner the practical ability to prevent
its involuntary removal. Please read The Partnership
Agreement Voting Rights.
Limited call right
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.
Estimated ratio of taxable income to distributions
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 % or less of the cash
distributed to you with respect to that period. For example, if
you receive an annual distribution of $1.80 per unit, we
estimate that your average allocable federal taxable income per
year will be no more than $ per unit. Please read
Material Tax Consequences Tax Consequences of
Unit Ownership Ratio of Taxable Income to
Distributions.
Material tax consequences
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.
Trading
We intend to apply to have our common units quoted on the NASDAQ
National Market under the symbol CLMT.
Table of Contents
the refinancing by Calumet Predecessor of its long-term debt
obligations pursuant to new credit facilities it expects to
enter into in the fourth quarter of 2005;
the retention of certain assets and liabilities of Calumet
Predecessor by the owners of Calumet Predecessor;
the contribution of the ownership interests in Calumet
Predecessor to Calumet Specialty Products Partners, L.P. in
exchange for the issuance by Calumet Specialty Products
Partners, L.P. to the owners of Calumet Predecessor of 5,706,000
common units, 13,066,000 subordinated units, the 2% general
partner interest represented by 513,714 general partner
units and the incentive distribution rights;
the sale by Calumet Specialty Products Partners, L.P. of
6,400,000 common units to the public in this offering;
the payment of estimated underwriting commissions and other
offering and transaction expenses; and
the repayment by Calumet Specialty Products Partners, L.P. of a
portion of indebtedness under its new credit facilities.
Table of Contents
Calumet Specialty
Calumet Predecessor
Products Partners, L.P.
Pro Forma
Year Ended
Six Months Ended
Six Months
December 31,
June 30,
Year Ended
Ended
December 31,
June 30,
2002
2003
2004
2004
2005
2004
2005
(Dollars in thousands, except per unit data)
$
316,350
$
430,381
$
539,616
$
252,571
$
526,714
$
539,616
$
526,714
268,911
385,890
501,284
231,644
476,481
501,284
476,481
47,439
44,491
38,332
20,927
50,233
38,332
50,233
9,066
9,432
13,133
6,154
8,436
13,133
8,436
25,449
28,139
33,923
16,500
19,037
33,923
19,037
2,404
2,419
2,309
1,259
1,480
2,309
1,480
1,392
905
839
365
332
839
332
38,311
40,895
50,204
24,278
29,285
50,204
29,285
6,694
317
121
1,881
317
1,881
9,128
(3,098
)
(12,189
)
(3,472
)
19,067
(12,189
)
19,067
2,442
867
(427
)
(427
)
(427
)
(7,435
)
(9,493
)
(9,869
)
(4,448
)
(9,248
)
(5,496
)
(5,331
)
1,058
6,267
31,372
18,526
8,675
31,372
8,675
88
32
83
96
94
83
94
(3,847
)
(2,327
)
21,159
13,747
(479
)
25,532
3,438
5,281
(5,425
)
8,970
10,275
18,588
13,343
22,505
(50
)
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
$
13,343
$
22,455
$
0.51
$
0.86
25,172,000
25,172,000
$
80,916
$
89,938
$
126,585
$
128,514
$
127,991
217,915
216,941
318,206
360,252
358,594
34,072
32,263
58,027
25,492
25,492
141,968
146,853
214,069
264,814
147,201
30,968
25,544
34,514
53,102
169,342
$
(4,326
)
$
7,048
$
(612
)
$
7,032
$
(56,995
)
(9,924
)
(11,940
)
(42,930
)
(2,476
)
(8,321
)
14,209
4,884
61,561
(4,546
)
50,745
$
18,592
$
10,837
$
25,766
$
18,116
$
33,451
$
25,766
$
33,451
19,110
23,616
24,658
23,500
43,757
21,665
25,007
26,209
26,354
47,289
21,586
25,204
26,300
26,629
44,702
(1)
Incurred in connection with the decommissioning of the
Rouseville, Pennsylvania facility, the termination of the Bareco
joint venture and the closing of the Reno, Pennsylvania
facility, none of which will be contributed to Calumet Specialty
Products Partners, L.P.
(2)
Total sales volume includes sales from the production of our
refineries and sales of inventories.
(3)
Feedstock runs represents the barrels per day of crude oil and
other feedstocks processed at our refineries.
(4)
Total refinery production represents the barrels per day of
specialty products and fuel products yielded from processing
crude oil and other refinery feedstocks at our refineries.
Table of Contents
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
the ability of our assets to generate cash sufficient to pay
interest costs and support our indebtedness;
our operating performance and return on capital as compared to
those of other companies in our industry, without regard to
financing or capital structure; and
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
Calumet Specialty
Calumet Predecessor
Products Partners, L.P.
Pro Forma
Six Months Ended
Six Months
Year Ended December 31,
June 30,
Year Ended
Ended
December 31,
June 30,
2002
2003
2004
2004
2005
2004
2005
(In thousands)
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
$
13,343
$
22,455
7,435
9,493
9,869
4,448
9,248
5,496
5,331
5,876
6,769
6,927
3,393
5,615
3,393
5,615
50
$
18,592
$
10,837
$
25,766
$
18,116
$
33,451
$
25,766
$
33,451
Table of Contents
14
overall demand for specialty hydrocarbon products, fuels and
other refined products;
the level of foreign and domestic production of crude oil and
refined products;
our ability to produce fuels and specialty products that meet
our customers unique and precise specifications;
the marketing of alternative and competing products;
the extent of government regulation;
overall economic conditions; and
local market conditions.
the level of capital expenditures we make;
our debt service requirements;
fluctuations in our working capital needs;
our ability to borrow funds and access capital markets;
the cost of acquisitions, if any;
restrictions on distributions contained in our credit facilities;
restrictions on our ability to make working capital borrowings
under our revolving credit facility to pay
distributions; and
15
the amount of cash reserves established by our general partner
for the proper conduct of our business.
16
17
18
19
a recession or other adverse economic condition that results in
lower spending by consumers on gasoline, diesel, and travel;
higher fuel taxes or other governmental or regulatory actions
that increase, directly or indirectly, the cost of gasoline;
an increase in fuel economy, whether as a result of a shift by
consumers to more fuel-efficient vehicles or technological
advances by manufacturers.
an increase in the market price of crude oil that lead to higher
refined product prices, which may reduce demand for gasoline.
Market prices for crude oil and refined products are subject to
wide fluctuation in response to changes in global and regional
supply over which we have no control, and recent significant
increases in the price of crude oil may result in a lower demand
for refined products;
the increased use of alternative fuel sources, such as
battery-powered engines;
competitor actions;
availability of raw materials; and
international events and circumstances.
20
21
performance from the acquired assets and businesses that is
below the forecasts we used in evaluating the acquisition;
a significant increase in our indebtedness and working capital
requirements;
an inability to timely and effectively integrate the operations
of recently acquired businesses or assets, particularly those in
new geographic areas or in new lines of business;
the incurrence of substantial unforeseen environmental and other
liabilities arising out of the acquired businesses or assets,
including liabilities arising from the operation of the acquired
businesses or assets prior to our acquisition, for which we are
not indemnified or for which the indemnity is inadequate;
the diversion of managements attention from other business
concerns; and
customer or key employee losses at the acquired businesses.
22
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;
covenants contained in our existing and future credit and debt
arrangements will require us to meet financial tests that may
affect our flexibility in planning for and reacting to changes
in our business, including possible acquisition opportunities;
we will need a substantial portion of our cash flow to make
principal and interest payments on our indebtedness, reducing
the funds that would otherwise be available for operations,
future business opportunities and distributions to unitholders;
our debt level will make us more vulnerable than our competitors
with less debt to competitive pressures or a downturn in our
business or the economy generally; and
23
our debt level may limit our flexibility in responding to
changing business and economic conditions.
grant liens;
make certain loans or investments;
incur additional indebtedness or guarantee other indebtedness;
make any material change to the nature of our business;
make any material dispositions of assets;
enter into a merger, consolidation, sale leaseback transaction
or purchase of assets; or
make distributions if any potential default or event of default
occurs.
24
25
our general partner is allowed to take into account the
interests of parties other than us, such as its affiliates, in
resolving conflicts of interest, which has the effect of
limiting its fiduciary duty to our unitholders;
our general partner has limited its liability and reduced its
fiduciary duties under our partnership agreement and has also
restricted the remedies available to our unitholders for actions
that, without the limitations, might constitute breaches of
fiduciary duty. As a result of purchasing common units,
unitholders consent to some actions and conflicts of interest
that might otherwise constitute a breach of fiduciary or other
duties under applicable state law;
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;
our general partner determines which costs incurred by it and
its affiliates are reimbursable by us;
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;
affiliates of our general partner may engage in competition with
us under certain circumstances;
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 a capital expenditure for acquisitions or capital
improvements, which does not. 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;
our general partner has the flexibility to cause us to enter
into a broad variety of derivative transactions covering
different time periods, the net cash receipts from which will
increase operating surplus and adjusted operating surplus, with
the result that our general partner may be able to shift the
recognition of operating surplus and adjusted operating surplus
between periods to increase the distributions it and its
affiliates receive on their subordinated units and incentive
distribution rights or to accelerate the expiration of the
subordination period;
in some instances, our general partner may cause us to borrow
funds in order to permit the payment of cash distributions, even
if the purpose or effect of the borrowing is to make a
distribution on the subordinated units, to make incentive
distributions or to accelerate the expiration of the
subordination period;
our general partner controls the enforcement of obligations owed
to us by our general partner and its affiliates; and
26
our general partner decides whether to retain separate counsel,
accountants, or others to perform services for us.
any business owned or operated by The Heritage Group or any of
its affiliates at the closing of the offering;
the refining and marketing of asphalt and asphalt-related
products and related product development activities;
the refining and marketing of other products that do not produce
qualifying income as defined in the Internal Revenue
Code;
the purchase and ownership of up to 9.9% of any class of
securities of any entity engaged in any restricted business;
any restricted business acquired or constructed that The
Heritage Group or any of its affiliates acquires or constructs
that has a fair market value or construction cost, as
applicable, of less than $5.0 million;
any restricted business acquired or constructed that has a fair
market value or construction cost, as applicable, of
$5.0 million or more if we have been offered the
opportunity to purchase it for fair market value or construction
cost and we decline to do so with the concurrence of the
conflicts committee of the board of directors of our general
partner; and
any business conducted by The Heritage Group with the approval
of the conflicts committee of the board of directors of our
general partner.
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 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 our partnership or
amendment to our partnership agreement;
27
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;
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. 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
provides that our general partner and its officers and directors
will not be liable for monetary damages to us or our limited
partners 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 such persons conduct was criminal.
28
the issuance of common units upon the exercise of the
underwriters over-allotment option;
the issuance of common units in connection with acquisitions or
capital improvements that increase cash flow from operations per
unit on an estimated pro forma basis;
29
issuances of common units to repay indebtedness, if the cost to
service the indebtedness is greater than the distribution
obligations associated with the units issued in connection with
the repayment of the indebtedness;
the conversion of subordinated units into common units;
the conversion of units of equal rank with the common units into
common units under some circumstances;
in the event of a combination or subdivision of common units;
issuances of common units under our employee benefit
plans; or
the conversion of the general partner interest and the incentive
distribution rights into common units as a result of the
withdrawal or removal of our general partner.
our unitholders proportionate ownership interest in us may
decrease;
the amount of cash available for distribution on each unit may
decrease;
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;
the relative voting strength of each previously outstanding unit
may be diminished;
the market price of the common units may decline; and
the ratio of taxable income to distributions may increase.
30
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
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.
31
our quarterly distributions;
our quarterly or annual earnings or those of other companies in
our industry;
loss of a large customer;
announcements by us or our competitors of significant contracts
or acquisitions;
changes in accounting standards, policies, guidance,
interpretations or principles;
general economic conditions;
the failure of securities analysts to cover our common units
after this offering or changes in financial estimates by
analysts;
future sales of our common units; and
the other factors described in these Risk Factors.
32
33
34
35
36
our historical cash and capitalization as of June 30,
2005; and
our pro forma cash and capitalization as of June 30, 2005
as adjusted to reflect (1) the borrowings under our new
credit facilities and the repayment by us of all of our then
existing indebtedness which we expect will occur in the fourth
quarter of 2005 and (2) the offering of the common units
and related formation transactions and the application of the
net proceeds from the offering as described under Use of
Proceeds.
As of June 30, 2005
Historical
Pro Forma
(In thousands)
$
3,516
$
3,516
168,199
56,615
89,814
40,000
57,387
264,814
147,201
53,102
125,944
12,840
29,402
1,156
53,102
169,342
$
317,916
$
316,543
(1)
Prior to December 31, 2005, we intend to refinance all
existing borrowings with proceeds from a new
$ million
senior secured term loan facility, a
$ million
senior secured second lien term loan facility and borrowings
under a new senior secured revolving credit facility. We intend
to use the net proceeds of the offering to repay the
$ million
senior secured second lien term loan facility and a portion of
the
$ million
senior secured term loan.
37
$
22.00
$
2.25
4.34
6.59
$
15.41
(1)
Determined by dividing the number of units (5,706,000 common
units, 13,066,000 subordinated units and the 2% general partner
interest represented by 513,714 general partner units) to be
issued to the general partner and its affiliates for their
contribution of assets and liabilities to us into the net
tangible book value of the contributed assets and liabilities.
(2)
Determined by dividing the total number of units to be
outstanding after the offering (12,106,000 common units,
13,066,000 subordinated units and the 2% general partner
interest represented by 513,714 general partner units) into our
pro forma net tangible book value, after giving effect to the
application of the expected net proceeds of the offering.
Units Acquired
Total Consideration
Number
Percent
Amount
Percent
19,285,714
75.1
%
$
43,398,000
25.6
%
6,400,000
24.9
%
125,944,000
74.4
%
25,685,714
100.00
%
$
169,312,000
100.0
%
(1)
The units acquired by our general partner and its affiliates
consist of 5,706,000 common units and 13,066,000 subordinated
units and the 2% general partner interest represented by
513,714 general partner units.
38
Our distribution policy will be subject to restrictions on
distributions under our new credit facilities. Specifically, we
anticipate that our new credit facilities will contain certain
financial tests and covenants that we must satisfy. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources. Should we be unable to satisfy these
restrictions under our new credit facilities, 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 or for future
distributions to 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.
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 our general partner, taking into consideration the terms of
our partnership agreement.
Under Section 17-607 of the Delaware 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 a number of factors, including increases in
our general and administrative expense, principal and interest
payments on our outstanding debt, tax expenses, working capital
requirements, anticipated cash needs and seasonality. Please
read Risk Factors for a discussion of these factors.
While our partnership agreement requires us to distribute our
available cash, our partnership agreement may be amended.
Although during the subordination period, with certain
exceptions, our partnership agreement may not be amended without
approval of the nonaffiliated common unitholders, our
partnership agreement can be amended with the approval of a
majority of our outstanding common units after the subordination
period has
39
ended. At the closing of this offering, owners of our general
partner and certain of their affiliates will own approximately
74.6% of our outstanding common units and subordinated units.
Distributions
Number of
Units
One Quarter
Four Quarters
6,400,000
$
2,880,000
$
11,520,000
5,706,000
2,567,700
10,270,800
13,066,000
5,879,700
23,518,800
513,714
231,171
924,685
25,685,714
$
11,558,571
$
46,234,285
40
Unaudited Pro Forma Cash Available for Distribution,
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
June 30, 2005, based on our pro forma financial statements.
Estimated Cash Available for Distribution, in which
we present how we calculate the estimated minimum EBITDA
necessary for us to have sufficient cash available for
distribution to pay the full minimum quarterly distribution on
all the outstanding units for each quarter through
December 31, 2006. In Assumptions and
Considerations below, we also present our assumptions
underlying our belief that we will generate sufficient EBITDA to
pay the minimum quarterly distribution on all units for each
quarter through December 31, 2006.
41
42
Year Ended
Twelve Months
December 31, 2004
Ended June 30, 2005
(In thousands, except per unit amounts)
$
13,343
$
23,563
5,496
8,339
50
6,927
9,149
25,766
41,101
(31,372
)
(21,521
)
32,999
21,642
216
318
59
98
1,718
3,470
(427
)
4,500
4,500
4,000
4,700
5,496
8,339
50
$
16,715
$
25,767
$
1.80
$
1.80
$
21,791
$
21,791
23,519
23,519
925
925
$
46,234
$
46,234
$
(29,519
)
$
(20,467
)
43
(a)
Reflects the interest expense and fees related to our borrowings
after giving effect to the refinancing of our long-term debt
obligations pursuant to new credit facilities that we expect to
enter into in the fourth quarter of 2005 and the repayment of a
portion of these borrowings under these facilities from the net
proceeds of this offering.
(b)
Reflects the income tax expense of Calumet Reseller, Inc., a
corporate subsidiary of our operating company, Calumet
Operating, LLC.
(c)
EBITDA is defined as earnings before interest, taxes,
depreciation and amortization.
(d)
Reflects the gain on derivative instruments recognized in net
income.
(e)
Reflects the net cash proceeds received in settlement of our
derivative instruments.
(f)
Reflects non-cash expenses recognized in net income related to
doubtful accounts.
(g)
Reflects non-cash loss recognized in net income related to the
disposal of equipment.
(h)
Reflects a non-cash impairment charge recognized in net income
to write-down the carrying value of the long-lived assets at
Calumet Predecessors Reno wax packaging facility to
estimated fair value.
(i)
Reflects cash dividends received by us from our unconsolidated
affiliates and not recognized in net income.
(j)
Reflects non-cash loss recognized in net income related to our
equity investment in unconsolidated affiliates.
(k)
Reflects an adjustment for estimated incremental general and
administrative expenses we will incur as a result of being a
publicly traded limited partnership, such as costs associated
with annual and quarterly reports to unitholders, tax return and
Schedule K-1 preparation and distribution, investor
relations, registrar and transfer agent fees, director
compensation and incremental insurance costs, including director
and officer liability and business interruption insurance.
(l)
Reflects actual capital expenditures for the replacement of worn
out or obsolete equipment and for property additions to comply
with environmental and operations regulations.
44
Twelve Months Ending
December 31, 2006
(In thousands)
$
927,589
747,928
1,675,517
829,180
677,844
1,507,024
98,409
70,084
168,493
17,988
53,158
2,800
73,946
94,547
(39,762
)
11,535
$
66,320
Assuming No Exercise | Assuming Full Exercise | ||||||||
of the Underwriters | of the Underwriters | ||||||||
Over-allotment Option | Over-allotment Option(1) | ||||||||
Less:
|
|||||||||
Replacement and environmental
capital expenditures
|
$ | 7,200 | $ | 7,200 | |||||
Interest expense(1)
|
12,100 | 10,800 | |||||||
Income tax expense(1)
|
320 | 320 | |||||||
Estimated cash available for
distribution
|
$ | 46,700 | $ | 48,000 | |||||
Per unit minimum annual distribution
|
$ | 1.80 | $ | 1.80 | |||||
Distributions
|
|||||||||
Publicly held common units
|
$ | 11,520 | $ | 13,248 | |||||
Common units held by affiliates of
our general partner
|
10,271 | 10,271 | |||||||
Subordinated units held by
affiliates of our general partner
|
23,519 | 23,519 | |||||||
General partner units held by our
general partner
|
925 | 960 | |||||||
Total minimum annual cash
distribution
|
$ | 46,235 | $ | 47,998 | |||||
45
46
(1)
Assuming the underwriters exercise their over-allotment option
to purchase 960,000 common units in this offering, we would
receive additional net proceeds of $19.6 million, which we
would use to pay down additional borrowings under our term
loans. Our resulting decreased indebtedness will reduce our
estimated interest expense by $1.3 million and will have a
corresponding increase in our estimated cash available for
distribution. The minimum quarterly distribution on the
additional 960,000 common units and 19,592 general
partner units issued to the general partner to maintain its 2%
general partner interest will be $1.8 million.
Our average realized crude oil cost will be $65.78 per barrel,
which assumes an average NYMEX West Texas Intermediate, or WTI,
crude oil price of $65.00 per barrel plus $0.78 per
barrel to reflect the historical difference between our
delivered crude oil price and the NYMEX price. For the twelve
months ended June 30, 2005, the average daily price of the
prompt NYMEX WTI crude oil contract was $48.79 per barrel.
The average of the monthly NYMEX WTI crude oil swap prices for
2006 was $64.67 per barrel as of October 4, 2005.
Our average realized natural gas cost will be $12.00 per
MMBtu, which assumes a $12.00 per MMBtu NYMEX Henry Hub
natural gas price. Our realized natural gas price has
historically approximated the NYMEX Henry Hub natural gas price.
For the twelve months ended June 30, 2005, the average
NYMEX Henry Hub natural gas monthly settlement price was
$6.47 per MMBtu. The average of the monthly NYMEX Henry Hub
natural gas swap prices for 2006 was $11.74 per MMBtu as of
October 4, 2005.
Our average realized Gulf Coast 2/1/1 crack spread will be
$14.80 per barrel. For the twelve months ended June 30,
2005, the average U.S. Gulf Coast 2/1/1 crack spread to NYMEX
WTI calculated using the calendar average NYMEX price of WTI
crude oil, unleaded gasoline and low-sulfur diesel was
$7.47 per barrel. The average of the monthly Gulf Coast
2/1/1 crack spread swap prices for 2006 was $15.84 per
barrel as of October 4, 2005.
Our specialty product prices are based on specialty product
prices we realized in September 2005.
We will realize average sales of approximately 31,100 bpd
in our specialty products segment and approximately
25,200 bpd in our fuel products segment as compared to
27,148 bpd and 10,450 bpd, respectively, for the
twelve months ended June 30, 2005. This volumetric
assumption is based on our average daily sales levels for the
three months ended June 30, 2005 as adjusted to include an
anticipated increase in blending feedstocks to optimize
production at the Shreveport refinery. We have also assumed that
our product mix will approximate the product mix we experienced
during the three months ended June 30, 2005.
Our cost of sales in 2006 are expected to be $829.2 million
in the specialty products segment and $677.8 million in the
fuel products segment as compared to $530.5 million and
$215.6 million for the twelve months ended June 30,
2005, respectively. The cost of sales increase is primarily a
result of increased costs of crude oil and natural gas as
discussed above. Crude oil feedstock purchases will increase in
volume to approximately 55,600 bpd from 37,281 bpd for
the twelve months ended June 30, 2005. Natural gas
purchased to fuel our refineries in 2006 will remain constant in
volume at 6.2 million MMBtu. Labor, electricity and repair
and maintenance charges, including turnaround costs, will be
substantially similar to those realized in the twelve months
ended June 30, 2005. We allocate costs to each segment
based on barrels produced in each segment.
47
Our gross profit will be approximately $168.5 million for
the twelve months ending December 31, 2006, based on our
volume and price assumptions listed above, as compared to
$67.6 million for the twelve months ended June 30,
2005.
Our selling, general and administrative expenses for the twelve
months ending December 31, 2006 will be approximately
$18.0 million. Our selling, general and administrative
expenses for the twelve months ended June 30, 2005 were
$15.4 million. We have assumed that selling, general and
administrative expenses will increase by approximately
$4.5 million as a result of incremental expenses associated
with our operation as a publicly traded partnership. In
addition, we assume that employee compensation costs will
decrease by approximately $2.0 million due to a reduction
in incentive bonuses. We assume that our other selling, general
and administrative expenses will remain similar to those for the
twelve months ended June 30, 2005.
Our transportation costs for the twelve months ending
December 31, 2006 will be approximately $53.2 million
as compared to $36.5 million for the twelve months ended
June 30, 2005. We have assumed that transportation costs
will increase as a result of our increased sales volume in 2006.
Our interest expense (including commitment, letter of credit and
other fees) for the twelve months ending December 31, 2006
will be approximately $12.1 million. Our pro forma interest
expense for the twelve months ended June 30, 2005 was
$8.3 million. We anticipate that borrowings under our new
credit facilities will bear interest at a variable rate based on
LIBOR. We have assumed that our weighted average interest rate
on all of our borrowings will be approximately 6.0% and we will
incur approximately $2.8 million in commitment and other
financing-related fees.
Our net cash payment on derivative instruments will be
$39.8 million for the twelve months ending
December 31, 2006 as compared to a net cash receipt of
$21.6 million for the twelve months ended June 30,
2005.
-
entering into swap transactions which fix the price of
200,000 MMBtu per month of natural gas at $9.84 per
MMBtu for each of January, February and March 2006, which
means that we will be paid by the counterparty to the extent
that the NYMEX Henry Hub price of natural gas is greater than
$9.84 per MMBtu, but we will be required to pay the
counterparty to the extent that the NYMEX Henry Hub price of
natural gas is less than $9.84 per MMBtu;
-
entering into swap transactions for 4,150,000 barrels for
the NYMEX Gulf Coast 2/1/1 crack spread to NYMEX WTI at
$8.71 per barrel, which means that we will be required to
pay the counterparty to the extent that Gulf Coast 2/1/1 crack
spreads are greater than $8.71 per barrel, but we will be
paid by the counterparty to the extent that Gulf Coast crack
spreads are less than $8.71 per barrel; and
-
entering into collar transactions for 2,700,000 barrels for
the Gulf Coast 2/1/1 crack spread to NYMEX WTI pursuant to which
we will be required to pay the counterparty to the extent the
Gulf Coast crack spread is above $9.41 per barrel, but we
will be paid by the counterparty to the extent the Gulf Coast
crack spread is below $7.24 per barrel.
We have entered into a portion of our total expected 2007
hedging transactions at more favorable prices than those prices
entered into for 2006, due to improved market conditions.
Our depreciation and amortization expense for the twelve months
ending December 31, 2006 will be $11.5 million, as
compared to $9.1 million for the twelve months ended
June 30, 2005. The increase in depreciation and
amortization expense is principally related to
48
expansion capital expenditures budgeted for the Shreveport
refinery in 2006. Depreciation and amortization expense is
reflected in cost of sales.
The income tax expense of Calumet Reseller, Inc., a corporate
subsidiary of our operating company, Calumet Operating, LLC,
through which we market jet fuel products to certain end-users,
for the twelve months ending December 31, 2006 will be
approximately $0.3 million.
Our replacement and environmental capital expenditures for the
twelve months ending December 31, 2006 will be
approximately $7.2 million, as compared to
$4.7 million for the twelve months ended June 30,
2005. The increase in replacement and environmental capital
expenditures is due to environmental projects at all three of
our refineries.
No material accidents, releases or similar unanticipated
material events will occur at any of our facilities.
Market, regulatory and overall economic conditions will not
change substantially.
49
less the amount of cash reserves established by our general
partner to:
provide for the proper conduct of our business;
comply with applicable law, any of our debt instruments or other
agreements; or
provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four
quarters.
plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter for which the determination is
being made. Working capital borrowings are generally borrowings
that will be made under our revolving credit facility and in all
cases are used solely for working capital purposes or to pay
distributions to partners.
50
our cash balance on the closing date of this offering;
$10.0 million (as described below); plus
all of our cash receipts after the closing of this offering,
excluding cash from (1) borrowings that are not working
capital borrowings, (2) sales of equity and debt securities
and (3) sales or other dispositions of assets outside the
ordinary course of business; plus
working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less
all of our operating expenditures after the closing of this
offering (including the repayment of working capital borrowings,
but not the repayment of other borrowings) and maintenance
capital expenditures; less
the amount of cash reserves established by our general partner
for future operating expenditures.
borrowings other than working capital borrowings;
sales of our equity and debt securities; and
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.
51
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
distributions on such common units, subordinated units and
general partner units for each of the three consecutive,
non-overlapping four-quarter periods immediately preceding that
date;
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 units, subordinated units and general
partner units during those periods on a fully diluted basis; and
there are no arrearages in payment of minimum quarterly
distributions on the common units.
the subordination period will end and each subordinated unit
will immediately convert into one common unit;
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
the 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.
operating surplus generated with respect to that period; less
any net increase in working capital borrowings with respect to
that period; less
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
any net decrease in working capital borrowings with respect to
that period; plus
52
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.
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;
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;
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
thereafter
, in the manner described in
Incentive Distribution Rights below.
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
thereafter,
in the manner described in
Incentive Distribution Rights below.
we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
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;
53
first,
98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives a total of
$0.495 per unit for that quarter (the first target
distribution);
second,
85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives a total of
$0.563 per unit for that quarter (the second target
distribution);
third,
75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives a total of
$0.675 per unit for that quarter (the third target
distribution); and
thereafter,
50% to all unitholders, pro rata, and 50% to
the general partner.
Marginal Percentage
Interest in
Total Quarterly
Distributions
Distribution
General
Target Amount
Unitholders
Partner
$0.45
98%
2%
up to $0.495
98%
2%
above $0.495 up to $0.563
85%
15%
above $0.563 up to $0.675
75%
25%
above $0.675
50%
50%
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;
54
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.
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.
55
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;
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;
56
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.
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.
57
the refinancing by Calumet Predecessor of its long-term debt
obligations pursuant to new credit facilities it expects to
enter into in the fourth quarter of 2005;
the retention of certain assets and liabilities of Calumet
Predecessor by the owners of Calumet Predecessor;
the contribution of the ownership interests in Calumet
Predecessor to Calumet Specialty Products Partners, L.P. in
exchange for the issuance by Calumet Specialty Products
Partners, L.P. to the owners of Calumet Predecessor of 5,706,000
common units, 13,066,000 subordinated units, the 2% general
partner interest represented by 513,714 general partner units
and the incentive distribution rights;
the sale by Calumet Specialty Products Partners, L.P. of
6,400,000 common units to the public in this offering;
the payment of estimated underwriting commissions and other
offering and transaction expenses; and
the repayment by Calumet Specialty Products Partners, L.P. of a
portion of indebtedness under its new credit facilities.
58
Calumet Specialty Products
Partners, L.P.
Calumet Predecessor
Pro Forma
Six
Six Months Ended
Year
Months
Year Ended December 31,
June 30,
Ended
Ended
December 31,
June 30,
2000
2001
2002
2003
2004
2004
2005
2004
2005
(Dollars in thousands, except per unit data)
$
267,307
$
306,760
$
316,350
$
430,381
$
539,616
$
252,571
$
526,714
$
539,616
$
526,714
249,852
272,523
268,911
385,890
501,284
231,644
476,481
501,284
476,481
17,455
34,237
47,439
44,491
38,332
20,927
50,233
38,332
50,233
8,257
7,844
9,066
9,432
13,133
6,154
8,436
13,133
8,436
19,620
24,096
25,449
28,139
33,923
16,500
19,037
33,923
19,037
993
1,400
2,404
2,419
2,309
1,259
1,480
2,309
1,480
679
1,038
1,392
905
839
365
332
839
332
29,549
34,378
38,311
40,895
50,204
24,278
29,285
50,204
29,285
9,015
6,694
317
121
1,881
317
1,881
(12,094
)
(9,156
)
9,128
(3,098
)
(12,189
)
(3,472
)
19,067
(12,189
)
19,067
2,532
1,636
2,442
867
(427
)
(427
)
(427
)
(4,180
)
(6,235
)
(7,435
)
(9,493
)
(9,869
)
(4,448
)
(9,248
)
(5,496
)
(5,331
)
1,058
6,267
31,372
18,526
8,675
31,372
8,675
(158
)
471
88
32
83
96
94
83
94
(1,806
)
(4,128
)
(3,847
)
(2,327
)
21,159
13,747
(479
)
25,532
3,438
(13,900
)
(13,284
)
5,281
(5,425
)
8,970
10,275
18,588
13,343
22,505
(50
)
$
(13,900
)
$
(13,284
)
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
$
13,343
$
22,455
$
0.51
$
0.86
25,172,000
25,172,000
$
60,679
$
76,316
$
80,916
$
89,938
$
126,585
$
128,514
$
127,991
143,340
192,118
217,915
216,941
318,206
360,252
358,594
24,701
24,485
34,072
32,263
58,027
25,492
25,492
72,571
127,759
141,968
146,853
214,069
264,814
147,201
38,972
17,362
30,968
25,544
34,514
53,102
169,342
$
(9,792
)
$
(13,774
)
$
(4,326
)
$
7,048
$
(612
)
$
7,032
$
(56,995
)
(32,078
)
(31,059
)
(9,924
)
(11,940
)
(42,930
)
(2,476
)
(8,321
)
41,908
44,872
14,209
4,884
61,561
(4,546
)
50,745
$
(1,716
)
$
(5,152
)
$
18,592
$
10,837
$
25,766
$
18,116
$
33,451
$
25,766
$
33,451
15,869
19,021
19,110
23,616
24,658
23,500
43,757
15,729
18,941
21,665
25,007
26,209
26,354
47,289
15,747
18,991
21,586
25,204
26,300
26,629
44,702
(1)
Incurred in connection with the decommissioning of the
Rouseville, Pennsylvania facility, the termination of the Bareco
joint venture and the closing of the Reno, Pennsylvania
facility, none of which will be contributed to Calumet Specialty
Products Partners, L.P.
(2)
Total sales volume includes sales from the production of our
refineries and sales of inventories.
(3)
Feedstock runs represents the barrels per day of crude oil and
other feedstocks processed at our refineries.
(4)
Total refinery production represents the barrels per day of
specialty products and fuel products yielded from processing
crude oil and other refinery feedstocks at our refineries.
59
the financial performance of our assets without regard to
financing methods, capital structure or historical cost basis;
the ability of our assets to generate cash sufficient to pay
interest costs and support our indebtedness;
our operating performance and return on capital as compared to
those of other companies in our industry, without regard to
financing or capital structure; and
the viability of acquisitions and capital expenditure projects
and the overall rates of return on alternative investment
opportunities.
Calumet Specialty
Calumet Predecessor
Products Partners, L.P.
Pro Forma
Six Months Ended
Six Months
Year Ended December 31,
June 30,
Year Ended
Ended
December 31,
June 30,
2000
2001
2002
2003
2004
2004
2005
2004
2005
(In thousands)
$
(13,900
)
$
(13,284
)
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
$
13,343
$
22,455
4,180
6,235
7,435
9,493
9,869
4,448
9,248
5,496
5,331
4,568
5,333
5,876
6,769
6,927
3,393
5,615
3,393
5,615
50
$
(1,716
)
$
(5,152
)
$
18,592
$
10,837
$
25,766
$
18,116
$
33,451
$
25,766
$
33,451
60
61
Sales volumes;
Production yields; and
Specialty products and fuel products gross profit.
62
Years Ended December 31,
Six Months
Six Months
Ended
Ended
2002
2003
2004
June 30, 2004
June 30, 2005
19,110
23,616
24,658
23,500
43,757
19,351
22,086
23,867
23,788
43,025
2,976
2,314
2,921
2,342
2,566
1,288
21,665
25,007
26,209
26,354
47,289
8,173
8,290
9,439
9,306
10,665
1,002
699
1,010
817
867
4,333
4,623
4,974
4,835
4,272
3,910
5,159
5,992
6,379
5,873
4,168
6,433
3,931
5,293
2,583
21,586
25,204
25,346
26,629
24,260
3
7,685
583
6,499
342
6,249
26
9
954
20,442
21,586
25,204
26,300
26,629
44,702
(1)
Total sales volume includes sales from the production of our
refineries and sales of inventories.
(2)
Feedstock runs represents the barrels per day of crude oil and
other feedstocks processed at our refineries.
(3)
Total refinery production represents the barrels per day of
specialty products and fuel products yielded from processing
crude oil and other refinery feedstocks at our refineries. The
difference between total refinery production and total feedstock
runs is primarily a result of the time lag between the input of
feedstock and production of end products.
63
Years Ended
December 31,
Six Months
Six Months
Ended
Ended
2002
2003
2004
June 30, 2004
June 30, 2005
(In millions)
$
156.5
$
205.9
$
251.9
$
119.0
$
166.6
34.2
32.3
39.5
18.7
19.6
71.3
87.6
114.7
54.6
62.5
10.8
18.7
47.3
21.0
33.2
43.6
85.9
76.6
39.3
26.5
316.4
430.4
530.0
252.6
308.4
76.5
3.3
94.4
40.4
6.3
7.0
9.6
218.3
$
316.4
$
430.4
$
539.6
$
252.6
$
526.7
Year Ended
Six Months
December 31,
Ended June 30,
2002
2003
2004
2004
2005
(In millions)
$
316.4
$
430.4
$
539.6
$
252.6
$
526.7
269.0
385.9
501.3
231.6
476.5
47.4
44.5
38.3
21.0
50.2
9.1
9.4
13.1
6.1
8.5
25.4
28.2
34.0
16.5
19.0
2.4
2.4
2.3
1.3
1.5
1.4
0.9
0.8
0.4
0.3
38.3
40.9
50.2
24.3
29.3
6.7
0.3
0.2
1.8
9.1
(3.1
)
(12.2
)
(3.5
)
19.1
2.4
0.9
(0.4
)
(0.4
)
(7.4
)
(9.5
)
(9.9
)
(4.4
)
(9.2
)
1.1
6.3
31.4
18.5
8.6
0.1
0.1
0.1
0.1
(3.8
)
(2.3
)
21.2
13.8
(0.5
)
$
5.3
$
(5.4
)
$
9.0
$
10.3
$
18.6
64
Six Months Ended June 30,
2004
2005
% Change
(Dollars in millions)
$
119.0
$
166.6
40.0
%
54.6
62.5
14.5
18.7
19.6
4.7
39.3
26.5
(32.5
)
21.0
33.2
58.3
$
252.6
$
308.4
22.1
%
4,529,000
4,350,000
(3.9
)%
$
$
76.5
94.4
40.4
7.0
$
$
218.3
3,573,000
$
252.6
$
526.7
108.5
%
4,529,000
7,924,000
74.9
%
(1)
Represents fuels produced in connection with the production of
specialty products at the Princeton and Cotton Valley refineries.
(2)
Represents asphalt and other by-products produced in connection
with the production of specialty products at the Princeton,
Cotton Valley and Shreveport refineries.
(3)
Represents asphalt and other by-products produced in connection
with the production of fuels at the Shreveport refinery.
65
Six Months Ended June 30,
2004
2005
% Change
(Dollars in millions)
$
20.9
$
35.6
70.1
%
8.3
%
11.5
%
$
$
14.6
6.7
%
$
20.9
$
50.2
140.0
%
8.3
%
9.5
%
66
Year Ended December 31,
2003
2004
% Change
(Dollars in millions)
$
205.9
$
251.9
22.3
%
87.6
114.7
30.9
32.3
39.5
22.5
85.9
76.6
(10.8
)
18.7
47.3
152.4
$
430.4
$
530.0
23.2
%
8,620,000
8,807,000
2.2
%
$
$
3.3
6.3
$
$
9.6
193,000
$
430.4
$
539.6
25.4
%
8,620,000
9,000,000
4.1
%
(1)
Represents fuels produced in connection with the production of
specialty products at the Princeton and Cotton Valley refineries.
(2)
Represents asphalt and other by-products produced in connection
with the production of specialty products at the Princeton and
Cotton Valley refineries.
(3)
Represents asphalt and other by-products produced in connection
with the production of fuels at the Shreveport refinery.
67
Year Ended December 31,
2003
2004
% Change
(Dollars in millions)
$
44.5
$
40.6
(8.6
)%
10.3
%
7.7
%
(2.3
)
(24.1
)%
$
44.5
$
38.3
(13.8
)%
10.3
%
7.1
%
68
Year Ended December 31,
2002
2003
% Change
(Dollars in millions)
$
156.5
$
205.9
31.6
%
71.3
87.6
22.9
34.2
32.3
(5.7
)
43.6
85.9
97.0
10.8
18.7
74.0
$
316.4
$
430.4
36.0
%
6,975,000
8,620,000
23.6
%
(1)
Represents fuels produced in connection with the production of
specialty products at the Princeton and Cotton Valley refineries.
(2)
Represents asphalt and other by-products produced in connection
with the production of specialty products at the Princeton and
Cotton Valley refineries.
Year Ended December 31,
2002
2003
% Change
(Dollars in millions)
$
47.4
$
44.5
(6.2
)%
15.0
%
10.3
%
69
Six Months
Year Ended
Ended
December 31,
June 30,
2002
2003
2004
2004
2005
(Dollars in millions)
$
(4.3
)
$
7.0
$
(0.6
)
$
7.0
$
(57.0
)
(9.9
)
(11.9
)
(42.9
)
(2.5
)
(8.3
)
$
14.2
$
4.9
$
61.6
$
(4.5
)
$
50.7
70
71
Six Months
Year Ended December 31,
Ended
June 30,
2002
2003
2004
2005
(dollars in millions)
$
4.2
$
7.5
$
39.0
$
7.0
5.5
4.3
2.6
1.3
0.5
0.4
1.4
0.0
$
10.2
$
12.2
$
43.0
$
8.3
72
a
$ million
senior secured revolving credit facility (the
Revolver);
a
$ million
senior secured first lien credit facility consisting of a
$ million
term loan facility and a
$ million
pre-funded letter of credit facility (the First Lien Term
Loan); and
a
$ million
senior secured second lien term loan facility (the Second
Lien Term Loan).
Payments Due By Period (millions)
Less
than 1
1-3
3-5
More than
Total
Year
Years
Years
5 Years
$
194.3
$
$
164.3
$
30.0
$
33.9
6.6
10.3
5.4
11.6
19.4
19.4
732.1
193.6
487.7
47.0
3.8
$
979.7
$
219.6
$
662.3
$
82.4
$
15.4
(1)
We have various operating leases for the use of land, storage
tanks, pressure stations, railcars, equipment, precious metals
and office facilities that extend through August 2015.
73
(2)
Standby letters of credit supporting crude oil purchases.
(3)
Purchase commitments consist of obligations to purchase fixed
volumes of crude oil from various suppliers based on current
market prices at the time of delivery.
74
2/1/1 Crack Spread Swaps
Barrels
($/Bbl)
1,035,000
$
9.00
1,037,000
8.97
1,039,000
8.65
1,039,000
8.27
4,150,000
$
8.72
Floor Price | Ceiling Price | ||||||||||||
2/1/1 Crack Spread Collars | Barrels | ($/Bbl) | ($/Bbl) | ||||||||||
First Quarter 2006
|
675,000 | $ | 7.29 | $ | 9.62 | ||||||||
Second Quarter 2006
|
675,000 | 7.81 | 10.14 | ||||||||||
Third Quarter 2006
|
675,000 | 7.58 | 9.58 | ||||||||||
Fourth Quarter 2006
|
675,000 | 6.29 | 8.29 | ||||||||||
Annual Totals
|
2,700,000 | ||||||||||||
Average Price
|
$ | 7.24 | $ | 9.41 |
Natural Gas Swaps | MMbtu | $/MMbtu | |||||||
First Quarter 2006
|
600,000 | $ | 9.84 | ||||||
Second Quarter 2006
|
| | |||||||
Third Quarter 2006
|
| | |||||||
Fourth Quarter 2006
|
| | |||||||
Annual Totals
|
600,000 | ||||||||
Average Price
|
$ | 9.84 |
75
Distillate Swaps
Barrels
($/Bbl)
630,000
$
15.25
630,000
14.71
450,000
15.65
450,000
15.65
2,160,000
$
15.26
Unleaded Gasoline Swaps | Barrels | ($/Bbl) | |||||||
First Quarter 2007
|
450,000 | $ | 8.00 | ||||||
Second Quarter 2007
|
630,000 | 8.40 | |||||||
Third Quarter 2007
|
450,000 | 8.00 | |||||||
Fourth Quarter 2007
|
450,000 | 8.00 | |||||||
Annual Totals
|
1,980,000 | ||||||||
Average Price
|
$ | 8.13 |
76
77
Industrial sector;
Consumer sector; and
Automotive sector.
78
separate the different types of hydrocarbons present in crude
oil;
convert the separated hydrocarbons into more desirable or
higher-value products, such as fuels; or
chemically treat the products by removing unwanted elements and
compounds, like sulfur, nitrogen and metals.
79
Unleaded Gasoline:
One of the most significant
refinery products, both in terms of volume and value, is
unleaded gasoline. Various gasoline blendstocks are blended to
achieve specifications for regular and premium grades in both
summer and winter gasoline formulations. Additives are often
used to enhance performance and provide protection against
oxidation and rust formation.
Distillate Fuels:
Distillates are primarily diesel
fuels and domestic heating oils.
Kerosene:
Kerosene is a refined middle-distillate
petroleum product that is used for jet fuel, cooking, space
heating, lighting, solvents and for blending into diesel fuel.
Liquefied Petroleum Gas:
Liquefied petroleum gases,
consisting primarily of propane and butane, are produced for use
as a fuel and a feedstock in the manufacture of petrochemicals,
such as ethylene and propylene.
Residual Fuels:
Many marine vessels, power plants,
commercial buildings and industrial facilities use residual
fuels or combinations of residual and distillate fuels for
heating and processing. Asphalts are also made from residual
fuels and are used primarily for roads and roofing materials.
80
Princeton Refinery.
Our Princeton refinery, located in
northwest Louisiana and acquired in 1990, produces specialty
lubricating oils, including process oils, base oils, transformer
oils and refrigeration oils that are used in a variety of
industrial and automotive applications. The Princeton refinery
has aggregate crude oil throughput capacity of approximately
10,000 bpd and average daily crude oil throughput of
8,113 bpd for the three months ended June 30, 2005.
Cotton Valley Refinery.
Our Cotton Valley refinery,
located in northwest Louisiana and acquired in 1995, produces
specialty solvents that are used principally in the manufacture
of paints, cleaners and automotive products. The Cotton Valley
refinery has aggregate crude oil throughput capacity of
approximately 13,500 bpd and average daily crude oil
throughput of 8,324 bpd for the three months ended
June 30, 2005.
Shreveport Refinery.
Our Shreveport refinery, located in
northwest Louisiana and acquired in 2001, produces specialty
lubricating oils and waxes, as well as fuel products such as
gasoline, diesel fuel and jet fuel. The Shreveport refinery has
aggregate crude oil throughput capacity of approximately
42,000 bpd and average daily crude oil throughput of
35,848 bpd for the three months ended June 30,
2005.
Distribution and Logistics Assets.
We own and operate a
terminal in Burnham, Illinois with a storage capacity of
130,000 barrels that facilitates the distribution of
product in the Upper Midwest and East Coast regions of the
United States and in Canada. In addition, we lease approximately
1,200 rail cars to receive crude oil or distribute our products
throughout the United States and Canada. We also have
approximately 4.5 million barrels of aggregate finished
product storage capacity at our refineries.
81
Representative Customers and
Product
End-Uses
Brand Names
Defoamers; Adhesives; Rubber
Processing; Extenders; Heat Transfer Fluids; Metalworking
Fluids; Inks; Drilling Fluids; Plant/Grain Dedusters;
Transformer Oils; Refrigeration Oils; White Oil Feedstocks
Goodyear; Cooper; Michelin;
Bridgestone; Bostik Findley; HB Fuller; National Starch;
ExxonMobil; Penreco; Sonneborn
Gear Lubricants; Rubber Processing
ExxonMobil; Shell Oil; Lubricating
Specialties Co.
Pesticides for Fruit-Bearing Trees
Fleetwing; Helena Chemical
Automotive Transmission Fluids;
Motor Oils; Hydraulic Oils
Tulco Oil; Hubert Glass; Premier
Lubricants
Cosmetics; Pharmaceuticals; Animal
Feed Supplements
Snap; Avatar; ADM
Chewing Gum Base; Candles;
Firelogs; Board Coatings; Adhesives; PVC Additives
Candle-lite; Duraflame;
Wrigleys Gum; Blyth; For Every Body, Hannas; Global
Wax; HB Fuller; Forbo Adhesives; Rose Art Industries; National
Starch
Camp Fuel
Coleman; Wal-Mart
Charcoal Lighter Fluid
Family Dollar; Duraflame
Automotive Aftermarket; Pesticides
Turtle Wax; WD-40; Spectracide; Hot
Shot Bug Killers; Raid; Deep 6
Adhesives
Liquid Nails; Wilson Art; OSI Brands
Automotive Aftermarket
Starting Fluid
Paints and Coatings
Sherwin Williams; Behr; Duckback
Products
Motor Fuel
Murphy Oil; BP
Motor Fuel
Murphy Oil; BP
Aviation Fuel
Barksdale Air Force Base; Truman
Arnold
Road Paving; Roofing
Certainteed; Davison Petroleum
Products
Asphalt Blending; Fuel Oil
Davison Petroleum Products
Petrochemical Feedstock; Gasoline
Blendstock
Shell Trading US
82
Concentrate on stable cash flows.
We intend to continue
to focus on businesses and assets that generate stable cash
flows. Approximately 70.9% of our gross profit for the
six months ended June 30, 2005 was generated by the
sale of specialty products, a segment of our business which is
characterized by stable customer relationships due to their
requirements for highly specialized products. Historically, we
have been able to reduce our exposure to crude oil price
fluctuations in this segment through our ability to pass on
incremental feedstock costs to our specialty products customers
and through our crude oil hedging programs. In our fuel products
business, we seek to mitigate our exposure to fuel margin
volatility by maintaining a long-term crack spread hedging
program. We believe the diversity of our products, our broad
customer base and our hedging activities will contribute to the
stability of our cash flows.
Develop and expand our customer relationships.
Due to the
specialized nature of, and the long lead-time associated with,
the development and production of many of our products, our
customers have an incentive to continue their relationships with
us. We believe that larger competitors do not work with
customers as we do from product design to delivery for small
volume products like ours. We intend to continue to assist our
existing customers in expanding their product offerings as well
as marketing specialty product formulations to new customers. By
striving to maintain our long-term relationships with our
existing customers and to add new customers, we seek to limit
our dependence on a small number of customers.
Enhance profitability of our existing assets.
We will
continue to evaluate opportunities to expand our existing asset
base to increase our throughput and cash flow. Following each of
our asset acquisitions, we have undertaken projects designed to
increase the profitability of our acquired assets. We intend to
further increase the profitability of our existing asset base
through various measures which include changing the product mix
of our processing units, debottlenecking units as necessary to
increase throughput and reducing costs by improving operations.
For example, at the Shreveport refinery we recently
recommissioned certain of its previously idled fuels production
units, refurbished existing fuels production units, converted
existing units to improve gasoline blending profitability and
expanded capacity to increase lubricating oil and fuels
production.
Pursue strategic and complementary acquisitions.
Since
1990, our management team has demonstrated the ability to
identify opportunities to acquire refineries whose operations we
can enhance and whose profitability we can improve. In the
future, we intend to continue to make strategic acquisitions of
refineries that offer the opportunity for operational
efficiencies and the potential for increased utilization and
expansion. In addition, we may pursue selected acquisitions in
new geographic or product areas to the extent we perceive
similar opportunities.
We offer our customers a diverse range of specialty
products.
We offer a wide range of over 250 specialty
products. We believe that our ability to provide our customers
with a more diverse selection of products than our competitors
generally gives us an advantage in competing for new business.
We believe that we are the only specialty product manufacturer
that produces all four of naphthenic lubricating oils,
paraffinic lubricating oils, waxes and
83
solvents. A contributing factor to our ability to produce
numerous specialty products is our ability to ship products
between our refineries for product upgrading in order to meet
customer specifications.
We have strong relationships with a broad customer base.
We have long-term relationships with many of our customers, and
we believe that we will continue to benefit from these
relationships. Our customer base includes over
800 companies and we are continually seeking new customers.
From 1995 to 2004, we added at least 60 new specialty products
customers per year, and for the six months ended June 30,
2005 we added 56 new specialty products customers. No single
customer accounts for more than 5% of our specialty products
revenues.
Our refineries have advanced technology.
Our refineries
are equipped with advanced, flexible technology that allows us
to produce high-grade specialty products and to produce gasoline
and diesel products that comply with new fuel regulations. Our
current gasoline production satisfies the 2006 low sulfur
gasoline standard set by the EPA, and our Shreveport and Cotton
Valley refineries, as currently configured, have the processing
capability to satisfy the 2006 ultra low sulfur diesel standard.
Unlike larger refineries, which lack some of the equipment
necessary to achieve the narrow distillation ranges associated
with the production of specialty products, our operations are
capable of producing a wide range of products tailored to our
customers needs. We have also upgraded the operations of
many of our assets through our investment in advanced,
computerized refinery process controls.
We have an experienced management team.
Our management
has a proven track record of enhancing value through the
acquisition, exploitation and integration of refining assets and
the development and marketing of specialty products. Our senior
management team, the majority of whom have been working together
since 1990, has an average of over 20 years of industry
experience. Our teams extensive experience and contacts
within the refining industry provide a strong foundation and
focus for managing and enhancing our operations, for accessing
strategic acquisition opportunities and for constructing and
enhancing the profitability of new assets. After giving effect
to this offering, members of our senior management team will
have a substantial economic interest in us through their
combined, direct or indirect, ownership of
a % limited partner interest in
our partnership.
84
Years Ended December 31,
Six Months
Three Months
Ended
Ended
2002
2003
2004
June 30, 2005
June 30, 2005
19,110
23,616
24,658
43,757
49,066
19,351
22,086
23,867
43,025
47,306
2,976
3,219
2,314
2,921
2,342
1,288
1,760
21,665
25,007
26,209
47,289
52,285
8,173
8,290
9,439
10,665
11,230
1,002
699
1,010
867
848
4,333
4,623
4,974
4,272
5,112
3,910
5,159
5,992
5,873
7,085
4,168
6,433
3,931
2,583
2,769
21,586
25,204
25,346
24,260
27,044
3
7,685
9,018
583
6,499
9,354
342
6,249
4,778
26
9
11
954
20,442
23,161
21,586
25,204
26,300
44,702
50,205
(1)
Total sales volume includes sales from the production of our
refineries and sales of inventories.
(2)
Feedstock runs represents the barrels per day of crude oil and
other feedstocks processed at our refineries.
(3)
Total refinery production represents the barrels per day of
specialty products and fuel products yielded from processing
crude oil and other refinery feedstocks at our refineries. The
difference between total refinery production and total feedstock
runs is primarily a result of the time lag between the input of
feedstock and production of end products.
85
Years Ended
December 31,
Six Months
Three Months
Ended
Ended
2002
2003
2004
June 30, 2005
June 30, 2005
(In thousands)
$
156.5
$
205.9
$
251.9
$
166.6
$
88.5
34.2
32.3
39.5
19.6
11.1
71.3
87.6
114.7
62.5
35.0
10.8
18.7
47.3
33.2
18.8
43.6
85.9
76.6
26.5
14.1
316.4
430.4
530.0
308.4
167.5
76.5
50.4
3.3
94.4
55.3
40.4
25.1
6.3
7.0
3.3
9.6
218.3
134.1
$
316.4
$
430.4
$
539.6
$
526.7
$
301.6
86
Years Ended
December 31,
Six Months
Three Months
Ended
Ended
2002
2003
2004
June 30, 2005
June 30, 2005
10,000
10,000
10,000
10,000
10,000
6,782
7,548
8,065
8,065
8,113
6,782
7,548
8,065
8,065
8,113
4,598
5,141
5,392
5,565
5,408
1,054
1,104
1,475
1,290
1,352
1,106
1,246
1,364
1,327
1,316
6,758
7,491
8,231
8,182
8,076
(1)
The difference between total refinery production and total
feedstock runs is primarily a result of the time lag between the
input of feedstock and production of end products.
87
Years Ended
Six Months
December 31,
Ended
Three Months
June 30,
Ended
2002
2003
2004
2005(1)
June 30, 2005
13,500
13,500
13,500
13,500
13,500
8,445
9,370
9,093
6,990
8,324
8,445
9,370
9,093
6,990
8,324
4,333
4,623
4,974
4,272
5,112
2,310
2,866
2,330
1,425
1,795
1,802
1,881
1,789
1,293
1,417
8,445
9,370
9,093
6,990
8,324
(1)
The refinery was temporarily shut down in February 2005 for an
expansion project.
88
Years Ended
Six Months
Three Months
December 31,
Ended
Ended
June 30,
June 30,
2002
2003
2004
2005
2005
10,000
10,000
10,000
42,000
42,000
4,124
5,168
6,709
27,970
30,869
2,976
3,219
blendstocks
2,314
2,921
2,342
1,288
1,760
6,438
8,089
9,051
32,234
35,848
1,312
3,448
1,595
20,442
23,161
3,575
3,149
4,047
5,100
5,822
1,002
699
1,010
867
848
494
1,047
2,324
3,121
3,974
6,383
8,343
8,976
29,530
33,805
(1)
The difference between total refinery production and total
feedstock runs is primarily a result of the time lag between the
input of feedstock and production of end products.
89
distribution;
blending to achieve specified products; and
storage and inventory management.
90
industrial goods such as metal working fluids, belts, hoses,
sealing systems, batteries, hot melt adhesives, pressure
sensitive tapes, electrical transformers and refrigeration
compressors;
consumer goods such as candles, petroleum jelly, creams, tonics,
lotions, coating on paper cups, chewing gum base, automotive
aftermarket car-care products (fuel injection cleaners, tire
shines and polishes), lamp oils, charcoal lighter fluids,
camping fuel and various aerosol products; and
automotive goods such as motor oils, greases, transmission fluid
and tires.
91
Customer
Products
End-Uses
Base oils and process oils
Internal use product demands
Process oils
Hot melt adhesives
Process oils and waxes
Hot melt adhesives
Waxes and candle wax blends
Candles
Process oils
Masterbatch rubber for tires
Process oils
Extruded sealing systems
Base oils
Metalworking fluids
Solvents
Finished product supply
Solvents
Automotive aftermarket products
Transformer oils
Power transformers
Solvents
Contact flooring adhesives
Solvents and oils
Distributor
Solvents and oils
Distributor
Microcrystalline waxes
Wax and polymer marketing
92
Customer
Products
End-Uses
Gasoline; diesel
Motor fuel; road use diesel fuel;
off-road use diesel fuel
Gasoline; diesel
Motor fuel; road use diesel fuel;
off-road use diesel fuel
Jet fuel
Aviation fuel
Jet fuel
Aviation fuel
93
94
95
96
97
Name
Age
Position with Calumet GP, LLC
54
Chairman of the Board
57
Chief Executive Officer, President
and Director
59
Executive Vice President
34
Vice President and Chief Financial
Officer
52
Vice President Crude
Oil Supply
42
Vice President Planning
and Economics
37
Vice President Sales
and Marketing
98
99
100
101
102
each person who then will beneficially own of 5% or more of the
outstanding units;
each member of the board of directors of our general partner;
each named executive officer of our general partner; and
all directors and executive officers of our general partner as a
group.
Common
Percentage of
Percentage of
Units
Percentage of
Subordinated
Subordinated
Total Units
to be
Common Units to
Units to be
Units to be
to be
Beneficially
be Beneficially
Beneficially
Beneficially
Beneficially
Name of Beneficial Owner
Owned
Owned
Owned
Owned
Owned
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
*
Less than 1%.
103
The consideration received by our general partner and its
affiliates for the contribution of the assets and liabilities to
us
5,706,000 common units;
13,066,000 subordinated units;
2% general partner interest; and
the incentive distribution rights.
Distributions of available cash to our general partner and its
affiliates
We will generally make cash distributions of 98% to the
unitholders pro rata, including the affiliates of our general
partner, as the holders of an aggregate 5,706,000 common units
and 13,066,000 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 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 would receive an annual
distribution of approximately $0.9 million on its 2%
general partner interest and the affiliates of our general
partner would receive $33.8 million on their common and
subordinated units.
Payments to our general partner and its affiliates
We will reimburse our general partner and its affiliates for all
expenses incurred on our behalf.
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
104
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.
Liquidation
Upon our liquidation, the partners, including our general
partner, will be entitled to receive liquidating distributions
according to their respective capital account balances.
any business owned or operated by The Heritage Group or any of
its affiliates at the closing of the offering;
the refining and marketing of asphalt and asphalt-related
products and related product development activities;
the refining and marketing of other products that do not produce
qualifying income as defined in the Internal Revenue
Code;
the purchase and ownership of up to 9.9% of any class of
securities of any entity engaged in any restricted business;
any restricted business acquired or constructed that The
Heritage Group or any of its affiliates acquires or constructs
that has a fair market value or construction cost, as
applicable, of less than $5.0 million;
any restricted business acquired or constructed that has a fair
market value or construction cost, as applicable, of
$5.0 million or more if we have been offered the
opportunity to purchase it for fair market value or construction
cost and we decline to do so with the concurrence of the
conflicts committee of the board of directors of our general
partner; and
any business conducted by The Heritage Group with the approval
of the conflicts committee of the board of directors of our
general partner.
105
106
approved by the conflicts committee of the board of directors of
our general partner, although our general partner is not
obligated to seek such approval;
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;
on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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.
107
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;
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. 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
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.
amount and timing of asset purchases and sales;
cash expenditures;
borrowings;
the issuance of additional units; and
the creation, reduction or increase of reserves in any quarter.
108
enabling our general partner or its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights; or
hastening the expiration of the subordination period.
109
110
State law fiduciary duty standards
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.
Partnership agreement modified standards
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.
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:
on terms no less favorable to us than those
generally being provided to or available from unrelated third
parties; or
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).
111
If our general partner does not seek approval from the conflicts
committee of its board of directors 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 such presumption. These standards reduce
the obligations to which our general partner would otherwise be
held.
Rights and remedies of unitholders
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.
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 our general partner or its officers and
directors acted in bad faith or engaged in fraud, willful
misconduct.
112
surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
special charges for services requested by a common
unitholder; and
other similar fees or charges.
represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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.
113
114
with regard to distributions of available cash, please read
How We Make Cash Distributions;
with regard to the fiduciary duties of our general partner,
please read Conflicts of Interest and Fiduciary
Duties;
with regard to the transfer of common units, please read
Description of the Common Units Transfer of
Common Units; and
with regard to allocations of taxable income and taxable loss,
please read Material Tax Consequences.
115
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
after the subordination period, the approval of a majority of
the common units.
Issuance of additional units of equal rank with the common units
during the subordination period
Unit majority, with exceptions described under
Issuance of Additional Securities.
Issuance of units senior to the common units during the
subordination period
Unit majority.
Issuance of units junior to the common units during the
subordination period
No approval right.
Issuance of additional units after the subordination period
No approval right.
Amendment of our partnership agreement
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.
Merger of our partnership or the sale of all or substantially
all of our assets
Unit majority in certain circumstances. Please read
Merger, Sale or Other Disposition of
Assets.
Dissolution of our partnership
Unit majority. Please read Termination and
Dissolution.
Reconstitution of our partnership upon dissolution
Unit majority. Please read Termination and
Dissolution.
Withdrawal of our general partner
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.
Removal of our general partner
Not less than
66
2
/
3
%
of the outstanding units, including units held by our general
partner and its affiliates. Please read
Withdrawal or Removal of the General
Partner.
116
Transfer of the general partner interest
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 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
our 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. Please read
Transfer of General Partner Interest.
Transfer of incentive distribution rights
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.
Transfer of ownership interests in our general partner
No approval required at any time. Please read
Transfer of Ownership Interests in the
General Partner.
to remove or replace our general partner;
to approve some amendments to our partnership agreement; or
to take other action under our partnership agreement;
117
upon exercise of the underwriters over-allotment option;
upon conversion of the subordinated units;
under employee benefits plans;
upon conversion of the general partner interests and incentive
distribution rights as a result of a withdrawal or removal of
our general partner;
upon conversion of units of equal rank with the common units
into common units under certain circumstances;
in the event of a combination or subdivision of common units;
in connection with an acquisition or an expansion capital
improvement that increases cash flow from operations per unit on
an estimated pro forma basis;
if the proceeds of the issuance are used to repay indebtedness,
the cost of which to service is greater than the distribution
obligations associated with the units issued in connection with
its retirement; or
118
in connection with the redemption of common units or other
equity interests of equal rank with the common units from the
net proceeds of an issuance of common units or parity units, but
only if the redemption price equals the net proceeds per unit,
before expenses, to us.
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
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.
119
a change in our name, the location of our principal place of our
business, our registered agent or our registered office;
the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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 company 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;
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;
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;
any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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;
a change in our fiscal year or taxable year and related changes;
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 merger or conveyance other than
those it receives by way of the merger or conveyance; or
any other amendments substantially similar to any of the matters
described in the bullet points above.
do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect;
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;
120
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;
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
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.
121
the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
the entry of a decree of judicial dissolution of our
partnership; or
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.
the action would not result in the loss of limited liability of
any limited partner; and
neither our partnership, the reconstituted limited partnership,
our operating company 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.
122
the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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.
123
an affiliate of our general partner (other than an individual);
or
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,
the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
124
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
.
the highest cash price paid by either of our general partner or
any of its affiliates for any partnership securities 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 partnership securities; and
the current market price as of the date three days before the
date the notice is mailed.
125
our general partner;
any departing general partner;
any person who is or was an affiliate of a general partner or
any departing general partner;
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;
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 or any
of their affiliates; and
any person designated by our general partner.
126
a current list of the name and last known address of each
partner;
a copy of our tax returns;
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;
copies of our partnership agreement, our certificate of limited
partnership, related amendments and powers of attorney under
which they have been executed;
information regarding the status of our business and financial
condition; and
any other information regarding our affairs as is just and
reasonable.
127
128
1% of the total number of the securities outstanding; or
the average weekly reported trading volume of the common units
for the four calendar weeks prior to the sale.
129
130
(a)
Neither we nor the operating company will elect to be treated as
a corporation; and
(b)
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.
131
132
133
interest on indebtedness properly allocable to property held for
investment;
our interest expense attributed to portfolio income; and
the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
134
any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
any cash distributions received by the unitholder as to those
units would be fully taxable; and
all of these distributions would appear to be ordinary income.
135
136
137
138
a short sale;
an offsetting notional principal contract; or
a futures or forward contract with respect to the partnership
interest or substantially identical property.
139
140
141
(a)
the name, address and taxpayer identification number of the
beneficial owner and the nominee;
(b)
whether the beneficial owner is:
1.
a person that is not a United States person;
2.
a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing; or
(c)
the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d)
specific information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from
sales.
142
(1)
for which there is, or was, substantial
authority; or
(2)
as to which there is a reasonable basis and the pertinent facts
of that position are disclosed on the return.
143
whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and
whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return.
(a)
the equity interests acquired by employee benefit plans are
publicly offered securities i.e., the equity
interests are widely held by 100 or more investors independent
of the issuer and each other, freely transferable and registered
under some provisions of the federal securities laws;
(b)
the entity is an operating company, meaning it is
primarily engaged in the production or sale of a product or
service other than the investment of capital either directly or
through a majority-owned subsidiary or subsidiaries; or
(c)
there is no significant investment by benefit plan investors,
which is defined to mean that less than 25% of the value of each
class of equity interest is held by the employee benefit plans
referred to above, IRAs and other employee benefit plans not
subject to ERISA, including governmental plans.
Underwriters
Number of Common Units
Paid by the Partnership | No Exercise | Full Exercise | ||||||
Per Common Unit
|
$ | $ | ||||||
Total
|
$ | $ |
144
145
146
147
F-2
F-3
F-4
F-5
Audited Consolidated Financial
Statements of Calumet Lubricants Co., Limited Partnership for
the years ended December 31, 2002, 2003 and 2004 and
Unaudited Condensed Consolidated Financial Statements for the
three and six months ended June 30, 2004 and 2005:
F-8
F-9
F-10
F-11
F-12
F-13
F-32
F-33
F-34
F-35
F-36
F-37
F-40
F-41
F-42
F-43
F-44
F-45
F-1
F-2
As of June 30, 2005
Predecessor
Partnership
Historical
Adjustments
Pro Forma
$
3,516
$
125,944
(a)
$
3,516
(117,613
)(b)
(8,331
)(c)
90,141
90,141
4,658
4,658
94,799
94,799
104,584
104,584
12,338
12,338
5,912
5,912
3,980
3,980
225,129
225,129
128,514
(523
)(d)
127,991
6,609
(5,791
)(e)
5,474
4,656
(c)
$
360,252
$
(1,658
)
$
358,594
$
25,492
$
$
25,492
3,521
(285
)(d)
3,236
2,319
2,319
4,858
4,858
25
25
2,447
2,447
3,674
3,674
56,615
(51,415
)(b)
5,200
98,951
(51,700
)
47,251
208,199
(66,198
)(b)
142,001
307,150
(117,898
)
189,252
53,102
(53,102
)(f)
125,944
(a)
125,944
15,712
(f)
12,840
(1,087
)(c)
(1,714
)(e)
(71
)(d)
35,976
(f)
29,402
(2,490
)(c)
(3,923
)(e)
(161
)(d)
1,414
(f)
1,156
(98
)(c)
(154
)(e)
(6
)(d)
53,102
116,240
169,342
$
360,252
$
(1,658
)
$
358,594
F-3
Year Ended December 31, 2004
Six Months Ended June 30, 2005
Predecessor
Partnership
Predecessor
Partnership
Historical
Adjustments
Pro Forma
Historical
Adjustments
Pro Forma
$
539,616
$
$
539,616
$
526,714
$
$
526,714
501,284
501,284
476,481
476,481
38,332
38,332
50,233
50,233
13,133
13,133
8,436
8,436
33,923
33,923
19,037
19,037
2,309
2,309
1,480
1,480
839
839
332
332
50,204
50,204
29,285
29,285
317
317
1,881
1,881
(12,189
)
(12,189
)
19,067
19,067
(427
)
(427
)
(9,869
)
4,373
(g)
(5,496
)
(9,248
)
3,917
(g)
(5,331
)
31,372
31,372
8,675
8,675
83
83
94
94
21,159
4,373
25,532
(479
)
3,917
3,438
8,970
4,373
13,343
18,588
3,917
22,505
(50
)(h)
(50
)
$
8,970
$
4,373
$
13,343
$
18,588
$
3,867
$
22,455
$
267
$
449
$
13,076
$
22,006
$
0.51
$
0.86
25,172,000
25,172,000
F-4
F-5
Note 1.
Basis of Presentation, the Offering and Other Transactions
the refinancing by the Predecessor of its long-term debt
obligations pursuant to new credit facilities it expects to
enter into in the fourth quarter of 2005;
the retention of certain assets and liabilities of the
Predecessor by the owners of Calumet Predecessor;
the contribution of the ownership interests in the Predecessor
to the Partnership in exchange for the issuance by the
Partnership to the owners of the Predecessor of 5,706,000 common
units, 13,066,000 subordinated units, the 2% general partner
interest represented by 513,714 general partner units and the
incentive distribution rights. The contribution will be recorded
at historical cost as it is considered to be a reorganization of
entities under common control;
the sale by the Partnership of 6,400,000 common units to the
public in this offering;
the payment of estimated underwriting commissions and other
offering expenses; and
the repayment by the Partnership of a portion of its
indebtedness under its new credit facilities with the net
proceeds from this offering.
Note 2.
Pro Forma Adjustments and Assumptions
F-6
$12.8 million for 5,706,000 common units;
$29.4 million for 13,066,000 subordinated
units; and
$1.2 million for the general partners interest.
Year Ended
Six Months Ended
December 31, 2004
June 30, 2005
$
9,869
$
9,248
(9,869
)
(9,248
)
5,496
5,331
4,373
3,917
5,496
5,331
F-7
Note 3.
Pro Forma Net Income (Loss) Per Unit
F-8
/s/ Ernst & Young LLP
December 31,
June 30,
2003
2004
2005
(Unaudited)
$
68
$
18,087
$
3,516
37,201
53,798
90,141
2,326
4,912
4,658
39,527
58,710
94,799
62,686
82,990
104,584
8,800
17,272
12,338
9,389
4,011
5,912
26
3,150
3,980
120,496
184,220
225,129
89,938
126,585
128,514
2,610
7,401
6,609
3,897
$
216,941
$
318,206
$
360,252
$
32,263
$
58,027
$
25,492
655
1,978
3,521
1,852
2,098
2,319
488
435
4,858
1,376
100
25
1,784
2,747
2,447
5,373
4,238
3,674
19,795
56,615
43,791
89,418
98,951
146,853
194,274
208,199
753
191,397
283,692
307,150
25,544
34,514
53,102
$
216,941
$
318,206
$
360,252
F-9
Six Months Ended
Three Months Ended
Year Ended December 31,
June 30,
June 30,
2002
2003
2004
2004
2005
2004
2005
(Unaudited)
(Unaudited)
$
316,350
$
430,381
$
539,616
$
252,571
$
526,714
$
137,337
$
301,562
268,911
385,890
501,284
231,644
476,481
127,606
271,026
47,439
44,491
38,332
20,927
50,233
9,731
30,536
9,066
9,432
13,133
6,154
8,436
3,265
5,006
25,449
28,139
33,923
16,500
19,037
8,899
9,271
2,404
2,419
2,309
1,259
1,480
617
748
1,392
905
839
365
332
163
175
38,311
40,895
50,204
24,278
29,285
12,944
15,200
6,694
317
121
1,881
68
1,797
9,128
(3,098
)
(12,189
)
(3,472
)
19,067
(3,281
)
13,539
2,442
867
(427
)
(427
)
(188
)
(7,435
)
(9,493
)
(9,869
)
(4,448
)
(9,248
)
(2,126
)
(5,091
)
1,058
6,267
31,372
18,526
8,675
2,904
10,214
88
32
83
96
94
40
55
(3,847
)
(2,327
)
21,159
13,747
(479
)
630
5,178
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
$
(2,651
)
$
18,717
$
528
$
(542
)
$
897
$
1,028
$
1,859
$
(265
)
$
1,872
$
4,753
$
(4,883
)
$
8,073
$
9,247
$
16,729
$
(2,386
)
$
16,845
$
4,753
$
(4,883
)
$
8,073
$
9,247
$
16,729
$
(2,386
)
$
16,845
1,000
1,000
1,000
1,000
1,000
1,000
1,000
F-10
Partners Capital
Other Accumulated
Comprehensive
General
Limited
Income
Partner
Partners
Total
$
(8,326
)
$
2,569
$
23,119
$
17,362
528
4,753
5,281
8,326
8,326
3,097
27,872
30,969
(542
)
(4,883
)
(5,425
)
2,555
22,989
25,544
897
8,073
8,970
3,452
31,062
34,514
(Unaudited)
1,859
16,729
18,588
$
$
5,311
$
47,791
$
53,102
F-11
Six Months Ended
Year Ended December 31,
June 30,
2002
2003
2004
2004
2005
(Unaudited)
$
5,281
$
(5,425
)
$
8,970
$
10,275
$
18,588
5,324
6,181
6,224
3,154
4,670
552
588
703
239
945
16
12
216
60
162
943
59
(34
)
5
(2,442
)
(867
)
427
427
874
1,718
(1,633
)
926
332
2,925
750
3,470
3,470
(1,025
)
(4,670
)
(19,399
)
(16,115
)
(36,252
)
(16,984
)
15,547
(20,304
)
6,690
(21,594
)
(6,402
)
(834
)
(8,472
)
(7,394
)
4,934
(2,417
)
(6,265
)
5,046
(615
)
(1,901
)
7,697
271
(3,124
)
26
(830
)
(1,524
)
(550
)
161
177
(153
)
9,587
(1,809
)
25,764
8,091
(32,535
)
(1,115
)
(1,107
)
1,323
1,774
1,543
(965
)
375
246
301
221
38
191
(53
)
1,027
4,423
1,376
(1,276
)
(778
)
(75
)
(580
)
544
963
321
(300
)
857
436
(1,135
)
(3,321
)
(564
)
(1,265
)
(251
)
(439
)
(753
)
(743
)
(4,326
)
7,048
(612
)
7,032
(56,995
)
(10,164
)
(12,163
)
(43,033
)
(2,539
)
(8,332
)
240
223
103
63
11
(9,924
)
(11,940
)
(42,930
)
(2,476
)
(8,321
)
93,940
463,775
(44,145
)
(416,953
)
(5,656
)
291,439
260,159
586,410
259,882
279,522
(277,230
)
(255,275
)
(568,988
)
(264,428
)
(275,599
)
14,209
4,884
61,561
(4,546
)
50,745
(41
)
(8
)
18,019
10
(14,571
)
117
76
68
68
18,087
$
76
$
68
$
18,087
$
78
$
3,516
$
7,500
$
9,189
$
9,367
$
4,363
$
9,477
F-12
F-13
1.
Description of the Business
2.
Summary of Significant Accounting Policies
December 31,
June 30,
2003
2004
2005
(Unaudited)
$
21,527
$
39,476
$
33,432
12,500
12,669
27,268
28,659
30,845
43,884
$
62,686
$
82,990
$
104,584
December 31, | December 31, | December 31, | June 30, | |||||||||||||
2002 | 2003 | 2004 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
Beginning Balance
|
$ | 271 | $ | 242 | $ | 240 | $ | 456 | ||||||||
Provision
|
16 | 12 | 216 | 162 | ||||||||||||
Write-offs, net
|
(45 | ) | (14 | ) | | (24 | ) | |||||||||
Ending Balance
|
$ | 242 | $ | 240 | $ | 456 | $ | 594 | ||||||||
F-14
December 31,
December 31,
June 30,
2003
2004
2005
(Unaudited)
$
957
$
957
$
957
(10 to 40 years)
1,313
1,550
1,550
(2 to 20 years)
110,362
148,992
155,669
1,782
1,928
1,928
1,510
5,368
5,302
115,924
158,795
165,406
25,986
32,210
36,892
$
89,938
$
126,585
$
128,514
December 31, | December 31, | December 31, | June 30, | |||||||||||||
2002 | 2003 | 2004 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
Beginning Balance
|
$ | 2,442 | $ | 1,477 | $ | 1,852 | $ | 2,098 | ||||||||
Provision
|
1,112 | 2,125 | 2,129 | 3,357 | ||||||||||||
Usage
|
(2,077 | ) | (1,750 | ) | (1,883 | ) | (3,136 | ) | ||||||||
Ending Balance
|
$ | 1,477 | $ | 1,852 | $ | 2,098 | $ | 2,319 | ||||||||
F-15
F-16
F-17
F-18
3.
Shreveport Reconfiguration
4.
Restructuring, Decommissioning and Asset Impairments
$
1,618
14
(256
)
1,376
35
(1,311
)
100
(75
)
$
25
As of December 31, | ||||||||
2003 | 2004 | |||||||
Current assets
|
$ | 11,199 | $ | | ||||
Noncurrent assets
|
256 | | ||||||
Current liabilities
|
3,661 | | ||||||
Noncurrent liabilities
|
| |
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2002 | 2003 | 2004 | ||||||||||
Sales
|
$ | 55,830 | $ | 53,665 | $ | | ||||||
Gross profit
|
8,423 | 6,306 | (202 | ) | ||||||||
Net income (loss)
|
5,016 | 2,252 | (853 | ) |
F-19
F-20
5.
Commitments and Contingencies
Year
Commitment
$
6,589
5,722
4,558
2,819
2,619
11,545
$
33,852
6.
Long-Term Debt
December 31,
December 31,
June 30,
2003
2004
2005
(unaudited)
$
135,453
$
152,874
$
156,799
11,400
11,400
11,400
30,000
40,000
19,795
56,615
146,853
214,069
264,814
19,795
56,615
$
146,853
$
194,274
$
208,199
Year | Maturity | |||
2005
|
$ | | ||
2006
|
| |||
2007
|
168,199 | |||
2008
|
40,000 | |||
Total
|
$ | 208,199 | ||
F-21
F-22
F-23
7.
Derivatives
F-24
F-25
8.
Fair Value of Financial Instruments
9.
Partnership Distributions
10.
Employee Benefit Plan
11.
Transactions with Related Parties
F-26
12.
Segments and Related Information
a.
Segment Reporting
Year Ended
Specialty
Fuel
Combined
Consolidated
December 31, 2002
Products
Products
Segments
Eliminations
Total
$
316,350
$
$
316,350
$
$
316,350
$
316,350
$
$
316,350
$
$
316,350
5,876
5,876
5,876
9,128
9,128
9,128
2,442
(7,435
)
1,058
88
5,281
$
10,164
$
$
10,164
$
$
10,164
$
217,915
$
$
217,915
$
$
217,915
Year Ended
Specialty
Fuel
Combined
Consolidated
December 31, 2003
Products
Products
Segments
Eliminations
Total
$
430,381
$
$
430,381
$
$
430,381
$
430,381
$
$
430,381
$
$
430,381
6,769
6,769
6,769
(3,098
)
(3,098
)
(3,098
)
867
(9,493
)
6,267
32
(5,425
)
$
12,163
$
$
12,163
$
$
12,163
$
216,941
$
$
216,941
$
$
216,941
F-27
Year Ended
Specialty
Fuel
Combined
Consolidated
December 31, 2004
Products
Products
Segments
Eliminations
Total
$
530,009
$
9,607
$
539,616
$
$
539,616
15,651
15,651
(15,651
)
$
545,660
$
9,607
$
555,267
$
(15,651
)
$
539,616
6,927
6,927
6,927
(9,406
)
(2,783
)
(12,189
)
(12,189
)
(427
)
(9,869
)
31,372
83
8,970
$
43,033
$
$
43,033
$
$
43,033
$
315,336
$
69,400
$
384,736
$
(66,530
)
$
318,206
F-28
Six Months
Specialty
Fuel
Combined
Consolidated
Ended June 30, 2004
Products
Products
Segments
Eliminations
Total
(Unaudited)
$
252,571
$
$
252,571
$
$
252,571
$
252,571
$
$
252,571
$
$
252,571
3,393
3,393
3,393
(3,472
)
(3,472
)
(3,472
)
(427
)
(4,448
)
18,526
96
10,275
$
2,539
$
$
2,539
$
$
2,539
$
229,342
$
$
229,342
$
$
229,342
Six Months Ended June 30, | Specialty | Fuel | Combined | Consolidated | |||||||||||||||||
2005 | Products | Products | Segments | Eliminations | Total | ||||||||||||||||
(Unaudited) | |||||||||||||||||||||
Net sales
|
|||||||||||||||||||||
External customers
|
$ | 308,398 | $ | 218,316 | $ | 526,714 | $ | | $ | 526,714 | |||||||||||
Intersegment sales
|
228,485 | 3,558 | 232,043 | (232,043 | ) | | |||||||||||||||
Total net sales
|
$ | 536,883 | $ | 221,874 | $ | 758,757 | $ | (232,043 | ) | $ | 526,714 | ||||||||||
Depreciation and amortization
|
5,615 | | 5,615 | | 5,615 | ||||||||||||||||
Income (loss) from operations
|
5,617 | 13,450 | 19,067 | | 19,067 | ||||||||||||||||
Reconciling items to net income:
|
|||||||||||||||||||||
Interest expense
|
(9,248 | ) | |||||||||||||||||||
Gain (loss) on derivative
instruments
|
8,675 | ||||||||||||||||||||
Other
|
94 | ||||||||||||||||||||
Net income
|
18,588 | ||||||||||||||||||||
Capital expenditures
|
$ | 8,332 | $ | | $ | 8,332 | $ | | $ | 8,332 | |||||||||||
Assets
|
$ | 361,673 | $ | 180,371 | $ | 542,044 | $ | (181,792 | ) | $ | 360,252 |
F-29
Three Months Ended June 30,
Specialty
Fuel
Combined
Consolidated
2004
Products
Products
Segments
Eliminations
Total
(Unaudited)
$
137,337
$
$
137,337
$
$
137,337
$
137,337
$
$
137,337
$
$
137,337
1,694
1,694
1,694
(3,281
)
(3,281
)
(3,281
)
(188
)
(2,126
)
2,904
40
(2,651
)
$
1,176
$
$
1,176
$
$
1,176
$
229,342
$
$
229,342
$
$
229,342
Three Months Ended | Specialty | Fuel | Combined | Consolidated | |||||||||||||||||
June 30, 2005 | Products | Products | Segments | Eliminations | Total | ||||||||||||||||
(Unaudited) | |||||||||||||||||||||
Net sales
|
|||||||||||||||||||||
External customers
|
$ | 167,497 | $ | 134,065 | $ | 301,562 | $ | | $ | 301,562 | |||||||||||
Intersegment sales
|
134,426 | 2,544 | 136,970 | (136,970 | ) | | |||||||||||||||
Total net sales
|
$ | 301,923 | $ | 136,609 | $ | 438,532 | $ | (136,970 | ) | $ | 301,562 | ||||||||||
Depreciation and amortization
|
3,011 | | 3,011 | | 3,011 | ||||||||||||||||
Income (loss) from operations
|
4,319 | 9,220 | 13,539 | | 13,539 | ||||||||||||||||
Reconciling items to net income:
|
|||||||||||||||||||||
Interest expense
|
(5,091 | ) | |||||||||||||||||||
Gain (loss) on derivative
instruments
|
10,214 | ||||||||||||||||||||
Other
|
55 | ||||||||||||||||||||
Net income
|
18,717 | ||||||||||||||||||||
Capital expenditures
|
$ | 2,685 | $ | | $ | 2,685 | $ | | $ | 2,685 | |||||||||||
Assets
|
$ | 361,673 | $ | 180,371 | $ | 542,044 | $ | (181,792 | ) | $ | 360,252 |
F-30
b.
Geographic Information
c.
Product Information
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
2002
2003
2004
$
43,592
$
85,890
$
79,910
156,468
205,871
251,880
34,229
32,276
39,526
71,291
87,599
114,694
10,770
18,745
53,606
$
316,350
$
430,381
$
539,616
Three Months Ended | Three Months Ended | |||||||
June 30, 2004 | June 30, 2005 | |||||||
(unaudited) | (unaudited) | |||||||
Fuels
|
$ | 21,479 | $ | 144,920 | ||||
Lubricants
|
65,116 | 88,516 | ||||||
Waxes
|
8,217 | 11,080 | ||||||
Solvents
|
28,792 | 34,958 | ||||||
Other
|
13,733 | 22,088 | ||||||
Total Sales
|
$ | 137,337 | $ | 301,562 | ||||
Six Months Ended | Six Months Ended | |||||||
June 30, 2004 | June 30, 2005 | |||||||
(unaudited) | (unaudited) | |||||||
Fuels
|
$ | 39,313 | $ | 237,790 | ||||
Lubricants
|
119,008 | 166,621 | ||||||
Waxes
|
18,717 | 19,602 | ||||||
Solvents
|
54,558 | 62,476 | ||||||
Other
|
20,975 | 40,225 | ||||||
Total Sales
|
$ | 252,571 | $ | 526,714 | ||||
d. | Major Customers |
F-31
F-32
/s/ Ernst & Young LLP
December 31,
2003
2004
(Unaudited)
(Unaudited)
$
1,667
$
7,466
9,133
2,032
34
11,199
181
75
$
11,455
$
571
$
1,958
268
364
500
3,661
7,794
$
11,455
$
F-33
Year Ended December 31,
2002
2003
2004
(Unaudited)
(Unaudited)
$
55,830
$
53,665
$
47,407
47,359
202
8,423
6,306
(202
)
3,314
3,984
651
17
6
(110
)
(76
)
(93
)
(70
)
$
5,016
$
2,252
$
(853
)
F-34
Partners
Equity
$
7,876
5,016
(5,850
)
7,042
(Unaudited) | |||||
Net income
|
2,252 | ||||
Partner distributions
|
(1,500 | ) | |||
Balance at December 31, 2003
|
7,794 |
(Unaudited) | |||||
Net loss
|
(853 | ) | |||
Partner distributions
|
(6,941 | ) | |||
Balance at December 31, 2004
|
$ | | |||
F-35
Year Ended December 31
2002
2003
2004
(Unaudited)
(Unaudited)
$
5,016
$
2,252
$
(853
)
80
118
18
13
496
18
268
(268
)
364
(364
)
4,406
(685
)
7,466
(416
)
251
2,032
(2
)
(4
)
34
11
10
75
(3,020
)
153
(2,529
)
(158
)
(348
)
(500
)
5,930
2,875
5,129
(67
)
(11
)
10
145
(57
)
(11
)
145
41
(310
)
(303
)
(5,850
)
(1,500
)
(6,941
)
(6,119
)
(1,803
)
(6,941
)
(246
)
1,061
(1,667
)
852
606
1,667
$
606
$
1,667
$
$
110
$
76
$
F-36
F-37
1.
Description of the Business
2.
Summary of Significant Accounting Policies
December 31,
December 31,
December 31,
2002
2003
2004
(Unaudited)
(Unaudited)
$
167
$
78
$
61
241
(150
)
(319
)
$
78
$
$
December 31,
December 31,
2003
2004
(Unaudited)
(Unaudited)
$
849
$
(668
)
$
181
$
3. | Dissolution of Bareco |
F-38
F-39
4.
Partnership Distributions
5.
Transactions with Related Parties
6.
Significant Relationships
7.
Commitments and Contingencies
F-40
/s/ Ernst & Young LLP
$
1,000
$
1,000
$
980
20
$
1,000
F-41
F-42
1.
Nature of Operations
F-43
/s/ Ernst & Young LLP
$
980
20
$
1,000
$
1,000
$
1,000
F-44
F-45
1.
Nature of Operations
Section
1.1
|
Definitions | A-1 | ||
Section
1.2
|
Construction | A-16 | ||
ARTICLE II | ||||
ORGANIZATION | ||||
Section
2.1
|
Formation | A-17 | ||
Section
2.2
|
Name | A-17 | ||
Section
2.3
|
Registered Office; Registered Agent; Principal Office; Other Offices | A-17 | ||
Section
2.4
|
Purpose and Business | A-17 | ||
Section
2.5
|
Powers | A-18 | ||
Section
2.6
|
Power of Attorney | A-18 | ||
Section
2.7
|
Term | A-19 | ||
Section
2.8
|
Title to Partnership Assets | A-19 | ||
ARTICLE III | ||||
RIGHTS OF LIMITED PARTNERS | ||||
Section
3.1
|
Limitation of Liability | A-19 | ||
Section
3.2
|
Management of Business | A-20 | ||
Section
3.3
|
Outside Activities of the Limited Partners | A-20 | ||
Section
3.4
|
Rights of Limited Partners | A-20 | ||
ARTICLE IV | ||||
CERTIFICATES; RECORD HOLDERS;
TRANSFER OF PARTNERSHIP
INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS |
||||
Section
4.1
|
Certificates | A-21 | ||
Section
4.2
|
Mutilated, Destroyed, Lost or Stolen Certificates | A-21 | ||
Section
4.3
|
Record Holders | A-22 | ||
Section
4.4
|
Transfer Generally | A-22 | ||
Section
4.5
|
Registration and Transfer of Limited Partner Interests | A-22 | ||
Section
4.6
|
Transfer of the General Partners General Partner Interest | A-23 | ||
Section
4.7
|
Transfer of Incentive Distribution Rights | A-24 | ||
Section
4.8
|
Restrictions on Transfers | A-24 | ||
Section
4.9
|
Citizenship Certificates; Non-citizen Assignees | A-25 | ||
Section
4.10
|
Redemption of Partnership Interests of Non-citizen Assignees | A-26 | ||
ARTICLE V | ||||
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS | ||||
Section
5.1
|
Organizational Contributions | A-27 | ||
Section
5.2
|
Contributions by the General Partner and its Affiliates | A-27 | ||
Section
5.3
|
Contributions by Initial Limited Partners | A-28 | ||
Section
5.4
|
Interest and Withdrawal | A-28 | ||
Section
5.5
|
Capital Accounts | A-28 | ||
Section
5.6
|
Issuances of Additional Partnership Securities | A-31 | ||
Section
5.7
|
Limitations on Issuance of Additional Partnership Securities | A-31 |
A-i
Section
5.8
|
Conversion of Subordinated Units | A-34 | ||
Section
5.9
|
Limited Preemptive Right | A-35 | ||
Section
5.10
|
Splits and Combinations | A-35 | ||
Section
5.11
|
Fully Paid and Non-Assessable Nature of Limited Partner Interests | A-35 | ||
ARTICLE VI | ||||
ALLOCATIONS AND DISTRIBUTIONS | ||||
Section
6.1
|
Allocations for Capital Account Purposes | A-36 | ||
Section
6.2
|
Allocations for Tax Purposes | A-42 | ||
Section
6.3
|
Requirement and Characterization of Distributions; Distributions to Record Holders | A-43 | ||
Section
6.4
|
Distributions of Available Cash from Operating Surplus | A-44 | ||
Section
6.5
|
Distributions of Available Cash from Capital Surplus | A-46 | ||
Section
6.6
|
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels | A-46 | ||
Section
6.7
|
Special Provisions Relating to the Holders of Subordinated Units | A-46 | ||
Section
6.8
|
Special Provisions Relating to the Holders of Incentive Distribution Rights | A-47 | ||
Section
6.9
|
Entity-Level Taxation | A-47 | ||
ARTICLE VII | ||||
MANAGEMENT AND OPERATION OF BUSINESS | ||||
Section
7.1
|
Management | A-47 | ||
Section
7.2
|
Certificate of Limited Partnership | A-49 | ||
Section
7.3
|
Restrictions on the General Partners Authority | A-49 | ||
Section
7.4
|
Reimbursement of the General Partner | A-50 | ||
Section
7.5
|
Outside Activities | A-50 | ||
Section
7.6
|
Loans from the General Partner; Loans or Contributions from the Partnership or Group Members | A-51 | ||
Section
7.7
|
Indemnification | A-52 | ||
Section
7.8
|
Liability of Indemnitees | A-53 | ||
Section
7.9
|
Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties | A-54 | ||
Section
7.10
|
Other Matters Concerning the General Partner | A-55 | ||
Section
7.11
|
Purchase or Sale of Partnership Securities | A-55 | ||
Section
7.12
|
Registration Rights of the General Partner and its Affiliates | A-56 | ||
Section
7.13
|
Reliance by Third Parties | A-58 | ||
ARTICLE VIII | ||||
BOOKS, RECORDS, ACCOUNTING AND REPORTS | ||||
Section
8.1
|
Records and Accounting | A-59 | ||
Section
8.2
|
Fiscal Year | A-59 | ||
Section
8.3
|
Reports | A-59 | ||
ARTICLE IX | ||||
TAX MATTERS | ||||
Section
9.1
|
Tax Returns and Information | A-60 | ||
Section
9.2
|
Tax Elections | A-60 | ||
Section
9.3
|
Tax Controversies | A-60 | ||
Section
9.4
|
Withholding | A-60 |
A-ii
ARTICLE X | ||||
ADMISSION OF PARTNERS | ||||
Section
10.1
|
Admission of Initial Limited Partners | A-61 | ||
Section
10.2
|
Admission of Substituted Limited Partners | A-61 | ||
Section
10.3
|
Admission of Successor General Partner | A-61 | ||
Section
10.4
|
Admission of Additional Limited Partners | A-62 | ||
Section
10.5
|
Amendment of Agreement and Certificate of Limited Partnership | A-62 | ||
ARTICLE XI | ||||
WITHDRAWAL OR REMOVAL OF PARTNERS | ||||
Section
11.1
|
Withdrawal of the General Partner | A-62 | ||
Section
11.2
|
Removal of the General Partner | A-64 | ||
Section
11.3
|
Interest of Departing General Partner and Successor General Partner | A-64 | ||
Section
11.4
|
Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit Arrearages | A-65 | ||
Section
11.5
|
Withdrawal of Limited Partners | A-65 | ||
ARTICLE XII | ||||
DISSOLUTION AND LIQUIDATION | ||||
Section
12.1
|
Dissolution | A-66 | ||
Section
12.2
|
Continuation of the Business of the Partnership After Dissolution | A-66 | ||
Section
12.3
|
Liquidator | A-67 | ||
Section
12.4
|
Liquidation | A-67 | ||
Section
12.5
|
Cancellation of Certificate of Limited Partnership | A-68 | ||
Section
12.6
|
Return of Contributions | A-68 | ||
Section
12.7
|
Waiver of Partition | A-68 | ||
Section
12.8
|
Capital Account Restoration | A-68 | ||
ARTICLE XIII | ||||
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE | ||||
Section
13.1
|
Amendments to be Adopted Solely by the General Partner | A-68 | ||
Section
13.2
|
Amendment Procedures | A-69 | ||
Section
13.3
|
Amendment Requirements | A-70 | ||
Section
13.4
|
Special Meetings | A-70 | ||
Section
13.5
|
Notice of a Meeting | A-71 | ||
Section
13.6
|
Record Date | A-71 | ||
Section
13.7
|
Adjournment | A-71 | ||
Section
13.8
|
Waiver of Notice; Approval of Meeting; Approval of Minutes | A-71 | ||
Section
13.9
|
Quorum and Voting | A-71 | ||
Section
13.10
|
Conduct of a Meeting | A-72 | ||
Section
13.11
|
Action Without a Meeting | A-72 | ||
Section
13.12
|
Right to Vote and Related Matters | A-73 | ||
ARTICLE XIV | ||||
MERGER | ||||
Section
14.1
|
Authority | A-73 | ||
Section
14.2
|
Procedure for Merger or Consolidation | A-73 | ||
Section
14.3
|
Approval by Limited Partners of Merger or Consolidation | A-74 |
A-iii
Section
14.4
|
Certificate of Merger | A-75 | ||
Section
14.5
|
Amendment of Partnership Agreement | A-75 | ||
Section
14.6
|
Effect of Merger | A-75 | ||
ARTICLE XV | ||||
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS | ||||
Section
15.1
|
Right to Acquire Limited Partner Interests | A-76 | ||
ARTICLE XVI | ||||
GENERAL PROVISIONS | ||||
Section
16.1
|
Addresses and Notices | A-77 | ||
Section
16.2
|
Further Action | A-78 | ||
Section
16.3
|
Binding Effect | A-78 | ||
Section
16.4
|
Integration | A-78 | ||
Section
16.5
|
Creditors | A-78 | ||
Section
16.6
|
Waiver | A-78 | ||
Section
16.7
|
Counterparts | A-78 | ||
Section
16.8
|
Applicable Law | A-78 | ||
Section
16.9
|
Invalidity of Provisions | A-78 | ||
Section
16.10
|
Consent of Partners | A-79 | ||
Section
16.11
|
Facsimile Signatures | A-79 |
A-iv
A-1
(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.
(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).
A-2
A-3
(a) the sum of (i) all cash and cash equivalents of
the Partnership Group on hand at the end of such Quarter, and
(ii) all additional cash and cash equivalents of the
Partnership Group on hand on the date of determination of
Available Cash with respect to such Quarter resulting from
Working Capital Borrowings made subsequent to the end of such
Quarter, less
(b) the amount of any cash reserves 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.
A-4
A-5
A-6
A-7
A-8
A-9
A-10
(a) payments (including prepayments) of principal of and
premium on indebtedness other than Working Capital Borrowings
shall not constitute Operating Expenditures; and
(b) Operating Expenditures shall not include
(i) capital expenditures made for Acquisitions or for
Capital Improvements, (ii) payment of transaction expenses
(including taxes) relating to Interim Capital Transactions or
(iii) distributions to Partners. Where capital expenditures
are made in part for Acquisitions or for Capital Improvements
and in part for other purposes, the General Partner, with the
concurrence of the Conflicts Committee, shall determine the
allocation between the amounts paid for each and, with respect
to the part of such capital expenditures made for other
purposes, the period over which the capital expenditures made
for other purposes will be deducted as an Operating Expenditure
in calculating Operating Surplus.
A-11
(a) the sum of (i) $10.0 million, (ii) all
cash and cash equivalents of the Partnership Group on hand as of
the close of business on the Closing Date, (iii) 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) and
(iv) all cash receipts of the Partnership Group (or the
Partnerships proportionate share of cash receipts in the
case of Subsidiaries that are not wholly owned) after the end of
such period but on or before the date of determination of
Operating Surplus with respect to such period resulting from
Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the
period beginning on the Closing Date and ending 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.
A-12
A-13
A-14
(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
A-15
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
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 each such period and
(ii) there are no Cumulative Common Unit
Arrearages; and
(b) the date on which the General Partner is removed as
general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the General Partner and its
Affiliates are not voted in favor of such removal.
A-16
A-17
A-18
(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, X, XI or XII;
(E) all certificates, documents and other instruments
relating to the determination of the rights, preferences and
privileges of any class or series of Partnership Securities
issued pursuant to Section 5.6; and (F) all certificates,
documents and other instruments (including agreements and a
certificate of merger) relating to a merger, 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 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.
A-19
A-20
(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 federal, 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
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;
(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.
A-21
(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;
(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;
(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
(iv) satisfies any other reasonable requirements imposed by
the General Partner.
A-22
A-23
A-24
A-25
THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF THE
PARTNERSHIP 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
THE PARTNERSHIP UNDER THE LAWS OF THE STATE OF DELAWARE, OR
(C) 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). CALUMET GP LLC, THE GENERAL PARTNER OF THE
PARTNERSHIP, 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 THE
PARTNERSHIP 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.
A-26
(i) The General Partner shall, not later than the
30th day before the date fixed for redemption, give notice
of redemption to the Limited Partner or Assignee, at his last
address designated on the records of the Partnership or the
Transfer Agent, by registered or certified mail, postage
prepaid. The notice shall be deemed to have been given when so
mailed. The notice shall specify the Redeemable Interests, the
date fixed for redemption, the place of payment, that payment of
the redemption price will be made upon surrender of the
Certificate evidencing the Redeemable Interests and that on and
after the date fixed for redemption no further allocations or
distributions to which the Limited Partner or Assignee would
otherwise be entitled in respect of the Redeemable Interests
will accrue or be made.
(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the Current Market Price
(the date of determination of which shall be the date fixed for
redemption) of Limited Partner Interests of the class to be so
redeemed multiplied by the number of Limited Partner Interests
of each such class included among the Redeemable Interests. The
redemption price shall be paid, 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 10% annually and payable in
three equal annual installments of principal together with
accrued interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner
or Assignee, at the place specified in the notice of redemption,
of the Certificate evidencing the Redeemable Interests, duly
endorsed in blank or accompanied by an assignment duly executed
in blank, the Limited Partner or Assignee or his duly authorized
representative shall be entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Interests shall
no longer constitute issued and Outstanding Limited Partner
Interests.
A-27
A-28
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
A-29
(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) of
all property owned by any other Group Member that is classified
as a partnership for federal income tax purposes.
(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a
Partnership Interest that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item
of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to
Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items
of income, gain, loss and deduction shall be made without regard
to any election under Section 754 of the Code which may be
made by the Partnership and, as to those items described in
Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount
of such adjustment in the Capital Accounts shall be treated as
an item of gain or loss.
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnerships
Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.5(d) to the
Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying
Value of such property immediately following such adjustment and
(B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or,
if applicable, the remaining useful life) as is applied for
federal income tax purposes;
provided, however,
that, if
the asset has a zero adjusted basis for federal income tax
purposes, depreciation, cost recovery or amortization deductions
shall be determined using any method that the General Partner
may adopt.
(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
A-30
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.
(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 5.8 by a holder thereof (other than a transfer to
an Affiliate unless the General Partner elects to have this
subparagraph 5.5(c)(ii) apply), the Capital Account
maintained for such Person with respect to its Subordinated
Units or converted Subordinated Units will (A) first, be
allocated to the Subordinated Units or converted Subordinated
Units to be transferred in an amount equal to the product of
(x) the number of such Subordinated Units or converted
Subordinated Units to be transferred and (y) the Per Unit
Capital Amount for a Common Unit, and (B) second, any
remaining balance in such Capital Account will be retained by
the transferor, regardless of whether it has retained any
Subordinated Units or converted Subordinated Units
(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 Subordinated Units
or converted Subordinated Units will have a balance equal to the
amount allocated under clause (A) hereinabove.
(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
A-31
liquidating distribution pursuant to Section 12.4, be
determined and allocated by the Liquidator using such method of
valuation as it may adopt.
(a) Unless approved by the holders of a Unit Majority,
during the Subordination Period, the Partnership shall not issue
(and shall not issue any options, rights, warrants or
appreciation rights relating to) an aggregate of more than
6,533,000 additional Parity Units. In applying this
limitation, there shall be excluded Common Units and other
Parity Units issued (i) pursuant to Sections 5.2(a)
and 5.3(a), (ii) in accordance with Sections 5.7(b),
5.7(d), 5.7(e), 5.7(f) or 5.7(g), (iii) upon conversion of
Subordinated Units pursuant to Section 5.8, (iv) upon
conversion of the General Partner Interest or any Incentive
Distribution Rights pursuant to Section 11.3(b),
(v) pursuant to the employee benefit plans of the General
Partner, the Partnership or any other Group Member,
(vi) upon a conversion or exchange of Parity Units issued
after the date hereof
A-32
into Common Units or other Parity Units;
provided
that
the total amount of Available Cash required to pay the aggregate
Minimum Quarterly Distribution on all Common Units and all
Parity Units does not increase as a result of this conversion or
exchange, and (vii) in the event of a combination or
subdivision of Common Units.
(b) Without the prior approval of the Limited Partners,
during the Subordination Period, the Partnership may issue an
unlimited number of Parity Units if such issuance occurs
(i) in connection with an Acquisition or Capital
Improvement or (ii) within 365 days of, and the net
proceeds from such issuance are used to repay debt incurred in
connection with, or to replenish cash reserves to the extent
drawn down in connection with, an Acquisition or Capital
Improvement, in each case where such Acquisition or Capital
Improvement involves assets that, if acquired (or in the case of
a Capital Improvement, put into commercial service) by the
Partnership as of the date that is one year prior to the first
day of the Quarter in which such Acquisition was consummated or
such Capital Improvement was put into commercial service
(One Year Test Period), would have resulted, in the
General Partners determination, in an increase in:
(A) the amount of Adjusted Operating Surplus generated by
the Partnership on a per-Unit basis (for all Outstanding Units)
with respect to the One Year Test Period, on an estimated pro
forma basis (as described below), as compared to
(B) the actual amount of Adjusted Operating Surplus
generated by the Partnership on a per-Unit basis (for all
Outstanding Units) with respect to the One Year Test Period, as
adjusted as provided below.
The General Partner shall determine the amount in
clause (A) above using such assumptions as it believes are
reasonable. There shall be excluded from the amount in
clause (B) above any Operating Surplus attributable to
such Acquisition or Capital Improvement (regardless of whether
such Operating Surplus is positive or negative). The number of
Units deemed to be Outstanding for the purpose of calculating
the amount in clause (B) above shall be the weighted
average number of Units Outstanding during the One Year Test
Period and shall exclude the Units issued or to be issued in
connection with such Acquisition or Capital Improvement or
within 365 days of such Acquisition or Capital Improvement
where the net proceeds from such issuance are used to repay debt
incurred, or to replenish cash reserves to the extent drawn
down, in connection with such Acquisition or Capital
Improvement. For the purposes of this Section 5.7(b), the
term debt shall be deemed to include the
indebtedness used to extend, refinance, renew, replace or
defease debt originally incurred in connection with an
Acquisition or Capital Improvement;
provided,
that, the
amount of such indebtedness does not exceed the principal sum
of, plus accrued interest on and any prepayment penalty with
respect to, the indebtedness so extended, refinanced, renewed,
replaced or defeased.
(c) Unless approved by the holders of a Unit Majority,
during the Subordination Period the Partnership shall not issue
any additional Partnership Securities (or options, rights,
warrants or appreciation rights related thereto) (i) that
are entitled in any Quarter to receive in respect of the
Subordination Period any distribution of Available Cash from
Operating Surplus before the Common Units and any Parity Units
have received (or amounts have been set aside for payment of)
the Minimum Quarterly Distribution and any Cumulative Common
Unit Arrearage for such Quarter or (ii) that are entitled
to allocations in respect of the Subordination Period of Net
Termination Gain before the Common Units and any Parity Units
have been allocated Net Termination Gain pursuant to
Section 6.1(c)(i)(B).
(d) Without the prior approval of the Limited Partners,
during the Subordination Period the Partnership may issue
additional Partnership Securities (or options, rights, warrants
or appreciation rights related thereto) (i) that are not
entitled in any Quarter during the Subordination Period to
receive any distributions of Available Cash from Operating
Surplus until after the Common Units and any Parity Units have
received (or amounts have been set aside
A-33
for payment of) the Minimum Quarterly Distribution and any
Cumulative Common Unit Arrearage for such Quarter and
(ii) that are not entitled to allocations in respect of the
Subordination Period of Net Termination Gain until after the
Common Units and Parity Units have been allocated Net
Termination Gain pursuant to Section 6.1(c)(i)(B), even if
(A) the amount of Available Cash from Operating Surplus to
which each such Partnership Security is entitled to receive
after the Minimum Quarterly Distribution and any Cumulative
Common Unit Arrearage have been paid or set aside for payment on
the Common Units exceeds the Minimum Quarterly Distribution or
(B) the amount of Net Termination Gain to be allocated to
such Partnership Security after Net Termination Gain has been
allocated to any Common Units and Parity Units pursuant to
Section 6.1(c)(i)(B) exceeds the amount of such Net
Termination Gain to be allocated to each Common Unit or Parity
Unit.
(e) Without the prior approval of the Limited Partners,
during the Subordination Period the Partnership may issue an
unlimited number of Parity Units if the proceeds from such
issuance are used exclusively to repay indebtedness of a Group
Member where the aggregate amount of distributions that would
have been paid with respect to such newly issued Units, plus the
related distributions on the General Partner Interest in the
Partnership in respect of the four-Quarter period ending prior
to the first day of the Quarter in which the issuance is to be
consummated (assuming such newly issued Parity Units had been
Outstanding throughout such period and that distributions equal
to the distributions that were actually paid on the Outstanding
Units during the period were paid on such newly issued Parity
Units) would not have exceeded the interest costs actually
incurred during such period on the indebtedness that is to be
repaid (or, if such indebtedness was not outstanding throughout
the entire period, would have been incurred had such
indebtedness been outstanding for the entire period). In the
event that the Partnership is required to pay a prepayment
penalty in connection with the repayment of such indebtedness,
for purposes of the foregoing test, the number of Parity Units
issued to repay such indebtedness shall be deemed increased by
the number of Parity Units that would need to be issued to pay
such penalty.
(f) Without the prior approval of the Limited Partners,
during the Subordination Period the Partnership may issue an
unlimited number of Parity Units if the net proceeds of such
issuance are used to redeem an equal number of Parity Units at a
price per unit equal to the net proceeds per unit, before
expenses, that the Partnership receives from such issuance.
(g) Without the prior approval of the Limited Partners,
during the Subordination Period the Partnership may issue, in
connection with Acquisitions that have not been completed or
Capital Improvements that have not Commenced Commercial Service,
or both, an amount of Parity Units not to exceed the number of
Parity Units then available for issuance without Unitholder
approval pursuant to Section 5.7(a) (such number of Parity
Units then available for issuance, the
Remaining Basket
Amount
).
The following shall apply with respect to issuances of Parity
Units pursuant to this Section 5.7(g):
(i) With respect to such issuance, the aggregate number of
Parity Units to be issued (including Parity Units to be issued
upon the exercise of an underwriters over-allotment or
other similar option) shall be deemed to have been issued from,
and charged against, the Remaining Basket Amount; provided,
however, that in considering the Parity Units to be issued upon
the exercise of an underwriters over-allotment or other
similar option, only the number of Parity Units actually issued
pursuant to such option on or prior to the expiration of such
option will be deemed to have been issued from, and charged
against, the Remaining Basket Amount.
A-34
(ii) With respect to Parity Units to be issued (including
Parity Units to be issued upon the exercise of an
underwriters over-allotment or other similar option) in
connection with an Acquisition that has not been completed:
(1) Such Acquisition shall have been specifically
identified in the prospectus or prospectus supplement filed, or
other offering document used, in connection with the offer and
sale of such Parity Units as a proposed Acquisition for which
the net proceeds from the sale of such Parity Units will be used
if such Acquisition is completed.
(2) Upon completion of such Acquisition and application of
the net proceeds received from the sale of such Parity Units to
finance such Acquisition, the provisions of clause (i)
above shall not apply and the Parity Units issued (including
Parity Units issued upon the exercise of an underwriters
over-allotment or other similar option) in connection with such
Acquisition shall not be deemed to have been issued from, and
charged against, the Remaining Basket Amount; provided, however,
that such Acquisition would have resulted, on an estimated pro
forma basis, in an increase in the amount of Adjusted Operating
Surplus per Unit (such amount shall be calculated as set forth
in Section 5.7(b) and such calculation is referred to in
this Section 5.7(g) as the
Accretion
Test
).
(3) The Accretion Test in subclause (2) above shall be
performed immediately following completion of such Acquisition
and in accordance with Section 5.7(b).
(iii) With respect to Parity Units to be issued (including
Parity Units to be issued upon the exercise of an
underwriters over-allotment or other similar option) in
connection with a Capital Improvement that has not Commenced
Commercial Service:
(1) Such Capital Improvement shall have been specifically
identified in the prospectus or prospectus supplement filed, or
other offering document used, in connection with the offer and
sale of such Parity Units as a Capital Improvement for which the
net proceeds from the sale of such Parity Units will used to
finance such Capital Improvement.
(2) Upon such Capital Improvement having Commenced
Commercial Service and provided the net proceeds from the sale
of such Parity Units have been used to finance such Capital
Improvement, the provisions of clause (i) above shall not
apply and the Parity Units issued (including Parity Units issued
upon the exercise of an underwriters over-allotment or
other similar option) in connection with such Capital
Improvement shall not be deemed to have been issued from, and
charged against, the Remaining Basket Amount; provided, however,
that such Capital Improvement meets the Accretion Test.
(3) The Accretion Test in clause (2) above shall be
performed immediately following Commencement of Commercial
Service and in accordance with Section 5.7(b).
(h) No fractional Units shall be issued by the Partnership.
A-35
Section 5.11
Fully Paid and Non-Assessable Nature of Limited Partner
Interests.
A-36
(i) First, 100% to the General Partner, in an amount equal
to the aggregate Net Losses allocated to the General Partner
pursuant to Section 6.1(b)(iii) for all previous taxable
years until the aggregate Net Income allocated to the General
Partner pursuant to this Section 6.1(a)(i) for the current
taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant
to Section 6.1(b)(iii) for all previous taxable years;
(ii) Second, 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
(iii) Third, the balance, if any, 100% to the General
Partner and to the Unitholders, in accordance with their
respective Percentage Interests.
(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);
(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
(iii) Third, the balance, if any, 100% to the General
Partner.
A-37
(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Gain shall be allocated among the Partners in the
following manner (and the Capital Accounts of the Partners shall
be increased by the amount so allocated in each of the following
subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance
bears to the total deficit balances in the Capital Accounts of
all Partners, until each such Partner has been allocated Net
Termination Gain equal to any such deficit balance in its
Capital Account;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders
holding Common Units, their Pro Rata share of a percentage equal
to 100% less the General Partners Percentage Interest,
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 (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;
(C) Third, 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) all
Unitholders holding Subordinated Units, their Pro Rata share of
a percentage equal to 100% less the General Partners
Percentage Interest, 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;
(D) Fourth, 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
Sections 6.4(a)(iv) and 6.4(b)(ii) (the sum of (1), (2),
(3) and (4) is hereinafter defined as the First
Liquidation Target Amount);
(E) Fifth, (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, their Pro Rata share of a percentage equal to 100%
less the sum of the percentages applicable to
subclause (x) and (y) of this clause (E),
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 Sections 6.4(a)(v) and 6.4(b)(iii)
(the sum of (1) and (2) is hereinafter defined as the
Second Liquidation Target Amount);
A-38
(F) Sixth, (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, their Pro Rata share of 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 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 Sections 6.4(a)(vi) and 6.4(b)(iv)
(the sum of (1) and (2) is hereinafter defined as the
Third Liquidation Target Amount); and
(G) 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, their Pro Rata share of a percentage equal to 100%
less the sum of the percentages applicable to
subclause (x) and (y) of this clause (G).
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Loss shall be allocated among the Partners in the
following manner:
(A) First, if such Net Termination Loss is recognized (or
is deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, (x) to the General Partner
in accordance with its Percentage Interest and (y) to all
Unitholders holding Subordinated Units, their Pro Rata share of
a percentage equal to 100% less the General Partners
Percentage Interest, until the Capital Account in respect of
each Subordinated Unit then Outstanding has been reduced to zero;
(B) Second, (x) to the General Partner in accordance
with its Percentage Interest and (y) to all Unitholders
holding Common Units, their Pro Rata share of a percentage equal
to 100% less the General Partners Percentage Interest,
until the Capital Account in respect of each Common Unit then
Outstanding has been reduced to zero; and
(C) Third, the balance, if any, 100% to the General Partner.
(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 Sections 6.1(d)(vi) and
6.1(d)(vii)). This Section 6.1(d)(i) is intended to comply
with the Partnership Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum
Gain.
Notwithstanding the other provisions of this
Section 6.1 (other than Section 6.1(d)(i)), except as
provided in Treasury Regulation Section 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
A-39
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 Sections 6.1(d)(vi) and
6.1(d)(vii), with respect to such taxable period. This
Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury
Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any
property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to
its Units for a taxable year is greater (on a per Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) each Unitholder receiving
such greater cash or property distribution shall be allocated
gross income in an amount equal to the product of (aa) the
amount by which the distribution (on a per Unit basis) to such
Unitholder exceeds the distribution (on a per Unit basis) to the
Unitholders receiving the smallest distribution and
(bb) the number of Units owned by the Unitholder receiving
the greater distribution; and (2) the General Partner shall
be allocated gross income in an aggregate amount equal to the
product obtained by multiplying (aa) the quotient
determined by 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.
(B) After the application of Section 6.1(d)(iii)(A),
all or any portion of the remaining items of Partnership gross
income or gain for the taxable period, if any, shall be
allocated (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 paragraph 6.1(d)(iii)(B) for the current
taxable year and all previous taxable years is equal to the
cumulative amount of all Incentive Distributions made to the
holders of Incentive Distribution Rights from the Closing Date
to a date 45 days after the end of the current taxable
year; 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.
(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
(ii).
(v)
Gross Income Allocations.
In the event any
Partner has a deficit balance in its Capital Account at the end
of any Partnership taxable period in excess of the sum of
(A) the amount such Partner is required to restore pursuant
to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such
Partner shall be specially allocated items of Partnership gross
income and gain in the amount of such excess as quickly as
possible;
provided,
that an allocation pursuant to this
Section 6.1(d)(v) shall be made only if and to the
A-40
extent that such Partner would have a deficit balance in its
Capital Account as adjusted after all other allocations provided
for in this Section 6.1 have been tentatively made as if
this Section 6.1(d)(v) were not in this Agreement.
(vi)
Nonrecourse Deductions.
Nonrecourse Deductions
for any taxable period shall be allocated to the Partners in
accordance with their respective Percentage Interests. If the
General Partner determines 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.
(vii)
Partner Nonrecourse Deductions.
Partner
Nonrecourse Deductions for any taxable period shall be allocated
100% to the Partner that bears the Economic Risk of Loss with
respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i). If more than
one Partner bears the Economic Risk of Loss with respect to a
Partner Nonrecourse Debt, such Partner Nonrecourse Deductions
attributable thereto shall be allocated between or among such
Partners in accordance with the ratios in which they share such
Economic Risk of Loss.
(viii)
Nonrecourse Liabilities.
For purposes of
Treasury Regulation Section 1.752-3(a)(3), the Partners
agree that Nonrecourse Liabilities of the Partnership in excess
of the sum of (A) the amount of Partnership Minimum Gain
and (B) the total amount of Nonrecourse Built-in Gain shall
be allocated among the Partners in accordance with their
respective Percentage Interests.
(ix)
Code Section 754 Adjustments.
To the
extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(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.
(x)
Economic Uniformity.
At the election of the
General Partner with respect to any taxable period ending upon,
or after, the termination of the Subordination Period, all or a
portion of the remaining items of Partnership gross income or
gain for such taxable period, after taking into account
allocations pursuant to Section 6.1(d)(iii), shall be
allocated 100% to each Partner holding Subordinated Units that
are Outstanding as of the termination of the Subordination
Period
(Final Subordinated Units)
in the
proportion of the number of Final Subordinated Units held by
such Partner to the total number of Final Subordinated Units
then Outstanding, until each such Partner has been allocated an
amount of gross income or gain 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.
A-41
(xi)
Curative Allocation
.
(A) Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to
each Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Partner under
the Agreed Allocations had the Required Allocations and the
related Curative Allocation not otherwise been provided in this
Section 6.1. Notwithstanding the preceding sentence,
Required Allocations relating to (1) Nonrecourse Deductions
shall not be taken into account except to the extent that there
has been a decrease in Partnership Minimum Gain and (2) Partner
Nonrecourse Deductions shall not be taken into account except to
the extent that there has been a decrease in Partner Nonrecourse
Debt Minimum Gain. Allocations pursuant to this
Section 6.1(d)(xi)(A) shall only be made with respect to
Required Allocations to the extent the General Partner
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.
(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.
(xii)
Corrective Allocations.
In the event of any
allocation of Additional Book Basis Derivative Items or any
Book-Down Event or any recognition of a Net Termination Loss,
the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the General
Partner shall allocate additional items of gross income and gain
away from the holders of Incentive Distribution Rights to the
Unitholders and the General Partner, or additional items of
deduction and loss away from the Unitholders and the General
Partner to the holders of Incentive Distribution Rights, to the
extent that the Additional Book Basis Derivative Items allocated
to the Unitholders or the General Partner exceed their Share of
Additional Book Basis Derivative Items. For this purpose, the
Unitholders and the General Partner shall be treated as being
allocated Additional Book Basis Derivative Items to the extent
that such Additional Book Basis Derivative Items have reduced
the amount of income that would otherwise have been allocated to
the Unitholders or the General Partner under the Partnership
Agreement (e.g., Additional Book Basis Derivative Items taken
into account in computing cost of goods sold would reduce the
amount of book income otherwise available for allocation among
the Partners). Any allocation made pursuant to this
Section 6.1(d)(xii)(A) shall be made after all of the other
Agreed Allocations have been made as if this
Section 6.1(d)(xii) were not in this Agreement and, to the
extent necessary, shall require the reallocation of items that
have been allocated pursuant to such other Agreed Allocations.
(B) In the case of any negative adjustments to the Capital
Accounts of the Partners resulting from a Book-Down Event or
from the recognition of a Net Termination Loss, such negative
adjustment (1) shall first be allocated, to the extent of
the Aggregate Remaining Net Positive Adjustments, in such a
manner, as determined by the General Partner, that to the extent
possible the aggregate Capital Accounts of the Partners will
equal the
A-42
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.
(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).
(i) (A) In the case of a Contributed Property, such
items attributable thereto shall be allocated among the Partners
in the manner provided under Section 704(c) of the Code
that takes into account the variation between the Agreed Value
of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated
among the Partners in the same manner as its correlative item of
book gain or loss is allocated pursuant to
Section 6.1.
(ii) (A) In the case of an Adjusted Property, such
items shall (1) first, be allocated among the Partners in a
manner consistent with the principles of Section 704(c) of
the Code to take into account the Unrealized Gain or Unrealized
Loss attributable to such property and the allocations thereof
pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2)
second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent
with Section 6.2(b)(i)(A); and (B) any item of
Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same
manner as its correlative item of book gain or loss
is allocated pursuant to Section 6.1.
(iii) The General Partner shall apply the principles of
Treasury Regulation Section 1.704-3(d) to eliminate
Book-Tax Disparities.
A-43
A-44
(i) First, (A) to the General Partner in accordance
with its Percentage Interest and (B) to all Unitholders
holding Common Units, their Pro Rata share of a percentage equal
to 100% less the General Partners Percentage Interest,
until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, (A) to the General Partner in accordance
with its Percentage Interest and (B) to all Unitholders
holding Common Units, their Pro Rata share of a percentage equal
to 100% less the General Partners Percentage Interest,
until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Cumulative Common Unit
Arrearage existing with respect to such Quarter;
(iii) Third, (A) to the General Partner in accordance
with its Percentage Interest and (B) to all Unitholders
holding Subordinated Units, their Pro Rata share of a percentage
equal to 100% less the General Partners Percentage
Interest, until there has been distributed in respect of each
Subordinated Unit then Outstanding an amount equal to the
Minimum Quarterly Distribution for such Quarter;
(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;
(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, their Pro Rata share of 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
A-45
then Outstanding an amount equal to the excess of the Second
Target Distribution over the First Target Distribution for such
Quarter;
(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, their Pro Rata share of 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
(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, their Pro Rata share of a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (A) and (B) of this
clause (vii);
(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;
(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;
(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, their Pro Rata share of a percentage 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;
(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, their Pro Rata share of 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
(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, their Pro Rata share of a
percentage equal to 100% less the sum of the percentages
applicable to subclauses (A) and (B) of this
clause (v);
A-46
A-47
A-48
(i) the making of any expenditures, the lending or
borrowing of money, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness, including indebtedness
that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of
the Partnership with or into another Person (the matters
described in this clause (iii) being subject, however, to
any prior approval that may be required by Section 7.3 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 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;
(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 insurance for the benefit of the
Partnership Group, the Partners and Indemnitees;
(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;
(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
A-49
suspended on, any such exchange (subject to any prior approval
that may be required under Section 4.8);
(xiii) unless restricted or prohibited by Section 5.7,
the purchase, sale or other acquisition or disposition of
Partnership Securities, or the issuance of additional options,
rights, warrants and appreciation rights relating to Partnership
Securities;
(xiv) the undertaking of any action in connection with the
Partnerships participation in any Group Member; and
(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.
A-50
A-51
Section 7.6
Loans from the General Partner; Loans or Contributions from
the Partnership or Group Members.
A-52
A-53
A-54
Section 7.9
Resolution of Conflicts of Interest; Standards of Conduct and
Modification of Duties.
A-55
A-56
A-57
A-58
A-59
A-60
A-61
A-62
(i) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this
Agreement, including the power of attorney granted in
Section 2.6, and
(ii) such other documents or instruments as may be required
by the General Partner to effect such Persons admission as
an Additional Limited Partner.
(i) The General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners;
(ii) The General Partner transfers all of its rights as
General Partner pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to
Section 11.2;
(iv) The General Partner (A) makes a general
assignment for the benefit of creditors; (B) files a
voluntary bankruptcy petition for relief under Chapter 7 of
the United States Bankruptcy Code; (C) files a petition or
answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files
an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the General
Partner in a proceeding of the type described in
clauses (A)-(C) of this Section 11.1(a)(iv); or
(E) seeks, consents to or acquiesces in the appointment of
a trustee (but not a debtor-in-possession), receiver or
liquidator of the General Partner or of all or any substantial
part of its properties;
A-63
(v) A final and non-appealable order of relief under
Chapter 7 of the United States Bankruptcy Code is entered
by a court with appropriate jurisdiction pursuant to a voluntary
or involuntary petition by or against the General
Partner; or
(vi) (A) in the event the General Partner is a
corporation, a certificate of dissolution or its equivalent is
filed for the General Partner, or 90 days expire after the
date of notice to the General Partner of revocation of its
charter without a reinstatement of its charter, under the laws
of its state of incorporation; (B) in the event the General
Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the General
Partner; (C) in the event the General Partner is acting in
such capacity by virtue of being a trustee of a trust, the
termination of the trust; (D) in the event the General
Partner is a natural person, his death or adjudication of
incompetency; and (E) otherwise in the event of the
termination of the General Partner.
A-64
A-65
Section 11.4
Termination of Subordination Period, Conversion of
Subordinated Units and Extinguishment of Cumulative Common Unit
Arrearages.
A-66
(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;
(b) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
(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.
Section 12.2
Continuation of the Business of the Partnership After
Dissolution.
(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
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 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).
A-67
(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.
(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.
(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
taxable year of the Partnership during which the liquidation of
the Partnership occurs (with such date of occurrence being
determined pursuant
A-68
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 13.1
Amendments to be Adopted Solely by the General Partner.
(a) a change in the name of the Partnership, the location
of the principal place of business of the Partnership, the
registered agent of the Partnership or the registered office of
the Partnership;
(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
(c) a change that 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;
(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-69
(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 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 5.10 or (iv) is required to effect the
intent expressed in the Registration Statement or the intent of
the provisions of this Agreement or is otherwise contemplated by
this Agreement;
(e) a change in the fiscal year or taxable year of the
Partnership and any 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, in the Opinion of
Counsel, to prevent the Partnership, or the General Partner or
its directors, officers, trustees or agents from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
regardless of whether such are substantially similar to plan
asset regulations currently applied or proposed by the United
States Department of Labor;
(g) subject to the terms of Section 5.7, an amendment
that 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;
(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 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;
(k) a merger or conveyance pursuant to
Section 14.3(d); or
(l) any other amendments substantially similar to the
foregoing.
A-70
A-71
A-72
A-73
(a) the names and jurisdictions of formation or
organization of each of the business entities proposing to merge
or consolidate;
(b) the name and jurisdiction of formation or organization
of the business entity that is to survive the proposed merger or
consolidation (the Surviving Business Entity);
A-74
(c) the terms and conditions of the proposed merger or
consolidation;
(d) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or 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 interests,
rights, securities or obligations of the Surviving Business
Entity, the cash, property or general or limited partner
interests, rights, securities or obligations of any 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 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
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;
(e) a statement of any changes in the constituent documents
or the adoption of new constituent documents (the articles or
certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership or other
similar charter or governing document) of the Surviving Business
Entity to be effected by such merger or consolidation;
(f) the effective time of the merger, which may be the date
of the filing of the certificate of merger pursuant to
Section 14.4 or a later date specified in or determinable
in accordance with the Merger Agreement (provided, that if the
effective time of the merger is to be later than the date of the
filing of 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
(g) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate.
A-75
(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.
A-76
A-77
A-78
A-79
A-80
GENERAL PARTNER:
CALUMET GP, LLC
By:
ORGANIZATIONAL LIMITED PARTNERS
:
By:
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as Limited
Partners of the Partnership, pursuant to powers of attorney now
and hereafter executed in favor of, and granted and delivered to
the General Partner.
CALUMET GP, LLC
By:
A-81
No.
Calumet Specialty Products
Partners, L.P.
By: Calumet GP LLC,
its General Partner
By:
Name:
By:
Secretary
as tenants in common
UNIF GIFT MIN ACT
as tenants by the entireties
Custodian
(Cust)
(Minor)
as joint tenants with right of
survivorship and not as
tenants in common
under Uniform Gifts to
Minors
Act
(State)
A-82
and address of Assignee) |
identifying number of Assignee) |
Date:
|
NOTE: | The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change. | ||
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 |
|
|||
A-83
Date:
|
||
Social Security or other
identifying number
|
Signature of Assignee | |
Purchase Price including
commissions, if any
|
Name and Address of Assignee |
Type of Entity (check one): | |||||
o
Individual
|
o Partnership | o Corporation | |||
o
Trust
|
o Other (specify) | ||||
Nationality (check one): | |||||
o U.S. Citizen, Resident or Domestic Entity | |||||
o
Foreign
Corporation
|
o Non-resident Alien |
1. | I am not a non-resident alien for purposes of U.S. income taxation. | |
2. |
My U.S. taxpayer identification number (Social Security
Number)
is
|
|
3. |
My home address
is
|
1. | ___________________ is not a foreign corporation, foreign partnership, foreign trust (Name of Interestholder) or foreign estate (as those terms are defined in the Code and Treasury Regulations). | |
2. |
The interestholders U.S. employer identification
number
is
|
|
3. |
The interestholders office address and place of
incorporation (if applicable)
is
|
A-84
A-85
B-1
(a)
decrease operating surplus by:
(1)
any net increase in working capital borrowings with respect to
that period; and
(2)
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; and
(b)
increase operating surplus by:
(1)
any net decrease in working capital borrowings with respect to
that period; and
(2)
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.
(a)
the sum of:
(1)
all cash and cash equivalents of Calumet Specialty Products
Partners, L.P. and its subsidiaries on hand at the end of that
quarter; and
(2)
if our general partner so determines, all or a portion of any
additional cash or cash equivalents of Calumet Specialty
Products Partners, L.P. and its subsidiaries on hand on the date
of determination of available cash for that quarter;
(b)
less the amount of cash reserves established by our general
partner to:
(1)
provide for the proper conduct of the business of Calumet
Specialty Products Partners, L.P. and its subsidiaries
(including reserves for future capital expenditures and for
future credit needs of Calumet Specialty Products Partners, L.P.
and its subsidiaries) after that quarter;
(2)
comply with applicable law or any financial instrument or other
agreement or obligation to which Calumet Specialty Products
Partners, L.P. or any of its subsidiaries is a party or its
assets are subject; and
(3)
provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters;
B-2
B-3
(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 Calumet Specialty
Products Partners, L.P. or any of its subsidiaries;
(b)
sales of equity interests by Calumet Specialty Products
Partners, L.P. or any of its subsidiaries; and
(c)
sales or other voluntary or involuntary dispositions of any
assets of Calumet Specialty Products Partners, L.P. 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).
(a)
paraffinic, which includes all grades of bright stock and
neutrals with a Viscosity Index > 75; and
(b)
naphthenic, which Includes all lubricating oil base stocks with
a Viscosity Index < 75.
(a)
Payments (including prepayments) of principal of and premium on
indebtedness will not constitute operating expenditures.
(b)
Operating expenditures will not include:
(1) capital expenditures made for acquisitions or capital improvements;
(2)
payment of transaction expenses relating to interim capital
transactions; or
(3)
distributions to unitholders.
B-4
(a)
the sum of:
(1)
$10.0 million; and
(2)
all cash receipts of Calumet Specialty Products Partners, L.P.
and its subsidiaries on hand on the closing date of our initial
public offering; and
(3)
all cash receipts of Calumet Specialty Products Partners, L.P.
and its subsidiaries for the period beginning on the closing
date of the initial public offering and ending with the last day
of that period, other than cash receipts from interim capital
transactions; and
(4)
all cash receipts of Calumet Specialty Products Partners, L.P.
and its subsidiaries after the end of that period but on or
before the date of determination of operating surplus for the
period resulting from working capital borrowings; less
(b)
the sum of:
(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
(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 a partner of Calumet Specialty Products
Partners, L.P. and our subsidiaries or disbursements on behalf
of a partner of Calumet Specialty Products Partners, L.P. and
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.
(a) the first day of any quarter beginning after
December 31, 2010 for which:
(1)
distributions of available cash from operating surplus on each
of the outstanding common units and subordinated units and
general partner units equaled or exceeded the sum of the minimum
quarterly distribution on all of the outstanding common units
and subordinated units and general partner units for each of the
B-5
three consecutive, non-overlapping four-quarter periods
immediately preceding that date;
(2)
the adjusted operating surplus generated in the aggregate 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 the general partner units;
and
(3)
there are no outstanding cumulative common units arrearages.
(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.
(a)
microcrystalline,
which is extracted from certain
petroleum residues having a finer and less apparent crystalline
structure than paraffin wax; and
(b)
crystalline or paraffinic, which is a light-colored paraffin wax.
Page | ||||
SUMMARY
|
1 | |||
RISK FACTORS
|
14 | |||
USE OF PROCEEDS
|
35 | |||
CAPITALIZATION
|
36 | |||
DILUTION
|
37 | |||
OUR CASH DISTRIBUTION POLICY AND
RESTRICTIONS ON DISTRIBUTIONS
|
38 | |||
HOW WE MAKE CASH DISTRIBUTIONS
|
49 | |||
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL AND OPERATING DATA
|
57 | |||
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
60 | |||
INDUSTRY OVERVIEW
|
77 | |||
BUSINESS
|
80 | |||
MANAGEMENT
|
97 | |||
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
|
102 | |||
CERTAIN RELATIONSHIPS AND RELATED
PARTY TRANSACTIONS
|
103 | |||
CONFLICTS OF INTEREST AND FIDUCIARY
DUTIES
|
106 | |||
DESCRIPTION OF THE COMMON UNITS
|
112 | |||
THE PARTNERSHIP AGREEMENT
|
114 | |||
UNITS ELIGIBLE FOR FUTURE SALE
|
128 | |||
MATERIAL TAX CONSEQUENCES
|
129 | |||
INVESTMENT IN CALUMET SPECIALTY
PRODUCTS PARTNERS, L.P. BY EMPLOYEE BENEFIT PLANS
|
143 | |||
UNDERWRITING
|
144 | |||
VALIDITY OF THE COMMON UNITS
|
146 | |||
EXPERTS
|
146 | |||
WHERE YOU CAN FIND MORE INFORMATION
|
146 | |||
FORWARD-LOOKING STATEMENTS
|
147 | |||
INDEX TO FINANCIAL STATEMENTS
|
F-1 | |||
APPENDIX A FORM OF
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CALUMET SPECIALTY PRODUCTS PARTNERS, L.P.
|
A-1 | |||
APPENDIX B
GLOSSARY OF TERMS
|
B-1 |
II-1
Item 13.
Other Expenses of Issuance and Distribution.
$
19,925
17,428
*
*
*
*
100,000
*
*
*
To be provided by amendment.
Item 14.
Indemnification of Officers and Members of Our Board of
Directors.
Item 15.
Recent Sales of Unregistered Securities.
Item 16.
Exhibits and Schedules.
Exhibit
Number
Description
1
.1*
Form of Underwriting Agreement
3
.1
Certificate of Limited Partnership
of Calumet Specialty Products Partners, L.P.
3
.2
Form of Amended and Restated
Limited Partnership Agreement of Calumet Specialty Products
Partners, L.P. (included as Appendix A to the Prospectus
and including specimen unit certificate for the common units)
3
.3
Certificate of Formation of Calumet
GP, LLC
Exhibit | ||||||
Number | Description | |||||
3 | .4* | | Amended and Restated Limited Liability Company Agreement of Calumet 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 Facility | |||
10 | .2* | | Calumet Specialty Products Partners, L.P. Long-Term Incentive Plan | |||
10 | .3* | | Form of Contribution, Conveyance and Assumption Agreement | |||
10 | .4* | | Form of Unit Option Grant | |||
10 | .5* | | Form of Omnibus Agreement | |||
21 | .1* | | List of Subsidiaries of Calumet Specialty Products Partners, L.P. | |||
23 | .1 | | Consent of Ernst & Young LLP | |||
23 | .2* | | Consent of Vinson & Elkins L.L.P. | |||
23 | .3* | | Consent of Vinson & Elkins L.L.P. | |||
24 | .1 | | Powers of Attorney (contained on page II-9) |
* | To be filed by amendment. |
II-2
II-3
/s/ Ernst & Young LLP
December 31
2003
2004
$
68
$
64
37,201
38,810
2,326
19,632
39,527
58,442
62,686
29,978
8,800
13,457
9,389
26
3,150
120,496
105,091
89,938
52,343
79,901
2,610
121
3,897
$
216,941
$
237,456
$
32,263
$
38,187
655
1,554
1,852
736
488
329
1,376
100
1,784
1,833
5,373
2,011
3,918
43,791
48,668
146,853
154,274
753
191,397
202,942
25,544
34,514
$
216,941
$
237,456
II-4
Years Ended December 31
2002
2003
2004
$
316,350
$
430,381
$
508,955
268,911
385,890
463,589
47,439
44,491
45,366
9,066
9,432
12,717
25,449
28,139
31,311
2,404
2,419
2,162
851
905
795
37,770
40,895
46,985
541
6,694
317
9,128
(3,098
)
(1,936
)
(4,702
)
2,442
867
(427
)
(7,435
)
(9,493
)
(8,939
)
1,058
6,267
24,898
88
32
76
(3,847
)
(2,327
)
10,906
$
5,281
$
(5,425
)
$
8,970
$
528
$
(542
)
$
897
$
4,753
$
(4,883
)
$
8,073
$
4,753
$
(4,883
)
$
8,073
II-5
Years Ended December 31
2002
2003
2004
$
5,281
$
(5,425
)
$
8,970
5,324
6,181
5,820
552
588
395
16
12
139
943
37
(2,442
)
(867
)
427
4,702
874
(1,633
)
926
332
2,925
750
3,470
(1,025
)
(4,670
)
(35,234
)
(16,984
)
15,547
(10,758
)
(6,402
)
(834
)
(5,669
)
(2,417
)
(6,265
)
9,057
7,697
271
(3,124
)
(1,524
)
(550
)
544
9,587
(1,809
)
19,304
(1,115
)
(1,107
)
1,430
(965
)
375
70
38
191
(138
)
1,376
(1,276
)
(580
)
544
655
857
436
(3,362
)
(1,265
)
3,918
(251
)
(439
)
(753
)
(4,326
)
7,048
(1,044
)
(19
)
(10,164
)
(12,163
)
(15,144
)
240
223
103
(9,924
)
(11,940
)
(15,060
)
(1,321
)
291,439
260,159
586,410
(277,230
)
(255,275
)
(568,989
)
14,209
4,884
16,100
(41
)
(8
)
(4
)
117
76
68
$
76
$
68
$
64
$
7,500
$
9,189
$
8,861
II-6
II-7
II-8
Item 17.
Undertakings.
(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.
Calumet Specialty Products Partners, L.P.
By:
Calumet GP, LLC
its General Partner
By:
/s/
F. William Grube
Name: F. William Grube
Title:
President and Chief Executive Officer
Signature | Title | Date | ||||
/s/
F. William Grube
|
President and Chief Executive Officer (Principal Executive Officer) | October 7, 2005 | ||||
/s/
R. Patrick
Murray, II
|
Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | October 7, 2005 | ||||
/s/
Fred M.
Fehsenfeld, Jr.
|
Director | October 7, 2005 |
II-9
Exhibit
Number
Description
1
.1*
Form of Underwriting Agreement
3
.1
Certificate of Limited Partnership
of Calumet Specialty Products Partners, L.P.
3
.2*
Form of Amended and Restated
Limited Partnership Agreement of Calumet Specialty Products
Partners, L.P. (included as Appendix A to the Prospectus
and including specimen unit certificate for the common units)
3
.3
Certificate of Formation of Calumet
GP, LLC
3
.4*
Amended and Restated Limited
Liability Company Agreement of Calumet 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 Facility
10
.2*
Calumet Specialty Products
Partners, L.P. Long-Term Incentive Plan
10
.3*
Form of Contribution, Conveyance
and Assumption Agreement
10
.4*
Form of Unit Option Grant
10
.5*
Form of Omnibus Agreement
21
.1*
List of Subsidiaries of Calumet
Specialty Products Partners, L.P.
23
.1
Consent of Ernst & Young
LLP
23
.2*
Consent of Vinson & Elkins
L.L.P.
23
.3*
Consent of Vinson & Elkins
L.L.P.
24
.1
Powers of Attorney (contained on
page II-9)
* | To be filed by amendment. |
CALUMET LUBRICANTS PARTNERS, L.P. | ||||
|
||||
By: Calumet GP, LLC, its general partner | ||||
|
||||
|
By: | /s/ Robert Kimmel | ||
|
||||
|
Robert Kimmel | |||
|
Authorized Person |
CALUMET LUBRICANTS PARTNERS, L.P. | ||||||
|
||||||
By: Calumet GP, LLC, | ||||||
its General Partner | ||||||
|
||||||
|
By: | /s/ Robert Kimmel | ||||
|
||||||
|
Name: | Robert Kimmel | ||||
|
Title: | Authorized Person |
By: | /s/ Robert Kimmel | |||
Robert Kimmel | ||||
Authorized Person | ||||
/s/ Ernst & Young LLP | ||||