As filed with the Securities and Exchange Commission on
October 4, 2006
Registration
No.
333-135351
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
Form
S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNIVERSAL COMPRESSION PARTNERS, L.P.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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4922
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22-3935108
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(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer Identification Number)
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4444 Brittmoore Road, Houston, Texas
77041-8004
(713)
335-7000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants Principal Executive Offices)
Ernie L. Danner
4444 Brittmoore Road, Houston, Texas
77041-8004
(713)
335-7000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
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David P. Oelman
Douglas E. McWilliams
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2300
Houston, Texas 77002
(713) 758-2222
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Joshua Davidson
Felix P. Phillips
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
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If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this prospectus is not
complete and may be changed. We may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
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Subject to Completion
Preliminary Prospectus dated
October 4, 2006
PROSPECTUS
5,500,000 Common Units
Representing Limited Partner Interests
Universal Compression Partners, L.P. is a limited partnership
recently formed by Universal Compression Holdings, Inc. This is
the initial public offering of our common units. We expect the
initial public offering price to be between $19.00 and
$21.00 per unit. We have applied to have our common units
listed on the NASDAQ Global Market under the symbol
UCLP. We anticipate using the net proceeds of this
offering to repay a portion of the indebtedness we will assume
from Universal Compression Holdings, Inc. in connection with
this offering.
Investing in our common units involves risks that are
described in the Risk Factors section beginning on
page 18 of this prospectus.
These risks include the following:
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We may not have sufficient cash
from operations following the establishment of cash reserves and
payment of fees and expenses, including cost reimbursements to
our general partner, to enable us to make cash distributions to
holders of our common units and subordinated units at the
initial distribution rate under our cash distribution policy.
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We depend on domestic demand for
and production of natural gas, and a reduction in this demand or
production could adversely affect the demand or the prices we
charge for our services, which could cause our revenue and cash
available for distribution to decrease.
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We have nine customers. The loss
of any of these customers would result in a decline in our
revenue and cash available to pay distributions to our
unitholders.
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Our agreement not to compete with
Universal Compression Holdings will limit our ability to grow.
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Universal Compression Holdings
will continue to own and operate most of its domestic contract
compression business at the closing of this offering,
competition from which could adversely impact our results of
operations and cash available for distribution.
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If we are unable to purchase
compression equipment from Universal Compression Holdings or
others, we may not be able to retain existing customers or
compete for new customers.
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Universal Compression Holdings
controls our general partner, which has sole responsibility for
conducting our business and managing our operations. Universal
Compression Holdings has conflicts of interest, which may permit
it to favor its own interests to your detriment.
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Holders of our common units have
limited voting rights and are not entitled to elect our general
partner or its general partners directors which could
reduce the price at which our common units will trade.
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You will experience immediate and
substantial dilution of $17.61 in tangible net book value per
common unit.
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You may be required to pay taxes
on income from us even if you do not receive any cash
distributions from us.
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Per Common Unit
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Total
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Public offering price
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$
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$
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Underwriting discount(1)
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$
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$
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Proceeds, before expenses, to Universal Compression Partners,
L.P.
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$
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$
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(1)
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Excludes structuring fee of
$ payable to
Merrill Lynch & Co.
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The underwriters also may purchase up to an additional 825,000
common units from us at the public offering price, less the
underwriting discount, within 30 days from the date of the
prospectus to cover overallotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The common units will be ready for delivery on or
about ,
2006.
Joint Book-Running Managers
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Merrill Lynch & Co.
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Lehman Brothers
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Wachovia Securities
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A.G. Edwards
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Deutsche Bank Securities
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The date of this prospectus
is ,
2006.
TABLE OF CONTENTS
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i
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74
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75
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ii
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F-1
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iii
You should rely only on the information contained in this
prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted. You should
assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus.
Our business, financial condition, results of operations and
prospects may have changed since that date.
Until (25 days
after the date of this prospectus), all dealers that buy, sell
or trade our common units, whether or not participating in this
offering, may be required to deliver a prospectus. This is in
addition to the dealers obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
iv
SUMMARY
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary does not contain all of the
information that you should consider before investing in the
common units. You should read the entire prospectus carefully,
including the historical and pro forma financial statements and
the notes to those financial statements. The information
presented in this prospectus assumes (i) an initial public
offering price of $20.00 per common unit and (ii) the
underwriters overallotment option is not exercised. You
should read Risk Factors for more information about
important risks that you should consider carefully before buying
our common units. We include a glossary of some of the terms
used in this prospectus as Appendix B.
References in this prospectus to Universal Compression
Partners, we, our, us
or like terms, when used in a historical context, refer to the
portion of the Domestic Contract Compression Segment of
Universal Compression Holdings, Inc. and its subsidiaries that
is being contributed to Universal Compression Partners, L.P. and
its subsidiaries in connection with this offering. When used in
the present tense or prospectively, those terms refer to
Universal Compression Partners, L.P. and its subsidiaries.
Universal Compression Partners, L.P.
Overview
We are a Delaware limited partnership formed by Universal
Compression Holdings, Inc., NYSE: UCO, to provide
natural gas contract compression services to customers
throughout the United States. Natural gas compression, a
mechanical process whereby a volume of natural gas at an
existing pressure is increased to a desired higher pressure for
transportation from one point to another, is essential to the
transportation and production of natural gas. Our contract
compression services include designing, sourcing, owning,
installing, operating, servicing, repairing and maintaining
equipment to provide compression to our customers. We also
modify the level of services and related equipment we employ to
address changing operating conditions. Following this offering,
we will serve our customers compression needs with a fleet
of approximately 830 compressor units, comprising
approximately 336,000 horsepower, or approximately 17% (by
available horsepower) of Universal Compression Holdings
domestic contract compression business. Upon completion of this
offering, we believe we will be one of the ten largest
compression services companies in the United States by revenue.
We believe that our customers, by outsourcing their compression
requirements, can increase their revenue by transporting or
producing a higher volume of natural gas through decreased
compression downtime and reduce their operating, maintenance and
equipment costs by allowing us to efficiently manage their
changing compression needs. We and our customers typically
contract for our services on an application specific, or
site-by-site, basis. While our contracts typically have minimum
terms of six months, they have generally run for an average term
of three years. We charge a fixed monthly fee for our
compression services. Our customers generally are required to
pay our monthly fee even during periods of limited or disrupted
natural gas flows, which enhances the stability and
predictability of our cash flows. Additionally, because we do
not take title to the natural gas we compress, and because the
natural gas we use as fuel for our compressors is supplied by
our customers, we have limited exposure to commodity prices.
Universal Compression Holdings is the second largest compression
services company in the United States by horsepower, with
approximately 6,300 compressor units (including those to be
contributed to us) comprising approximately 2.0 million
horsepower in the United States as of June 30, 2006.
Universal Compression Holdings, which has been in the natural
gas compression business for over 50 years, provides a full
range of contract compression, sales, operations, maintenance
and fabrication services to the domestic and international
natural gas industry. Universal Compression Holdings will
support our operations by providing us with all operational and
administrative support necessary to conduct our business.
1
The following table sets forth certain information regarding our
compressor fleet and the domestic compressor fleet of Universal
Compression Holdings as of June 30, 2006 (giving effect to
the completion of this offering):
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Remaining
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Domestic Fleet of
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Our Fleet
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Universal Compression Holdings
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Number of units
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826
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5,502
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Total horsepower
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336,360
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1,652,438
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Universal Compression Holdings recently began providing its
domestic contract compression services to certain customers
under a new form of agreement, which was adopted in an effort to
ensure that Universal Compression Holdings provides contract
compression services to customers rather than leases them
equipment. The economics of the new form of agreement are
substantially the same as the prior form of agreement.
Initially, we will only provide compression services to
customers under the new form of agreement. As of
September 30, 2006, Universal Compression Holdings had
entered into agreements under the new form with
106 additional domestic customers that are not being
contributed to us at the closing of this offering, comprising an
additional 34% (by available horsepower) of its domestic
contract compression services business prior to this offering.
Universal Compression Holdings intends for us to be the primary
vehicle for the growth of its domestic contract compression
business. As we have a lower cost of capital due to our
partnership structure, Universal Compression Holdings intends to
offer us the opportunity to purchase the remainder of its
domestic contract compression business over time, but is not
obligated to do so. Likewise, we are not required to purchase
any additional portions of such business. The consummation of
any future purchases of additional portions of that business and
the timing of such purchases will depend upon, among other
things, Universal Compression Holdings ability to continue
to convert its existing compression agreements to the new form
of agreement, compliance with debt agreements, our reaching an
agreement with Universal Compression Holdings regarding the
terms of such purchase, which will require the approval of the
conflicts committee of our board of directors, and our ability
to finance such a purchase on acceptable terms. Universal
Compression Holdings does not currently intend to offer us the
opportunity to purchase its international contract compression
business, its aftermarket services business or its fabrication
business.
For the nine months ended December 31, 2005 and the six
months ended June 30, 2006, the business to be contributed
to us in connection with this offering generated pro forma net
income of approximately $8.3 million and $8.8 million,
respectively, and pro forma earnings before interest, taxes and
depreciation, or EBITDA, of $21.5 million and
$18.1 million, respectively. Please read
Non-GAAP Financial Measures for an
explanation of EBITDA, which is a non-GAAP financial measure we
use to evaluate our performance, and a reconciliation of EBITDA
to its most directly comparable financial measure calculated and
presented in accordance with generally accepted accounting
principles, or GAAP.
Natural Gas Compression Fundamentals
Demand for compression services is linked more directly to
natural gas consumption and production than to exploration
activities, which limits overall exposure to commodity price
risk.
We believe we will be able to build our business organically by
capitalizing on the following positive long-term fundamentals
for the domestic natural gas compression services industry:
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natural gas consumption in the United States is expected to
increase by 0.7% per annum until 2030 according to the
Energy Information Administration;
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the aging of producing natural gas fields in the United States
will require more compression to continue producing the same
volume of natural gas;
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natural gas production from unconventional sources, including
tight sands, shales and coalbeds, is expected to continue to
increase, according to the Energy Information
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Administration, and production from these unconventional sources
requires significantly more compression than generally has been
required for conventional sources; and
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natural gas producers, transporters and processors have
continued to outsource their natural gas compression
requirements.
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Our Relationship with Universal Compression Holdings
One of our principal attributes is our relationship with
Universal Compression Holdings, which has a long history of
successfully achieving organic growth and consummating and
integrating acquisitions. We believe our relationship with
Universal Compression Holdings will provide us access to
management talent and long-standing commercial relationships
throughout the energy industry. In addition, we anticipate that
our relationship with Universal Compression Holdings will also
provide us with growth opportunities, economies of scale and
operational efficiencies. For example:
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Universal Compression Holdings intends, but is not obligated, to
offer us over time the opportunity to purchase the remainder of
its domestic contract compression business;
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Universal Compression Holdings intends, but is not obligated, to
offer us the opportunity to purchase newly fabricated
compression equipment; and
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We and Universal Compression Holdings intend to manage our
respective domestic compression fleets as one pool of
compression equipment from which we can more easily fulfill our
respective customers needs.
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Please read Certain Relationships and Related Party
Transactions Omnibus Agreement.
Following this offering, Universal Compression Holdings will
have a significant economic interest in our partnership through
its ownership of a 55.4% limited partner interest, all of our 2%
general partner interest and our incentive distribution rights.
Summary of Risk Factors
An investment in our common units involves risks associated with
our business, regulatory and legal matters, our limited
partnership structure and the tax characteristics of our common
units. The following list of risk factors is not exhaustive.
Please read carefully these and other risks described under
Risk Factors.
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Risks Related to Our Business
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We may not have sufficient cash from operations following the
establishment of cash reserves and payment of fees and expenses,
including cost reimbursements to our general partner, to enable
us to make cash distributions to holders of our common units and
subordinated units at the initial distribution rate under our
cash distribution policy.
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On a pro forma basis we would not have had sufficient cash
available for distribution to pay the full minimum quarterly
distribution on all units for the twelve months ended
March 31, 2006 and June 30, 2006.
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We depend on domestic demand for and production of natural gas,
and a reduction in this demand or production could adversely
affect the demand or the prices we charge for our services,
which could cause our revenue and cash available for
distribution to decrease.
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The assumptions underlying our estimate of cash available for
distribution we include in Our Cash Distribution Policy
and Restrictions on Distributions are inherently uncertain
and are subject to significant business, economic, financial,
regulatory and competitive risks and uncertainties that could
cause our actual results to differ materially from those
estimated.
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We have nine customers. The loss of any of these customers would
result in a decline in our revenue and cash available to pay
distributions to our unitholders.
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Our agreement not to compete with Universal Compression Holdings
will limit our ability to grow.
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We face significant competition that may cause us to lose market
share and harm our financial performance.
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We may not be able to grow our cash flows if we do not expand
our business.
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If we do not make acquisitions on economically acceptable terms,
our future growth and our ability to increase distributions to
our unitholders will be limited.
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Universal Compression Holdings implementation of its new
enterprise resource planning system may result in problems that
would negatively impact our business.
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Universal Compression Holdings will continue to own and operate
most of its domestic contract compression business at the
closing of this offering, competition from which could adversely
impact our results of operations and cash available for
distribution.
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We may be unable to grow through additional acquisition of the
remainder of Universal Compression Holdings domestic
contract compression business, which could limit our ability to
increase our cash available for distribution.
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Risks Inherent in an Investment in Us
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Universal Compression Holdings controls our general partner,
which has sole responsibility for conducting our business and
managing our operations. Universal Compression Holdings has
conflicts of interest, which may permit it to favor its own
interests to your detriment.
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Cost reimbursements due to our general partner and its
affiliates for services provided, which will be determined by
our general partner, will be substantial and will reduce our
cash available for distribution to our unitholders.
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Our partnership agreement limits our general partners
fiduciary duties to holders of our common units and subordinated
units and restricts the remedies available to holders of our
common units and subordinated units for actions taken by our
general partner that might otherwise constitute breaches of
fiduciary duty.
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Holders of our common units have limited voting rights and are
not entitled to elect our general partner or its general
partners directors, which could reduce the price at which
the common units will trade.
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Even if holders of our common units are dissatisfied, they
cannot initially remove our general partner without its consent.
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Control of our general partner may be transferred to a third
party without unitholder consent.
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You will experience immediate and substantial dilution of $17.61
in tangible net book value per common unit.
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We may issue additional units without your approval, which would
dilute your existing ownership interests.
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4
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Tax Risks to Common Unitholders
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Our tax treatment depends on our status as a partnership for
federal income tax purposes, as well as our not being subject to
a material amount of entity-level taxation by individual states.
If the Internal Revenue Service (IRS) treats us as a
corporation or we become subject to a material amount of
entity-level taxation for state tax purposes, it would
substantially reduce the amount of cash available for
distribution to our unitholders.
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An 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.
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You may be required to pay taxes on income from us even if you
do not receive any cash distributions from us.
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Tax gain or loss on disposition of common units could be more or
less than expected.
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5
Formation Transactions and Partnership Structure
General
At the closing of this offering the following transactions will
occur:
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Universal Compression Holdings or its subsidiaries will
contribute a portion of its domestic contract compression
business to us or our subsidiaries;
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we will issue to Universal Compression Holdings or its
subsidiaries 825,000 common units and
6,325,000 subordinated units, representing a 55.4% limited
partner interest in us;
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we will issue to UCO General Partner, LP, an indirect
wholly-owned subsidiary of Universal Compression Holdings, a 2%
general partner interest in us and all of our incentive
distribution rights, which will entitle our general partner to
increasing percentages of the cash we distribute in excess of
$0.4025 per unit per quarter;
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we will assume $223.2 million of debt from Universal
Compression Holdings;
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we expect to enter into a $225 million revolving credit
facility and to borrow $125 million under that facility;
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we will enter into an omnibus agreement with Universal
Compression Holdings and our general partner which will address,
among other things:
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when we and Universal Compression Holdings may compete with each
other;
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Universal Compression Holdings agreement to provide us all
operational staff, corporate staff and support services
necessary to run our business;
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the terms on which Universal Compression Holdings may sell to us
newly fabricated compression equipment;
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the terms on which Universal Compression Holdings may transfer
to and receive from us idle compression equipment;
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we will issue 5,500,000 common units to the public in this
offering, representing a 42.6% limited partner interest in us,
and will use the proceeds as described in Use of
Proceeds; and
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we will issue 261,429 options to purchase common units
exercisable at the initial public offering price to certain
officers of our general partner and other employees of Universal
Compression Holdings and 4,000 phantom units to certain
directors of our general partner.
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As is common with publicly traded limited partnerships and in
order to maximize operational flexibility, we will conduct our
operations through subsidiaries. We will have one direct
operating subsidiary initially, UC Operating Partnership, L.P.,
a limited partnership that will conduct business through itself
and its subsidiaries.
The diagram on the following page depicts our organization and
ownership after giving effect to the offering and the related
formation transactions.
6
Organizational Structure After the Transactions
Ownership of Universal Compression Partners, L.P.(1)
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Public Common Units
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42.6%
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Universal Compression Holdings and Subsidiaries Common and
Subordinated Units
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55.4%
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General Partner Units
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2.0%
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Total
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100.0%
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(1)
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Assuming no exercise of the underwriters overallotment
option.
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7
Management of Universal Compression Partners, L.P.
UCO General Partner, LP, our general partner, is an indirect,
wholly-owned subsidiary of Universal Compression Holdings and
has sole responsibility for conducting our business and for
managing our operations. Because our general partner is a
limited partnership, its general partner, UCO GP, LLC, will
conduct our business and operations, and the board of directors
and officers of UCO GP, LLC will make decisions on our behalf.
All of those directors will be elected by Universal Compression
Holdings. For more information about these individuals, please
read Management of Universal Compression Partners,
L.P. Directors and Executive Officers. Our
general partner will not receive any management fee or other
compensation in connection with the management of our business
or this offering, but it will be entitled to reimbursement of
all direct and indirect expenses incurred on our behalf. Our
general partner will also be entitled to distributions on its
general partner interest and, if specified requirements are met,
on its incentive distribution rights. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions and Certain Relationships and Related
Party Transactions. Unlike shareholders in a publicly
traded corporation, our unitholders will not be entitled to
elect our general partner, our general partners general
partner or its directors.
Principal Executive Offices and Internet Address
Our principal executive offices are located at
4444 Brittmoore Road, Houston, Texas 77041 and our
telephone number is
713-335-7000.
Following
this offering, we intend to maintain a website at
www.universalcompression.com
. We expect to make our
periodic reports and other information filed with or furnished
to the Securities and Exchange Commission, which we refer to as
the SEC, available, free of charge, through our website, as soon
as reasonably practicable after those reports and other
information are electronically filed with or furnished to the
SEC. Information on our website or any other website is not
incorporated by reference into this prospectus and does not
constitute a part of this prospectus.
Summary of Conflicts of Interest and Fiduciary Duties
General.
UCO General Partner, LP, our general partner,
has a legal duty to manage us in a manner beneficial to holders
of our common units and subordinated units. This legal duty
originates in statutes and judicial decisions and is commonly
referred to as a fiduciary duty. However, because
our general partner and its general partner, UCO GP, LLC, are
indirectly wholly owned by Universal Compression Holdings, the
officers and directors of our general partners general
partner also have fiduciary duties to manage our general partner
in a manner beneficial to Universal Compression Holdings. As a
result of this relationship, conflicts of interest may arise in
the future between us and holders of our common units and
subordinated units, on the one hand, and our general partner and
its affiliates, including Universal Compression Holdings, on the
other hand. For example, our general partner will be entitled to
make determinations that affect our ability to make cash
distributions, including determinations related to:
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the manner in which our business is operated, including our
access to compression equipment;
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the amount of our borrowings;
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the amount, nature and timing of our capital expenditures;
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our issuance of additional units;
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asset purchases, transfers and sales and other acquisitions and
dispositions; and
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the amount of cash reserves necessary or appropriate to satisfy
general, administrative and other expenses and debt service
requirements, and otherwise provide for the proper conduct of
our business.
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8
These determinations will have an effect on the amount of cash
distributions we make to the holders of common units which in
turn has an effect on whether our general partner receives
incentive cash distributions.
Conflicts of Interest.
Our relationship with Universal
Compression Holdings will create several potential conflicts of
interest. In connection with the completion of this offering,
Universal Compression Holdings will agree in the omnibus
agreement not to provide contract compression services to our
customers generally for a period of three years. However, this
agreement will not restrict Universal Compression Holdings from
fabricating compression equipment, selling compression
equipment, leasing compression equipment or operating,
maintaining, repairing or overhauling compression equipment
owned by our customers. In addition, the non-competition
provisions of the omnibus agreement have a number of additional
exceptions described in Certain Relationships and Related
Party Transactions Omnibus Agreement.
Additionally, following the completion of this offering,
Universal Compression Holdings will continue to provide contract
compression services to its approximately 800 customers not
comprising a part of the business to be contributed to us. We
have also agreed in the omnibus agreement not to provide
contract compression services to any of the domestic compression
services customers that Universal Compression Holdings will
retain following this offering. In the omnibus agreement, we
will enter into arrangements with Universal Compression Holdings
relating to the terms on which Universal Compression Holdings
may sell to us newly fabricated compression equipment, the terms
on which Universal Compression Holdings may transfer to and
receive from us idle compression equipment, Universal
Compression Holdings provision of all services required to
operate our business and other matters. Universal Compression
Holdings is under no obligation to sell to us newly fabricated
compression equipment, transfer idle equipment to us or accept
transfers of idle equipment from us. We are under no obligation
to purchase newly fabricated compression equipment from
Universal Compression Holdings. The omnibus agreement generally
terminates upon a change of control of our general partner or
the removal or withdrawal of our general partner.
Partnership Agreement Modifications to Fiduciary Duties.
Our partnership agreement limits the liability and reduces the
fiduciary duties of our general partner to holders of our common
units and subordinated units. Our partnership agreement also
restricts the remedies available to holders of our common units
and subordinated units for actions that might otherwise
constitute a breach of our general partners fiduciary
duties owed to holders of our common units and subordinated
units. By purchasing a common unit, the purchaser agrees to be
bound by the terms of our partnership agreement and, pursuant to
the terms of our partnership agreement, each holder of common
units consents to various actions contemplated in the
partnership agreement and conflicts of interest that might
otherwise be considered a breach of fiduciary or other duties
under applicable state law.
For a more detailed description of the conflicts of interest
that may affect us and the fiduciary duties of our general
partner, please read Management of Universal Compression
Partners, L.P. Directors and Executive
Officers, Certain Relationships and Related Party
Transactions and Conflicts of Interest and Fiduciary
Duties.
9
The Offering
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Common units offered to the public
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5,500,000 common units.
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Common units subject to the
underwriters overallotment
option
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If the underwriters exercise their overallotment option in full,
we will issue 825,000 additional common units to the public
and use the net proceeds to redeem 825,000 common units
from a subsidiary of Universal Compression Holdings which may be
deemed to be a selling unitholder in this offering. Please read
Selling Unitholder.
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Units outstanding after this offering
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6,325,000 common units and 6,325,000 subordinated units,
representing 49% and 49%, respectively, limited partner
interests in us.
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Use of proceeds
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We expect to receive net proceeds of approximately
$99.4 million, after deducting underwriting discounts, fees
and offering expenses. We anticipate using the aggregate net
proceeds of this offering to repay approximately
$99.4 million of indebtedness we will assume from Universal
Compression Holdings.
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In addition, we will use net proceeds of approximately
$123.8 million (net of debt financing fees) from our new
revolving credit facility to repay the balance of the
indebtedness assumed by us from Universal Compression Holdings.
Please see Certain Relationships and Related Party
Transactions Distributions and Payments to Our
General Partner and its Affiliates.
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We will use the net proceeds from any exercise of the
underwriters overallotment option to redeem from a
subsidiary of Universal Compression Holdings a number of common
units equal to the number of common units issued upon the
exercise of the underwriters overallotment option.
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Cash distributions
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Our general partner will adopt a cash distribution policy that
will require us to pay cash distributions at an initial
distribution rate of $0.35 per unit per complete quarter ($1.40
per unit on an annualized basis) through September 30, 2007
to the extent we have sufficient cash from operations after
establishment of cash reserves and payment of fees and expenses,
including payments to our general partner and its affiliates.
Our ability to pay cash distributions at this initial
distribution rate is subject to various restrictions and other
factors described in more detail under the caption Our
Cash Distribution Policy and Restrictions on Distributions.
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Our partnership agreement requires us to distribute all of our
cash on hand at the end of each quarter, less reserves
established by our general partner. We refer to this cash as
available cash, and we define its meaning in our
partnership agreement and in the glossary of terms attached as
Appendix B. Our partnership agreement also requires that we
distribute all of our available
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10
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cash from operating surplus each quarter in the following manner:
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first, 98% to the holders of common units and 2% to our general
partner, until each common unit has received a minimum quarterly
distribution of $0.35 plus any arrearages from prior quarters;
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second, 98% to the holders of subordinated units and 2% to our
general partner, until each subordinated unit has received a
minimum quarterly distribution of $0.35;
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third, 98% to all unitholders, pro rata, and 2% to our general
partner, until each unit has received a distribution of $0.4025;
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fourth, 85% to all unitholders, pro rata, and 15% to the general
partner, until each unit has received a distribution of $0.4375;
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fifth, 75% to all unitholders, pro rata, and 25% to the general
partner, until each unit has received a total of $0.525; and
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thereafter, 50% to all unitholders, pro rata, and 50% to the
general partner.
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We refer to the distributions to our general partner in excess
of 2% as incentive distributions. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions.
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Our pro forma cash available for distribution for the twelve
months ended March 31, 2006 and June 30, 2006 would
have been sufficient to pay the full minimum quarterly
distribution on the common units and 60% and 85%, respectively,
of the minimum quarterly distribution on the subordinated units
during these periods.
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We believe that, based on the estimates contained and the
assumptions listed under the caption Our Cash Distribution
Policy and Restrictions on Distributions, we will have
sufficient cash available for distribution to make cash
distributions for the four quarters ending September 30,
2007 at the initial distribution rate of $0.35 per common
unit per quarter ($1.40 per common unit on an annualized
basis) on all common units and subordinated units.
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Subordinated units
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A subsidiary of Universal Compression Holdings or its affiliates
will initially own all of our subordinated units. The principal
difference between our common units and subordinated units is
that in any quarter during the subordination period, holders of
the subordinated units are entitled to receive the minimum
quarterly distribution of $0.35 per unit only after the
common units have received the minimum quarterly distribution
plus any arrearages in the payment of the minimum quarterly
distribution from prior quarters. Subordinated units will not
accrue arrearages.
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11
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End of subordination period and early
conversion of subordinated units
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The subordination period generally will end if we have earned
and paid at least $1.40 on each outstanding unit for any three
consecutive, non- overlapping four-quarter periods ending on or
after September 30, 2011, but may end as soon as
September 30, 2008, if we meet additional financial tests
as described below.
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When the subordination period ends, all remaining subordinated
units will convert into common units on a one-for-one basis, and
the common units will no longer be entitled to arrearages.
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The subordinated units may convert into common units prior to
September 30, 2011 under either of two different tests.
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If we meet the tests for ending the subordination period as set
forth above for any quarter ending on or after
September 30, 2009, 25% of the subordinated units will
convert into common units on a one-for-one basis. If we meet
those tests for any quarter ending on or after
September 30, 2010, an additional 25% of the subordinated
units will convert into common units on a one-for-one basis. The
second early conversion of the subordinated units may not occur
until at least one year after the first early conversion of
subordinated units.
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In addition, if we have earned and paid at least $2.10 (150% of
the annualized minimum quarterly distribution) on each
outstanding unit for any four-quarter period ending on or after
September 30, 2008, all of the subordinated units will
convert into common units on a one-for-one basis.
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The subordination period will also end upon the removal of our
general partner other than for cause if the units held by our
general partner and its affiliates are not voted in favor of
such removal.
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Please read Provisions of Our Partnership Agreement
Relating to Cash Distributions Subordination
Period.
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Issuance of additional units
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We can issue an unlimited number of units without the consent of
our unitholders. Please read Units Eligible for Future
Sale and The Partnership Agreement
Issuance of Additional Securities.
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Limited voting rights
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Our general partner will manage and operate us. Unlike the
holders of common stock in a corporation, you will have only
limited voting rights on matters affecting our business. You
will have no right to elect our general partner or its general
partners 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, our general partner
and its affiliates will own an aggregate of 56.5% of our common
and subordinated units. This will give our general partner the
ability to prevent its involuntary removal. Please read
The Partnership Agreement Voting Rights.
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12
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Limited call right
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If at any time our general partner and its affiliates own more
than 80% of the outstanding common units, our general partner
has the right, but not the obligation, to purchase all of the
remaining common units at a price not less than the then-current
market price of the common units.
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Estimated ratio of taxable income to
distributions
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We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ending December 31, 2009, you will be allocated, on
a cumulative basis, an amount of federal taxable income for that
period that will be 20% or less of the cash distributed to you
with respect to that period. For example, if you receive an
annual distribution of $1.40 per unit, we estimate that
your average allocable federal taxable income per year will be
no more than $0.28 per unit. Please read Material Tax
Consequences Tax Consequences of Unit
Ownership Ratio of Taxable Income to
Distributions.
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Material tax consequences
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For a discussion of other material federal income tax
consequences that may be relevant to prospective unitholders who
are individual citizens or residents of the United States,
please read Material Tax Consequences.
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NASDAQ listing
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We have applied to have our common units listed on the NASDAQ
Global Market under the symbol UCLP.
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13
Summary Historical and Pro Forma Financial and Operating
Data
The following table shows summary historical financial and
operating data of Universal Compression Partners Predecessor,
our predecessor, and pro forma financial and operating data of
Universal Compression Partners, L.P. for the periods and as of
the dates presented. In connection with this offering, Universal
Compression Holdings and various wholly-owned subsidiaries will
contribute a portion of the business of our predecessor to us.
Since our operations will only represent a portion of the
operations of our predecessor and due to the other factors
described in Managements Discussion and Analysis of
Financial Condition and Results of Operations
Overview Items Impacting the Comparability
of Our Financial Results, our future results of operations
will not be comparable to our predecessors historical
results.
In December 2005, Universal Compression Holdings changed its
fiscal year end from March 31 to December 31,
effective in 2005. As a result, the summary historical financial
and operating data below for our predecessor includes the nine
month periods ended December 31, 2004 and 2005 and the pro
forma financial and operating data below for Universal
Compression Partners, L.P. includes the nine month period ended
December 31, 2005.
The summary historical financial data as of March 31, 2004,
March 31, 2005 and December 31, 2005, as well as the
summary historical financial data for the twelve months ended
March 31, 2004 and 2005 and the nine months ended
December 31, 2005 have been derived from the audited
combined financial statements of our predecessor. The summary
historical financial data as of December 31, 2004 and
June 30, 2006, as well as the summary historical financial
data for the nine months ended December 31, 2004 and the
six months ended June 30, 2005 and 2006 have been derived
from the unaudited combined financial statements of our
predecessor. The summary pro forma financial data for the nine
months ended December 31, 2005 and the six months ended
June 30, 2006 are derived from the unaudited pro forma
financial statements of Universal Compression Partners, L.P.
included elsewhere in this prospectus. The pro forma adjustments
have been prepared as if certain transactions to be effected at
the closing of this offering had taken place on June 30,
2006, in the case of the pro forma balance sheet, or as of
April 1, 2005, in the case of the pro forma statements
of operations for the nine months ended December 31, 2005
and the six months ended June 30, 2006. These transactions
include:
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the issuance by us of common units to the public and the use of
the net proceeds therefrom;
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the contribution by Universal Compression Holdings of a portion
of its domestic contract compression business to us;
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our assumption of $223.2 million of debt from Universal
Compression Holdings; and
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our use of net proceeds of approximately $123.8 million
(net of debt financing fees) under our new revolving credit
facility to repay the portion of the assumed debt not repaid
with the net proceeds from this offering.
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We derived the information in the following table from, and that
information should be read together with and is qualified in its
entirety by reference to, the historical combined and
pro forma financial statements and the accompanying notes
included elsewhere in this prospectus. The table should be read
together with Managements Discussion and Analysis of
Financial Condition and Results of Operations.
14
The following table includes the non-GAAP financial measures of
EBITDA and gross margin. We define EBITDA as net income plus
interest expense and depreciation expense. We define gross
margin as total revenue less cost of sales (excluding
depreciation expense). For a reconciliation of EBITDA and gross
margin to their most directly comparable financial measures
calculated and presented in accordance with GAAP (accounting
principles generally accepted in the United States), please read
Non-GAAP Financial Measures.
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Universal Compression
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Universal Compression Partners Predecessor
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Partners, L.P. Pro Forma
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Nine
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Six
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Twelve Months Ended
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Nine Months Ended
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Six Months Ended
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Months
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Months
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March 31,
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December 31,
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June 30,
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Ended
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Ended
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December 31,
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June 30,
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2004
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2005
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2004
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2005
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2005
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2006
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2005
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2006
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(dollars in thousands, except per unit and operating data)
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Statement of Operations Data:
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Revenue
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$
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280,951
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$
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296,239
|
|
|
$
|
219,321
|
|
|
$
|
248,414
|
|
|
$
|
156,590
|
|
|
$
|
195,505
|
|
|
$
|
36,816
|
|
|
$
|
31,757
|
|
|
Gross margin(1)
|
|
|
178,543
|
|
|
|
186,865
|
|
|
|
139,187
|
|
|
|
160,256
|
|
|
|
99,574
|
|
|
|
126,799
|
|
|
|
24,973
|
|
|
|
21,871
|
|
|
Selling, general and administrative expenses
|
|
|
26,076
|
|
|
|
26,319
|
|
|
|
19,158
|
|
|
|
22,437
|
|
|
|
14,128
|
|
|
|
22,479
|
|
|
|
3,437
|
|
|
|
3,730
|
|
|
Depreciation
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
33,488
|
|
|
|
38,001
|
|
|
|
6,787
|
|
|
|
5,068
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,473
|
|
|
|
4,316
|
|
|
Other (income) loss, net
|
|
|
600
|
|
|
|
(344
|
)
|
|
|
208
|
|
|
|
1,220
|
|
|
|
(166
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
$
|
8,276
|
|
|
$
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.64
|
|
|
$
|
0.68
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(2)
|
|
$
|
12,172
|
|
|
$
|
14,038
|
|
|
$
|
13,732
|
|
|
$
|
16,058
|
|
|
$
|
13,833
|
|
|
$
|
49,294
|
|
|
|
|
|
|
$
|
|
|
|
Total assets
|
|
|
1,290,011
|
|
|
|
1,296,318
|
|
|
|
1,303,950
|
|
|
|
1,275,922
|
|
|
|
1,284,691
|
|
|
|
1,320,986
|
|
|
|
|
|
|
|
196,653
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
Partners capital/net parent equity
|
|
|
1,286,174
|
|
|
|
1,290,289
|
|
|
|
1,299,063
|
|
|
|
1,268,938
|
|
|
|
1,282,049
|
|
|
|
1,313,259
|
|
|
|
|
|
|
|
71,653
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
$
|
151,867
|
|
|
$
|
160,890
|
|
|
$
|
119,821
|
|
|
$
|
136,599
|
|
|
$
|
85,612
|
|
|
$
|
104,897
|
|
|
$
|
21,536
|
|
|
$
|
18,141
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion(4)(5)
|
|
$
|
24,271
|
|
|
$
|
46,637
|
|
|
$
|
34,530
|
|
|
$
|
33,550
|
|
|
$
|
21,344
|
|
|
$
|
37,529
|
|
|
$
|
5,107
|
|
|
$
|
6,204
|
|
|
|
Maintenance(5)(6)
|
|
|
24,388
|
|
|
|
35,745
|
|
|
|
26,545
|
|
|
|
28,057
|
|
|
|
18,491
|
|
|
|
14,376
|
|
|
|
4,296
|
|
|
|
2,377
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
155,085
|
|
|
$
|
158,464
|
|
|
$
|
117,708
|
|
|
$
|
135,207
|
|
|
$
|
85,865
|
|
|
$
|
71,086
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(17,858
|
)
|
|
|
(68,582
|
)
|
|
|
(49,697
|
)
|
|
|
(53,829
|
)
|
|
|
(33,770
|
)
|
|
|
(47,184
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
(137,227
|
)
|
|
|
(89,882
|
)
|
|
|
(68,011
|
)
|
|
|
(81,378
|
)
|
|
|
(52,095
|
)
|
|
|
(23,902
|
)
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available horsepower (at period end)
|
|
|
1,903,614
|
|
|
|
1,925,189
|
|
|
|
1,908,439
|
|
|
|
1,965,337
|
|
|
|
1,920,859
|
|
|
|
1,988,798
|
|
|
|
319,828
|
|
|
|
336,360
|
|
Average operating horsepower
|
|
|
1,646,342
|
|
|
|
1,675,242
|
|
|
|
1,662,058
|
|
|
|
1,759,949
|
|
|
|
1,728,140
|
|
|
|
1,797,425
|
|
|
|
297,051
|
|
|
|
327,765
|
|
Horsepower utilization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot (at period end)
|
|
|
85.0
|
%
|
|
|
89.9
|
%
|
|
|
89.6
|
%
|
|
|
91.9
|
%
|
|
|
90.9
|
%
|
|
|
89.6
|
%
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
Average
|
|
|
85.0
|
%
|
|
|
88.0
|
%
|
|
|
87.5
|
%
|
|
|
90.7
|
%
|
|
|
90.0
|
%
|
|
|
91.1
|
%
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
(1)
|
Please read Non-GAAP Financial Measures
for more information regarding gross margin.
|
|
(2)
|
Working capital is defined as current assets minus current
liabilities.
|
|
(3)
|
Please read Non-GAAP Financial Measures
for more information regarding EBITDA.
|
|
(4)
|
Expansion capital expenditures are capital expenditures made to
expand or to replace partially or fully depreciated assets or to
expand the operating capacity or revenue of existing or new
assets, whether through construction, acquisition or
modification.
|
|
(5)
|
Pro forma capital expenditures were estimated by multiplying our
predecessors expansion and maintenance capital
expenditures per average available horsepower by the pro forma
average available horsepower of Universal Compression Partners,
L.P. for each period.
|
|
(6)
|
Maintenance capital expenditures are capital expenditures made
to maintain the existing operating capacity of our assets and
related cash flows further extending the useful lives of the
assets.
|
15
Non-GAAP Financial Measures
We include in this prospectus the non-GAAP financial measures of
EBITDA and gross margin. We provide reconciliations of these
non-GAAP financial measures to their most directly comparable
financial measures as calculated and presented in accordance
with GAAP.
We believe disclosure of these non-GAAP financial measures
provides useful information to investors because, when viewed
with our GAAP results and the accompanying reconciliations, they
provide a more complete understanding of our performance than
GAAP results alone. We also believe that investors benefit from
having access to the same financial measures that management
uses in evaluating the results of our business. When using these
measures to compare to other companies, which we believe can be
a useful tool to evaluate us, please note that these non-GAAP
financial measures may be calculated differently between
companies. We cannot ensure that these non-GAAP financial
measures are directly comparable to other companies
similarly titled measures.
EBITDA
We define EBITDA as net income plus interest expense and
depreciation expense. EBITDA is used as a supplemental
performance measure by our management.
Management uses EBITDA as a supplemental performance measure to
evaluate the current period operating performance and management
decisions made during the reporting period. EBITDA excludes
interest expense and depreciation expense, which are driven less
by current period operating performance and management decisions
than by our capital structure and asset base. The operational
factors highlighted in the evaluation using EBITDA include
pricing, marketing, utilization rates, maintenance and repair
costs and staffing. EBITDA presents an assessment of the
performance and changes in profitability driven by these
operational factors irrespective of changes in interest expense
or depreciation expense.
Although interest expense is a material expense for us and
reflects an important component of our overall performance, as
it reflects costs incurred to finance our operations, interest
expense also reflects the impact of our financial arrangements
in ways that are unrelated to the shorter-term performance of
our operations. EBITDA removes the effect of the performance of
these past historical financial transactions, whether beneficial
or detrimental to our GAAP results, both in the current period
and from
period-to
-period, so
that the performance of the core operations can be more
transparently evaluated.
Management also believes that EBITDA is a meaningful measure to
evaluate performance because, although we are a
capital-intensive business and depreciation expense is a
material expense for us, this expense may not accurately reflect
the costs required to maintain and replenish the operational
usage of our assets and therefore may not portray the costs from
current operational transaction activity. Rather, depreciation
expense reflects the systematic allocation of the historical
fixed asset values over the estimated useful lives of those
assets. By excluding depreciation expense, EBITDA provides a
measure with which to evaluate the performance independent of
whether depreciation expense accurately captures the costs to
maintain and replenish our operational usage of our assets.
EBITDA is also a financial measure that we expect to report to
our lenders and to use as a gauge for compliance with some of
our anticipated financial covenants under our credit facility.
Gross Margin
We define gross margin as total revenue less cost of sales
(excluding depreciation expense). Gross margin is used as a
supplemental performance measure by our management as it
represents the results of service fee revenue and cost of sales
(excluding depreciation expense), which are key components of
our operations. Gross margin differs from gross profit which
includes depreciation expense. We believe gross margin is
important because it focuses on the current operating
performance of our field operations and excludes the impact of
the prior historical cost of the assets acquired or constructed
that are utilized in those operations, the indirect cost
associated with our selling, general and administrative
activities and the
16
impact of our financing methods and capital structure. As
described in EBITDA, depreciation
expense may not accurately reflect the costs required to
maintain and replenish the operational usage of our assets and
therefore may not portray the costs from current operating
activity. Rather, depreciation expense reflects the systematic
allocation of the historical fixed asset values over the
estimated useful lives of those assets.
Material Limitations
Each of EBITDA and gross margin has certain material limitations
associated with its use as compared to net income. These
limitations are primarily due to the exclusion of interest
expense and depreciation expense in the case of EBITDA and the
additional exclusion of selling, general and administrative
expense, in the case of gross margin. Each of these excluded
expenses is material to our consolidated results of operations.
Because we intend to finance a portion of our operations through
borrowings, interest expense will be a necessary element of our
costs and our ability to generate revenue. Additionally, because
we use capital assets, depreciation expense is a necessary
element of our costs and our ability to generate revenue and
selling, general and administrative expense is a necessary cost
to support our operations and required corporate activities. In
order to compensate for these limitations, management uses these
non-GAAP measures as supplemental measures to other GAAP results
to provide a more complete understanding of our performance.
Neither EBITDA nor gross margin should be considered an
alternative to, or more meaningful than, net income, operating
income or any other measure of financial performance presented
in accordance with GAAP as measures of operating performance.
Reconciliation
The following table reconciles net income to EBITDA and gross
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal Compression
|
|
|
|
Universal Compression Partners Predecessor
|
|
|
Partners, L.P. Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Six
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
Months
|
|
|
Months
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
$
|
8,276
|
|
|
$
|
8,757
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,473
|
|
|
|
4,316
|
|
|
Depreciation
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
33,488
|
|
|
|
38,001
|
|
|
|
6,787
|
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
151,867
|
|
|
|
160,890
|
|
|
|
119,821
|
|
|
|
136,599
|
|
|
|
85,612
|
|
|
|
104,897
|
|
|
|
21,536
|
|
|
|
18,141
|
|
|
Other (income) loss, net
|
|
|
600
|
|
|
|
(344
|
)
|
|
|
208
|
|
|
|
1,220
|
|
|
|
(166
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
26,076
|
|
|
|
26,319
|
|
|
|
19,158
|
|
|
|
22,437
|
|
|
|
14,128
|
|
|
|
22,479
|
|
|
|
3,437
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
178,543
|
|
|
$
|
186,865
|
|
|
$
|
139,187
|
|
|
$
|
160,256
|
|
|
$
|
99,574
|
|
|
$
|
126,799
|
|
|
$
|
24,973
|
|
|
$
|
21,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
RISK FACTORS
Limited partner interests are inherently different from
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in similar businesses. You should
consider carefully the following risk factors together with all
of the other information included in this prospectus in
evaluating an investment in our common units.
If any of the following risks were to occur, our business,
financial condition or results of operations could be materially
adversely affected. In that case, we might not be able to pay
the minimum quarterly distribution on our common units, the
trading price of our common units could decline and you could
lose all or part of your investment.
Risks Related to Our Business
We may not have sufficient cash from operations following
the establishment of cash reserves and payment of fees and
expenses, including cost reimbursements to our general partner,
to enable us to make cash distributions to holders of our common
units and subordinated units at the initial distribution rate
under our cash distribution policy.
In order to make our cash distributions at our initial
distribution rate of $0.35 per common unit per complete
quarter, or $1.40 per unit per year, we will require
available cash of approximately $4.5 million per quarter,
or $18.1 million per year, based on the common units,
subordinated units and general partner units outstanding
immediately after completion of this offering, whether or not
the underwriters exercise their overallotment option. We may not
have sufficient available cash from operating surplus each
quarter to enable us to make cash distributions at the initial
distribution rate under our cash distribution policy. The amount
of cash we can distribute on our units principally depends upon
the amount of cash we generate from our operations, which will
fluctuate from quarter to quarter based on, among other things,
the risks described in this section.
In addition, the actual amount of cash we will have available
for distribution will depend on other factors, including:
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the level of capital expenditures we make;
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the cost of acquisitions;
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our debt service requirements and other liabilities;
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fluctuations in our working capital needs;
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our ability to borrow funds and access capital markets;
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restrictions contained in our debt agreements; and
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the amount of cash reserves established by our general partner.
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For a description of additional restrictions and factors that
may affect our ability to make cash distributions, please read
Our Cash Distribution Policy and Restrictions on
Distributions.
On a pro forma basis we would not have had sufficient cash
available for distribution to pay the full minimum quarterly
distribution on all units for the twelve months ended
March 31, 2006 and June 30, 2006.
The amount of cash available for distribution we need to pay the
minimum quarterly distribution for four quarters on the common
units, the subordinated units and the general partner units to
be outstanding immediately after this offering is approximately
$18.1 million. Our pro forma cash available for
distribution generated during the twelve months ended
March 31, 2006 and June 30, 2006 of $14.4 million
and $16.7 million, respectively, would have been sufficient
to allow us to pay the full minimum quarterly distribution on
the common units, but insufficient by $3.6 million and
$1.3 million,
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respectively, to pay the full minimum quarterly distribution on
the subordinated units during that period. For a calculation of
our ability to make distributions to unitholders based on our
pro forma results in the twelve months ended March 31, 2006
and June 30, 2006, please read Our Cash Distribution
Policy and Restrictions on Distributions Pro Forma
Cash Available for Distribution for the Twelve Months Ended
March 31, 2006 and June 30, 2006.
We depend on domestic demand for and production of natural
gas, and a reduction in this demand or production could
adversely affect the demand or the prices we charge for our
services which could cause our revenue and cash available for
distribution to decrease.
Our contract compression operations are significantly dependent
upon the domestic demand for and production of natural gas.
Demand may be affected by, among other factors, natural gas
prices, weather, demand for energy and availability of
alternative energy sources. Any prolonged, substantial reduction
in the domestic demand for natural gas would, in all likelihood,
depress the level of production activity and result in a decline
in the demand for our contract compression services and
products, which would reduce our cash available for
distribution. Recent increased demand for our services, which is
partially a result of increased demand for domestic natural gas,
has permitted us to increase the prices we charge for our
services. A reduction in domestic demand could force us to
reduce our pricing substantially. Additionally, production from
unconventional natural gas sources such as tight sands, shales
and coalbeds constitute an increasing percentage of our
compression services business. Such unconventional sources are
generally less economically feasible to produce in lower natural
gas price environments and a reduction in natural gas demand may
cause such unconventional sources of natural gas to be
uneconomic to drill and produce, which could in turn negatively
impact the demand for our services.
The assumptions underlying our estimate of cash available
for distribution we include in Our Cash Distribution
Policy and Restrictions on Distributions are inherently
uncertain and are subject to significant business, economic,
financial, regulatory and competitive risks and uncertainties
that could cause our actual results to differ materially from
those estimated.
Our estimate of cash available for distribution set forth in
Our Cash Distribution Policy and Restrictions on
Distributions is based on assumptions that are inherently
uncertain and are subject to significant business, economic,
financial, regulatory and competitive risks and uncertainties
that could cause actual results to differ materially from those
estimated. If we do not achieve the estimated results, we may
not be able to pay the full minimum quarterly distribution or
any amount on our common units or subordinated units, in which
event the market price of our common units will likely decline
materially.
We have nine customers. The loss of any of these customers
would result in a decline in our revenue and cash available to
pay distributions to our unitholders.
We have contracts to provide compression services with only nine
customers. Therefore, our loss of a single customer may have a
greater effect on our financial results than for a company with
a more diverse customer base. Our two largest customers for the
nine months ended December 31, 2005 and the six months
ended June 30, 2006, were Dominion Exploration and
Production, Inc., and Samson Investment Company. These two
customers accounted for approximately 34%, and 21% of our pro
forma revenue for the nine months ended December 31, 2005,
respectively, and 34% and 19% of our pro forma revenue for the
six months ended June 30, 2006, respectively. The loss of
all or even a portion of the contract compression services we
provide to these customers, as a result of competition or
otherwise, could have a material adverse effect on our business,
results of operations, financial condition and our ability to
make cash distributions to you.
Our agreement not to compete with Universal Compression
Holdings will limit our ability to grow.
Under the omnibus agreement we will enter into in connection
with closing of this offering, we will agree that until the
earliest to occur of the third anniversary of the closing of
this offering, a change of control of Universal Compression
Holdings or our general partner or the removal or withdrawal of
our
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general partner, we will not offer or provide compression
services in the United States to Universal Compression
Holdings contract compression services customers not part
of the business contributed to us in connection with the closing
of the offering. The domestic contract compression business that
Universal Compression Holdings will retain consisted of
approximately 800 customers and 1.7 million horsepower
of compression as of June 30, 2006. This agreement not to
compete with Universal Compression Holdings limits our ability
to grow.
We face significant competition that may cause us to lose
market share and harm our financial performance.
The domestic compression business is highly competitive and
there are low barriers to entry for individual projects. In
addition, some of our competitors are large national and
multinational companies that provide contract compression,
aftermarket services and support and fabrication services to
third parties, and some of these competitors have greater
financial and other resources than we do. Our ability to renew
or replace existing contracts with our customers at rates
sufficient to maintain current revenue and cash flows could be
adversely affected by the activities of our competitors and our
customers. If our competitors substantially increase the
resources they devote to the development and marketing of
competitive services or substantially decrease the price at
which they offer their services, we may not be able to compete
effectively. Some of these competitors may expand or construct
newer or more powerful compression systems that would create
additional competition for the services we provide to our
customers. In addition, our customers that are significant
producers of natural gas may purchase their own compression
systems in lieu of using our contract compression services. All
of these competitive pressures could have a material adverse
effect on our business, results of operations, financial
condition and ability to make cash distributions to you.
We may not be able to grow our cash flows if we do not
expand our business.
A principal focus of our strategy is to continue to grow the per
unit distribution on our units by expanding our business. Our
future growth will depend upon a number of factors, some of
which we cannot control. These factors include our ability to:
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acquire additional domestic contract compression services
business from Universal Compression Holdings;
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identify businesses engaged in managing, operating or owning
natural gas compression assets;
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consummate accretive acquisitions;
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enter into contracts for new service with our existing customers
or new customers; and
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obtain required financing for our existing and new operations.
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A deficiency in any of these factors could adversely affect our
ability to achieve growth in the level of our cash flows or
realize benefits from acquisitions.
If we do not make acquisitions on economically acceptable
terms, our future growth and our ability to increase
distributions to our unitholders will be limited.
Our ability to grow depends, in part, on our ability to make
accretive acquisitions. If we are unable to make these accretive
acquisitions either because we are: (1) unable to identify
attractive acquisition candidates or negotiate acceptable
purchase contracts with them, (2) unable to obtain
financing for these acquisitions on economically acceptable
terms, or (3) outbid by competitors, then our future growth
and ability to increase distributions will be limited.
Furthermore, even if we do make acquisitions that we believe
will be accretive, these acquisitions may nevertheless result in
a decrease in the cash generated from operations per unit.
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Any acquisition involves potential risks, including, among other
things:
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an inability to integrate successfully the businesses we acquire;
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the assumption of unknown liabilities;
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limitations on rights to indemnity from the seller;
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mistaken assumptions about the cash generated by the business
acquired or the overall costs of equity or debt;
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the diversion of managements and employees attention
from other business concerns;
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unforeseen operating difficulties; and
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customer or key employee losses at the acquired businesses.
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If we consummate any future acquisitions, our capitalization and
results of operations may change significantly, and you will not
have the opportunity to evaluate the economic, financial and
other relevant information that we will consider in determining
the application of our future funds and other resources. In
addition, competition from other buyers could reduce our
acquisition opportunities or cause us to pay a higher price than
we might otherwise pay.
Universal Compression Holdings implementation of its
new enterprise resource planning (ERP) system may
result in problems that would negatively impact our
business.
Universal Compression Holdings contracted with a third party
vendor to assist it with the design and implementation of a new
ERP system that supports substantially all of our operating and
financial functions, including fleet management, billing,
customer management, vendor management, accounting and financial
reporting systems. Universal Compression Holdings initiated the
implementation of this ERP system for its domestic contract
compression business in February 2006. Because the ERP system is
in the beginning stages of implementation, Universal Compression
Holdings management team and employees have limited
experience to date entering information into the system,
accessing and interpreting information from the system and
managing our business utilizing the system. A significant
implementation problem, if encountered, could negatively impact
our business by disrupting our operations. Additionally, a
significant problem with the implementation or ongoing
management and operation of the new ERP system could have an
adverse effect on our ability to generate and interpret accurate
management and financial reports and other information on a
timely basis, which could adversely affect our ability to manage
our business.
Universal Compression Holdings will continue to own and
operate most of its domestic contract compression business at
the closing of this offering, competition from which could
adversely impact our results of operations and cash available
for distribution.
Universal Compression Holdings and its other affiliates will be
prohibited from competing directly or indirectly with us with
respect to the customers contributed to us in connection with
the closing of this offering for a period of three years, unless
our general partner is removed earlier. Otherwise, Universal
Compression Holdings will not be prohibited from owning assets
or engaging in businesses that compete directly or indirectly
with us. Universal Compression Holdings will continue to own and
operate a domestic contract compression business approximately
five times as large as ours (by available horsepower) and will
continue to engage in international contract compression,
fabrication and aftermarket service activities following the
completion of this offering. Universal Compression Holdings is a
large, established participant in the contract compression
business, and has significantly greater resources, including
idle compression equipment, fabrication operations and
experience, than we have, which factors may make it more
difficult for us to compete with it with respect to commercial
activities as well as for acquisition candidates. Universal
Compression Holdings and its affiliates may acquire, fabricate
or dispose of additional natural gas compression or other assets
in the future without any obligation to offer us the opportunity
to purchase any of those assets. As a result, competition from
Universal Compression Holdings
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could adversely impact our results of operations and cash
available for distribution. Please read Conflicts of
Interest and Fiduciary Duties.
We may be unable to grow through acquisitions of the
remainder of Universal Compression Holdings domestic
contract compression business, which could limit our ability to
increase our cash available for distribution.
Universal Compression Holdings is under no obligation to offer
us the opportunity to purchase the remainder of its domestic
contract compression business, and its board of directors owes
fiduciary duties to the stockholders of Universal Compression
Holdings, and not our unitholders, in making any decision to
offer us this opportunity. Likewise, we are not required to
purchase any additional portions of such business.
The consummation of any such purchases will depend upon, among
other things, Universal Compression Holdings ability to
continue to convert its existing compression agreements to the
new form of agreement, our reaching an agreement with Universal
Compression Holdings regarding the terms of such purchase (which
will require the approval of the conflicts committee) and our
ability to finance such a purchase on acceptable terms.
Additionally, Universal Compression Holdings may be limited in
its ability to consummate a sale of any additional portions of
such business to us by the terms of its existing or future
credit facilities or indentures. The restrictive covenants of
its current debt instruments include restrictions or
prohibitions upon Universal Compression Holdings ability
to, among other things, sell its assets or make certain
restricted payments. Additionally, our credit
facility will include covenants that may limit our ability to
make acquisitions. If a sale of any additional portion of
Universal Compression Holdings domestic contract
compression business would be restricted or prohibited by such
covenants, we or Universal Compression Holdings may be required
to seek waivers of such provisions or refinance those debt
instruments in order to consummate a sale, neither of which may
be able to accomplished timely, if at all. If we are unable to
grow through additional acquisitions of the remainder of
Universal Compression Holdings domestic contract
compression business, our ability to increase our cash available
for distribution may be limited.
We may be unable to negotiate extensions or replacements
of our contracts with our customers, which are generally
cancellable on short notice, which could adversely impact our
results of operations and cash available for
distribution.
We generally provide compression services to our customers under
evergreen contracts that are cancellable on thirty
days notice. We may be unable to negotiate extensions or
replacements of these contracts on favorable terms, if at all,
which could adversely impact our results of operations and cash
available for distribution.
Our ability to manage and grow our business effectively
may be adversely affected if Universal Compression Holdings
loses management or operational personnel.
We depend on the continuing efforts of our executive officers,
all of whom are employees of Universal Compression Holdings. The
departure of any of our executive officers, and in particular,
Stephen A. Snider, Chief Executive Officer and Chairman of the
Board of our general partner, Ernie L. Danner, Executive Vice
President of our general partner, and Kirk E. Townsend, Senior
Vice President of our general partner, could have a significant
negative effect on our business, operating results, financial
condition and on our ability to compete effectively in the
marketplace. We do not maintain key man life insurance coverage
with respect to our executive officers or any other management
personnel.
Additionally, we do not have any of our own employees, but
rather rely on Universal Compression Holdings employees to
operate our business. We believe that Universal Compression
Holdings ability to hire, train and retain qualified
personnel will continue to be more challenging and important as
we grow and if energy industry market conditions continue to be
positive. When general industry conditions are good, the supply
of experienced operational, fabrication and field personnel, in
particular, decreases as
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other energy and manufacturing companies needs for the
same personnel increases. Our ability to grow and perhaps even
to continue our current level of service to our current
customers will be adversely impacted if Universal Compression
Holdings is unable to successfully hire, train and retain these
important personnel.
If we are unable to purchase compression equipment from
Universal Compression Holdings or others, we may not be able to
retain existing customers or compete for new customers, which
could have a material adverse effect on our business, results of
operations, financial condition and ability to make cash
distributions to our unitholders.
Because domestic natural gas exploration, drilling and
production are at or near all-time highs, there is substantial
competition for the purchase of compression equipment and there
is very little idle equipment available for purchase. Following
the completion of the offering, we will have no idle compression
equipment. Universal Compression Holdings is under no obligation
to offer or sell us newly fabricated or idle compression
equipment and may choose not to do so timely or at all. Further,
Universal Compression Holdings will likely continue to face
substantial demand for the compression equipment it owns or
fabricates from its domestic and international contract
compression services businesses as well as from third-party
customers. Similarly, we may not be able to purchase newly
fabricated or idle compression equipment from third-party
producers or marketers of such equipment or from our
competitors. If we are unable to purchase compression equipment
on a timely basis to meet the demands of our customers, our
existing customers may terminate their contractual relationships
with us or we may not be able to compete for business from new
customers, either of which could have a material adverse effect
on our business, results of operations, financial condition and
ability to make cash distributions to our unitholders.
Our operating costs per horsepower may be subject to more
variability than those of our predecessor. This variability may
have an adverse impact on our ability to make cash distributions
to our unitholders.
Because we will initially own a substantially smaller fleet of
compressors than our predecessor, our operating costs per
horsepower may be subject to more variability than those of our
predecessor. This additional variability in our operating costs
per horsepower may result from, among other things, the fact
that repair costs associated with our compressors that
experience unanticipated downtime will be allocated over our
smaller fleet of compressors. The cap on our obligation to
reimburse Universal Compression Holdings for any cost of sales
that it incurs in the operation of our business contained in the
omnibus agreement will terminate on the last day of the fiscal
quarter in which the second anniversary of this offering occurs.
Additionally, Universal Compression Holdings could condition any
future sales of portions of its compression business to us on
our agreement (which would require the approval of the conflicts
committee of our general partner) to an increase or early
termination of the cap. Any increase in our operating costs at a
time when the cap is increased or no longer in effect could have
an adverse impact on our ability to make cash distributions to
our unitholders.
Our reliance on Universal Compression Holdings as an
operator of our assets and our limited ability to control
certain costs could have a material adverse effect on our
business, results of operations, financial condition and ability
to make cash distributions to our unitholders.
Pursuant to an omnibus agreement to be entered into between us
and Universal Compression Holdings and its subsidiaries,
Universal Compression Holdings will provide us with all
administrative and operational services, including without
limitation all operations, marketing, maintenance and repair,
periodic overhauls of compression equipment, inventory
management, legal, accounting, treasury, insurance
administration and claims processing and risk management,
health, safety and environmental, information technology, human
resources, credit, payroll, internal audit, taxes and
engineering services necessary to run our business. Our
operational success and ability to execute our growth strategy
will depend significantly upon Universal Compression
Holdings satisfactory operation of our assets and
performance of these services. Our reliance on Universal
Compression Holdings as an operator of our assets and our limited
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ability to control certain costs could have a material adverse
effect on our business, results of operations, financial
condition and ability to make cash distributions to our
unitholders.
Our inability to fund purchases of additional compression
equipment could adversely impact our results of operations and
cash available for distribution.
Because all of the compression equipment to be contributed to us
in connection with the closing of this offering will be fully
utilized, we will initially have no idle compression equipment
to fulfill the future needs of our customers. Therefore, we will
not be able to grow our asset and customer base unless we have
access to sufficient capital to purchase additional compression
equipment. We cannot assure you that cash flow from our
operations and availability under the revolving credit facility
that we expect to enter into in connection with the closing of
this offering will provide us with sufficient cash to fund our
capital expenditure requirements. Failure to generate sufficient
cash flow, together with the absence of alternative sources of
capital, could adversely impact our results of operations and
cash available for distribution to our unitholders.
We indirectly depend on particular suppliers and are
vulnerable to product shortages and price increases, which could
have a negative impact on our results of operations.
Much of our compression equipment was fabricated by Universal
Compression Holdings. Some of the components used in those
compressors are obtained by Universal Compression Holdings from
a single source or a limited group of suppliers. Universal
Compression Holdings reliance on these suppliers involves
several risks, including price increases, inferior component
quality and a potential inability to obtain an adequate supply
of required components in a timely manner. Universal Compression
Holdings does not have long-term contracts with these sources,
and its partial or complete loss of certain of these sources
could have a negative impact on our results of operations and
could damage our customer relationships. Further, since any
increase in component prices for compression equipment
fabricated by Universal Compression Holdings for us will be
passed on to us, a significant increase in the price of one or
more of these components could have a negative impact on our
results of operations.
We are subject to substantial environmental regulation,
and changes in these regulations could increase our costs or
liabilities.
We are subject to stringent and complex federal, state and local
laws and regulatory standards, including laws and regulations
regarding the discharge of materials into the environment,
emission controls and other environmental protection and
occupational health and safety concerns. Environmental laws and
regulations may, in certain circumstances, impose strict
liability for environmental contamination, rendering us liable
for remediation costs, natural resource damages and other
damages as a result of our conduct that was lawful at the time
it occurred or the conduct of, or conditions caused by, prior
owners or operators or other third parties. In addition, where
contamination may be present, it is not uncommon for neighboring
land owners and other third parties to file claims for personal
injury, property damage and recovery of response costs.
Remediation costs and other damages arising as a result of
environmental laws and regulations, and costs associated with
new information, changes in existing environmental laws and
regulations or the adoption of new environmental laws and
regulations could be substantial and could negatively impact our
financial condition or results of operations. Moreover, failure
to comply with these environmental laws and regulations may
result in the imposition of administrative, civil and criminal
penalties, and the issuance of injunctions delaying or
prohibiting operations.
We routinely deal with natural gas, oil and other petroleum
products. Hydrocarbons or other hazardous substances or wastes
may have been disposed or released on, under or from properties
used by us to provide contract compression services or inactive
compression storage or on or under other locations where such
substances or wastes have been taken for disposal. These
properties may be subject to investigatory, remediation and
monitoring requirements under foreign, federal, state and local
environmental laws and regulations.
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The modification or interpretation of existing environmental
laws or regulations, the more vigorous enforcement of existing
environmental laws or regulations, or the adoption of new
environmental laws or regulations may also negatively impact oil
and natural gas exploration and production, gathering and
pipeline companies, which in turn could have a negative impact
on us.
We do not insure against all potential losses and could be
seriously harmed by unexpected liabilities.
Natural gas service operations are subject to inherent risks
such as equipment defects, malfunction and failures, and natural
disasters that can result in uncontrollable flows of gas or well
fluids, fires and explosions. These risks could expose us to
substantial liability for personal injury, death, property
damage, pollution and other environmental damages. Our insurance
may be inadequate to cover our liabilities. Further, insurance
covering the risks we face or in the amounts we desire may not
be available in the future or, if available, the premiums may
not be commercially justifiable. If we were to incur substantial
liability and such damages were not covered by insurance or were
in excess of policy limits, or if we were to incur liability at
a time when we are not able to obtain liability insurance, our
business, results of operations and financial condition could be
negatively impacted. Moreover, in light of the instability and
developments in the insurance markets following the impact of
Hurricanes Rita and Katrina, we have elected to self insure our
offshore assets. Thus, we are wholly responsible for any damage
to or loss of our offshore assets. In addition, we do not
maintain business interruption insurance.
A substantial portion of our cash flow must be used to
service our debt obligations, and future interest rate increases
could reduce the amount of our cash available for
distribution.
At the closing of this offering, we expect to enter into a five
year, $225 million revolving credit facility and to borrow
$125 million under that facility. Any borrowings that we
may make under our revolving credit facility, excluding our
initial $125 million of borrowings under the facility,
which are subject to a fixed rate swap, will bear interest at
floating rates. Changes in economic conditions could result in
higher interest rates, thereby increasing our interest expense
and reducing our funds available for capital investment,
operations or distributions to our unitholders. Additionally, if
domestic interest rates continue to increase, the interest rates
on any of our future credit facilities and debt offerings could
be higher than current levels, causing our financing costs to
increase accordingly.
Covenants in our credit facility may adversely affect our
ability to operate our business and to make distributions to our
unitholders.
Our credit facility will include covenants limiting our ability
to make distributions, incur indebtedness, grant liens, merge,
make loans, acquisitions, investments or dispositions and engage
in transactions with affiliates. Furthermore, our credit
facility will contain covenants requiring us to maintain certain
financial ratios and tests. Additionally, we expect that our
obligations under the revolving credit facility will be secured
at all times by substantially all of our assets and all assets
of our subsidiaries. These covenants may restrict our ability to
expand or to pursue our business strategies. Our ability to
comply with certain provisions of the credit facility may be
affected by changes in our operating and financial performance,
changes in business conditions or results of operations, adverse
regulatory developments or other events beyond our control. The
breach of any of those covenants could result in a default under
our debt, which could cause those obligations to become due and
payable. If any of our indebtedness were to be accelerated, we
may not be able to repay or refinance it. Please read
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Description of Credit
Facility.
Increases in interest rates could adversely impact our
unit price and our ability to issue additional equity to make
acquisitions, incur debt or for other purposes.
As with other yield-oriented securities, our unit price is
impacted by the level of our cash distributions and implied
distribution yield. The distribution yield is often used by
investors to compare and rank related yield-oriented securities
for investment decision-making purposes. Therefore, changes in
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interest rates, either positive or negative, may affect the
yield requirements of investors who invest in our units, and a
rising interest rate environment could have an adverse impact on
our unit price and our ability to issue additional equity to
make acquisitions, incur debt or for other purposes.
Risks Inherent in an Investment in Us
Universal Compression Holdings controls our general
partner, which has sole responsibility for conducting our
business and managing our operations. Universal Compression
Holdings has conflicts of interest, which may permit it to favor
its own interests to your detriment.
Following this offering, Universal Compression Holdings will own
and control our general partner. Some of our general
partners directors are directors of Universal Compression
Holdings and all of our executive officers are officers of
Universal Compression Holdings. Therefore, conflicts of interest
may arise between Universal Compression Holdings and its
affiliates, including our general partner, on the one hand, and
us and our unitholders, on the other hand. In resolving these
conflicts of interest, our general partner may favor its own
interests and the interests of its affiliates over the interests
of our unitholders. These conflicts include, among others, the
following situations:
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neither our partnership agreement nor any other agreement
requires Universal Compression Holdings to pursue a business
strategy that favors us. Universal Compression Holdings
directors and officers have a fiduciary duty to make these
decisions in the best interests of the owners of Universal
Compression Holdings, which may be contrary to our interests;
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our general partner controls the interpretation and enforcement
of contractual obligations between us and our affiliates, on the
one hand, and Universal Compression Holdings, on the other hand,
including provisions governing administrative services,
acquisitions and transfers of compression equipment and
non-competition provisions;
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any additional contributions of contract compression customers
or assets made to us by Universal Compression Holdings;
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our general partner is allowed to take into account the
interests of parties other than us, such as Universal
Compression Holdings and its affiliates, in resolving conflicts
of interest;
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other than with respect to the customers contributed to us in
connection with the closing of this offering, Universal
Compression Holdings and its affiliates are not limited in their
ability to compete with us. Universal Compression Holdings will
continue to engage in domestic and international contract
compression services as well as third-party sales coupled with
aftermarket service contracts. Please read Risks Related
to Our Business Universal Compression Holdings and
its affiliates are not substantially limited in their ability to
compete with us;
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Universal Compression Holdings will compete with us with respect
to any future acquisition opportunities;
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Universal Compression Holdings domestic and international
contract compression services businesses and its third-party
equipment customers will compete with us for newly fabricated
and idle compression equipment and Universal Compression
Holdings is under no obligation to offer equipment to us for
purchase or use;
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all of the officers of Universal Compression Holdings who
provide services to us also will devote significant time to the
business of Universal Compression Holdings, and will be
compensated by Universal Compression Holdings for the services
rendered to it;
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our general partner has limited its liability and reduced its
fiduciary duties, and has also restricted the remedies available
to our unitholders for actions that, without the limitations,
might constitute breaches of fiduciary duty;
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our general partner determines the amount and timing of asset
purchases and sales, borrowings, issuance of additional
partnership securities and reserves, each of which can affect
the amount of cash that is distributed to unitholders;
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our general partner determines the amount and timing of any
capital expenditures and whether a capital expenditure is a
maintenance capital expenditure, which reduces operating
surplus, or an expansion capital expenditure, which does not
reduce operating surplus. This determination can affect the
amount of cash that is distributed to our unitholders and the
ability of the subordinated units to convert to common units;
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our general partner determines which costs incurred by it and
its affiliates are reimbursable by us and Universal Compression
Holdings will determine the allocation of shared overhead
expenses;
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our partnership agreement does not restrict our general partner
from causing us to pay it or its affiliates for any services
rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf;
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our general partner intends to limit its liability regarding our
contractual and other obligations and, in some circumstances, is
entitled to be indemnified by us;
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our general partner may exercise its limited right to call and
purchase common units if it and its affiliates own more than 80%
of the common units; and
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our general partner decides whether to retain separate counsel,
accountants or others to perform services for us.
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Please read Conflicts of Interest and Fiduciary
Duties.
Cost reimbursements due to our general partner and its
affiliates for services provided, which will be determined by
our general partner, will be substantial and will reduce our
cash available for distribution to our unitholders.
Pursuant to an omnibus agreement we will enter into with
Universal Compression Holdings, our general partner and others
upon the closing of this offering, Universal Compression
Holdings will receive reimbursement for the payment of operating
expenses related to our operations and for the provision of
various general and administrative services for our benefit.
Payments for these services will be substantial and will reduce
the amount of cash available for distribution to unitholders.
Please read Certain Relationships and Related Party
Transactions Omnibus Agreement. In addition,
under Delaware partnership law, our general partner has
unlimited liability for our obligations, such as our debts and
environmental liabilities, except for our contractual
obligations that are expressly made without recourse to our
general partner. To the extent our general partner incurs
obligations on our behalf, we are obligated to reimburse or
indemnify it. If we are unable or unwilling to reimburse or
indemnify our general partner, our general partner may take
actions to cause us to make payments of these obligations and
liabilities. Any such payments could reduce the amount of cash
otherwise available for distribution to our unitholders.
Our partnership agreement limits our general
partners fiduciary duties to holders of our common units
and subordinated units and restricts the remedies available to
holders of our common units and subordinated units for actions
taken by our general partner that might otherwise constitute
breaches of fiduciary duty.
Our partnership agreement contains provisions that reduce the
fiduciary standards to which our general partner would otherwise
be held by state fiduciary duty laws. For example, our
partnership agreement:
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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
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partner. Examples include the exercise of its limited call
right, the exercise of its rights to transfer or vote the units
it owns, the exercise of its registration rights and its
determination whether or not to consent to any merger or
consolidation of the partnership or amendment to the partnership
agreement;
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provides that our general partner will not have any liability to
us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed the decision was in the best interests of our
partnership;
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner acting in good
faith and not involving a vote of unitholders must be on terms
no less favorable to us than those generally being provided to
or available from unrelated third parties or must be fair
and reasonable to us, as determined by our general partner
in good faith and that, in determining whether a transaction or
resolution is fair and reasonable, our general
partner may consider the totality of the relationships between
the parties involved, including other transactions that may be
particularly advantageous or beneficial to us;
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that the general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the conduct was criminal; and
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provides that in resolving conflicts of interest, it will be
presumed that in making its decision the general partner acted
in good faith, and in any proceeding brought by or on behalf of
any limited partner or us, the person bringing or prosecuting
such proceeding will have the burden of overcoming such
presumption.
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By purchasing a common unit, a common unitholder will agree to
become bound by the provisions in the partnership agreement,
including the provisions discussed above. Please read
Conflicts of Interest and Fiduciary Duties
Fiduciary Duties.
Holders of our common units have limited voting rights and
are not entitled to elect our general partner or its general
partners directors, which could reduce the price at which
the common units will trade.
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
will not elect our general partner or its general partners
board of directors, and will have no right to elect our general
partner or its general partners board of directors on an
annual or other continuing basis. The board of directors of UCO
GP, LLC will be chosen by its sole member, a subsidiary of
Universal Compression Holdings. Furthermore, if the unitholders
are dissatisfied with the performance of our general partner,
they will have little ability to remove our general partner. As
a result of these limitations, the price at which the common
units will trade could be diminished because of the absence or
reduction of a takeover premium in the trading price.
Even if holders of our common units are dissatisfied, they
cannot initially remove our general partner without its
consent.
The unitholders will be unable initially to remove our general
partner without its consent because our general partner and its
affiliates will own sufficient units upon completion of this
offering to be able to prevent its removal. The vote of the
holders of at least
66
2
/
3
%
of all outstanding units voting together as a single class is
required to remove the general partner. Following the closing of
this offering, our general partner and its affiliates will own
56.5% of our aggregate outstanding common and subordinated
units. Also, if our general partner is removed without cause
during the subordination period and units held by
28
our general partner and its affiliates are not voted in favor of
that removal, all remaining subordinated units will
automatically convert into common units and any existing
arrearages on our common units will be extinguished. A removal
of our general partner under these circumstances would adversely
affect our common units by prematurely eliminating their
distribution and liquidation preference over our subordinated
units, which would otherwise have continued until we had met
certain distribution and performance tests. Cause is narrowly
defined to mean that a court of competent jurisdiction has
entered a final, non-appealable judgment finding the general
partner liable for actual fraud or willful or wanton misconduct
in its capacity as our general partner. Cause does not include
most cases of charges of poor management of the business, so the
removal of the general partner because of the unitholders
dissatisfaction with our general partners performance in
managing our partnership will most likely result in the
termination of the subordination period and conversion of all
subordinated units to common units.
Control of our general partner may be transferred to a
third party without unitholder consent.
Our general partner may transfer its general partner interest to
a third party in a merger or in a sale of all or substantially
all of its assets without the consent of the unitholders.
Furthermore, our partnership agreement does not restrict the
ability of Universal Compression Holdings, the owner of our
general partner, from transferring all or a portion of its
ownership interest in our general partner to a third party. The
new owners of our general partner would then be in a position to
replace the board of directors and officers of our general
partners with its own choices and thereby influence the
decisions taken by the board of directors and officers.
You will experience immediate and substantial dilution of
$17.61 in tangible net book value per common unit.
The assumed initial public offering price of $20.00 per
unit exceeds our pro forma net tangible book value of
$2.39 per unit. Based on the assumed initial public
offering price of $20.00 per unit, you will incur immediate
and substantial dilution of $17.61 per common unit. This
dilution results primarily because the assets contributed by our
general partner and its affiliates are recorded in accordance
with GAAP at their historical cost, and not their fair value.
Please read Dilution.
We may issue additional units without your approval, which
would dilute your existing ownership interests.
Our partnership agreement does not limit the number of
additional limited partner interests that we may issue at any
time without the approval of our unitholders. The issuance by us
of additional common units or other equity securities of equal
or senior rank will have the following effects:
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our unitholders proportionate ownership interest in us
will decrease;
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the amount of cash available for distribution on each unit may
decrease;
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because a lower percentage of total outstanding units will be
subordinated units, the risk that a shortfall in the payment of
the minimum quarterly distribution will be borne by our common
unitholders will increase;
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the ratio of taxable income to distributions may increase;
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the relative voting strength of each previously outstanding unit
may be diminished; and
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the market price of the common units may decline.
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Our partnership agreement restricts the voting rights of
unitholders, other than our general partner and its affiliates,
including Universal Compression Holdings, owning 20% or more of
our common units. Accordingly, your voting rights may be
limited.
Unitholders voting rights are further restricted by the
partnership agreement provision providing that any units held by
a person that owns 20% or more of any class of units then
outstanding, other than our general partner, its affiliates,
including Universal Compression Holdings, their transferees and
persons
29
who acquired such units with the prior approval of the board of
directors of our general partner, cannot vote on any matter. Our
partnership agreement also contains provisions limiting the
ability of unitholders to call meetings or to acquire
information about our operations, as well as other provisions.
Affiliates of our general partner may sell common units in
the public markets, which sales could have an adverse impact on
the trading price of the common units.
After the sale of the common units offered hereby, management of
our general partner and Universal Compression Holdings and its
affiliates will hold an aggregate of 825,000 common units
and 6,325,000 subordinated units. All of the subordinated
units will convert into common units at the end of the
subordination period and some may convert earlier. The sale of
these units in the public markets could have an adverse impact
on the price of the common units or on any trading market that
may develop.
Our general partner has a limited call right that may
require you to sell your units at an undesirable time or
price.
If at any time our general partner and its affiliates own more
than 80% of the common units, our general partner will have the
right, but not the obligation, which it may assign to any of its
affiliates or to us, to acquire all, but not less than all, of
the common units held by unaffiliated persons at a price not
less than their then-current market price. As a result, you may
be required to sell your common units at an undesirable time or
price and may not receive any return on your investment. You may
also incur a tax liability upon a sale of your units. At the
completion of this offering and assuming no exercise of the
underwriters overallotment option, our general partner and
its affiliates will own approximately 13.0% of our outstanding
common units. At the end of the subordination period, assuming
no additional issuances of common units, our general partner and
its affiliates will own approximately 56.5% of our aggregate
outstanding common units. For additional information about this
right, please read The Partnership Agreement
Limited Call Right.
Your liability may not be limited if a court finds that
unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited
liability for the obligations of the partnership, except for
those contractual obligations of the partnership that are
expressly made without recourse to the general partner. Our
partnership is organized under Delaware law and we conduct
business in a number of other states. The limitations on the
liability of holders of limited partner interests for the
obligations of a limited partnership have not been clearly
established in some of the other states in which we do business.
You could be liable for any and all of our obligations as if you
were a general partner if:
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a court or government agency determined that we were conducting
business in a state but had not complied with that particular
states partnership statute; or
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your right to act with other unitholders to remove or replace
the general partner, to approve some amendments to our
partnership agreement or to take other actions under our
partnership agreement constitute control of our
business.
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For a discussion of the implications of the limitations of
liability on a unitholder, please read The Partnership
Agreement Limited Liability.
Unitholders may have liability to repay distributions that
were wrongfully distributed to them.
Under certain circumstances, unitholders may have to repay
amounts wrongfully returned or distributed to them. Under
Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act, we may not make a distribution to you if the
distribution would cause our liabilities to exceed the fair
value of our assets. Delaware law provides that for a period of
three years from the date of the impermissible distribution,
limited partners who received the distribution and who knew at
the time of the distribution that it violated Delaware law will
be liable to the limited partnership for the distribution
amount. Substituted limited partners are liable for the
obligations of the assignor to make contributions to the
30
partnership that are known to the substituted limited partner at
the time it became a limited partner and for unknown obligations
if the liabilities could be determined from the partnership
agreement. Liabilities to partners on account of their
partnership interest and liabilities that are non-recourse to
the partnership are not counted for purposes of determining
whether a distribution is permitted.
We will incur increased costs as a result of being a
publicly-traded company.
We have no history operating as a publicly-traded company. As a
publicly-traded company, we will incur significant legal,
accounting and other expenses. In addition, the Sarbanes-Oxley
Act of 2002, as well as rules subsequently implemented by the
SEC and the NASDAQ Global Market, have required changes in
corporate governance practices of publicly-traded companies. We
expect these rules and regulations to increase our legal and
financial compliance costs and to make activities more
time-consuming and costly. For example, as a result of becoming
a publicly-traded company, we are required to have at least
three independent directors, create additional board committees
and adopt policies regarding internal controls and disclosure
controls and procedures, including the preparation of reports on
internal controls over financial reporting. In addition, we will
incur additional costs associated with our publicly-traded
company reporting requirements. We have included
$2.5 million of estimated incremental costs per year, some
of which will be allocated to us by Universal Compression
Holdings, associated with being a publicly-traded company for
purposes of our estimate of our cash available for distribution
for the twelve months ending September 30, 2007 included
elsewhere in this prospectus; however, it is possible that our
actual incremental costs of being a publicly-traded company will
be higher than we currently estimate.
Tax Risks to Common Unitholders
In addition to reading the following risk factors, you should
read Material Tax Consequences for a more complete
discussion of the expected material federal income tax
consequences of owning and disposing of common units.
Our tax treatment depends on our status as a partnership
for federal income tax purposes, as well as our not being
subject to a material amount of entity-level taxation by
individual states. If the Internal Revenue Service treats us as
a corporation or we become subject to a material amount of
entity-level taxation for state tax purposes, it would
substantially reduce the amount of cash available for
distribution to our unitholders.
The anticipated after-tax economic benefit of an investment in
the common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
received a ruling from the Internal Revenue Service, which we
refer to as the IRS, on this or any other tax matter affecting
us. Instead, we will rely on opinions of counsel as to all
material tax issues affecting us and our unitholders.
In 2004,Vinson & Elkins L.L.P., counsel to Universal
Compression Holdings, had advised us that they were unable to
provide an unqualified opinion that income derived under
Universal Compression Holdings then existing agreements
for providing compression equipment and services would be
qualifying income to a publicly-traded partnership. Universal
Compression Holdings then requested a private letter ruling from
the IRS that income derived from our compression business would
be qualifying income to a publicly-traded partnership. Universal
Compression Holdings withdrew this private letter ruling request
upon being advised by Vinson & Elkins L.L.P. that the IRS
had informally indicated to Vinson & Elkins L.L.P. that the
IRS was unlikely to grant a favorable ruling. In an effort to
enable Vinson & Elkins L.L.P. to provide an unqualified
opinion that the business being contributed to us generates
sufficient qualifying income that we would be treated as a
partnership for federal income tax purposes, Universal
Compression Holdings has entered into new agreements with some
of its customers under which Vinson & Elkins L.L.P. believes
it is clear that Universal Compression Holdings provides
compression services to its customers rather than leasing
compression equipment to them. All of the domestic contract
compression business contributed to us in connection with the
closing of this offering will be under these new service
agreements. No ruling has been sought or received from the IRS
whether the new compression service
31
agreements generate qualifying income, and we can provide no
assurance that the IRS would provide a favorable ruling if we
requested it.
If we were treated as a corporation for federal income tax
purposes, we would pay federal income tax on our income at the
corporate tax rate, which is currently a maximum of 35% and
would likely pay state income tax at varying rates.
Distributions to you would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would
flow through to you. Because a tax would be imposed upon us as a
corporation, our cash available for distribution to you would be
substantially reduced. Therefore, our treatment as a corporation
would result in a material reduction in the anticipated cash
flow and after-tax return to the unitholders, likely causing a
substantial reduction in the value of our common units.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to entity-level taxation. In addition, because of widespread
state budget deficits and other reasons, several states are
evaluating ways to subject partnerships to entity-level taxation
through the imposition of state income, franchise and other
forms of taxation. For example, under recently enacted
legislation, we will be subject to a new entity level tax
payable in 2008 on the portion of our total revenue (as that
term is defined in the legislation) that is generated in Texas
beginning in our tax year ending December 31, 2007.
Specifically, the Texas margin tax will be imposed at a maximum
effective rate of 0.7% of our total revenue that is apportioned
to Texas. Imposition of such a tax on us by Texas, or any other
state, will reduce the cash available for distribution to you.
The partnership agreement provides that if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, the minimum quarterly distribution amount and the
target distribution levels may be adjusted to reflect the impact
of that law on us at the option of our general partner without
the consent of our unitholders.
An IRS contest of the federal income tax positions we take
may adversely affect the market for our common units, and the
cost of any IRS contest will reduce our cash available for
distribution to our unitholders.
We have not received a ruling from the IRS with respect to our
treatment as a partnership for federal income tax purposes or
any other matter affecting us. The IRS may adopt positions that
differ from the conclusions of our counsel expressed in this
prospectus or from the positions we take. It may be necessary to
resort to administrative or court proceedings to sustain some or
all of our counsels conclusions or the positions we take.
A court may not agree with all of our counsels conclusions
or positions we take. Any contest with the IRS may materially
and adversely impact the market for our common units and the
price at which they trade. In addition, our costs of any contest
with the IRS will be borne indirectly by our unitholders and our
general partner because the costs will reduce our cash available
for distribution.
You may be required to pay taxes on income from us even if
you do not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we
will allocate taxable income which could be different in amount
than the cash we distribute, you will be required to pay any
federal income taxes and, in some cases, state and local income
taxes on your share of our taxable income even if you receive no
cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income
or even equal to the tax liability that results from that income.
Tax gain or loss on disposition of common units could be
more or less than expected.
If you sell your common units, you will recognize a gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Prior distributions to you in
excess of the total net taxable income you were allocated for a
common unit, which decreased your tax basis in that
32
common unit, will, in effect, become taxable income to you if
the common unit is sold at a price greater than your tax basis
in that common unit, even if the price is less than your
original cost. A substantial portion of the amount realized,
whether or not representing gain, may be ordinary income. In
addition, if you sell your units, you may incur a tax liability
in excess of the amount of cash you receive from the sale.
Tax-exempt entities and foreign persons face unique tax
issues from owning common units that may result in adverse tax
consequences to them.
Investment in common units by tax-exempt entities, such as
individual retirement accounts (known as IRAs), other retirement
plans and
non-U.S.
persons
raises issues unique to them. For example, virtually all of our
income allocated to organizations that are exempt from federal
income tax, including IRAs and other retirement plans, will be
unrelated business taxable income and will be taxable to them.
Distributions to
non-U.S.
persons
will be reduced by withholding taxes at the highest applicable
effective tax rate, and
non-U.S.
persons
will be required to file United States federal tax returns and
pay tax on their share of our taxable income. If you are a
tax-exempt entity or a foreign person, you should consult your
tax advisor before investing in our common units.
We will treat each purchaser of our common units as having
the same tax benefits without regard to the actual common units
purchased. The IRS may challenge this treatment, which could
adversely affect the value of the common units.
Because we cannot match transferors and transferees of common
units and because of other reasons, we will take depreciation
positions that may not conform to all aspects of existing
Treasury regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits
available to you. It also could affect the timing of these tax
benefits or the amount of gain from the sale of common units and
could have a negative impact on the value of our common units or
result in audit adjustments to your tax returns. For a further
discussion of the effect of the depreciation positions we will
adopt, please read Material Tax Consequences
Tax Consequences of Unit Ownership Section 754
Election.
Unitholders may be subject to state and local taxes and
return filing requirements.
In addition to federal income taxes, you will likely be subject
to other taxes, including foreign, state and local taxes,
unincorporated business taxes and estate, inheritance or
intangible taxes that are imposed by the various jurisdictions
in which we do business or own property, even if you do not live
in any of those jurisdictions. You will likely be required to
file foreign, state and local income tax returns and pay state
and local income taxes in some or all of these jurisdictions.
Further, you may be subject to penalties for failure to comply
with those requirements. We will initially own assets and do
business in the States of Alabama, Arkansas, California,
Colorado, Kansas, Louisiana, Michigan, Mississippi, New Mexico,
Oklahoma, Pennsylvania, Texas, Utah, Virginia, West Virginia and
Wyoming. Each of these states, other than Texas and Wyoming,
currently imposes a personal income tax. As we make acquisitions
or expand our business, we may own assets or do business in
additional states that impose a personal income tax. It is your
responsibility to file all United States federal, foreign, state
and local tax returns. Our counsel has not rendered an opinion
on the foreign, state or local tax consequences of an investment
in the common units.
The sale or exchange of 50% or more of our capital and
profits interests within a twelve-month period will result in
the termination of our partnership for federal income tax
purposes.
We will be considered to have terminated our partnership for
federal income tax purposes if there is a sale or exchange of
50% or more of the total interests in our capital and profits
within a
twelve-month
period. Our termination would, among other things, result in the
closing of our taxable year for all unitholders and could result
in a deferral of depreciation deductions allowable in computing
our taxable income. Please read Material Tax
Consequences Disposition of Common Units
Constructive Termination for a discussion of the
consequences of our termination for federal income tax purposes.
33
USE OF PROCEEDS
We expect to receive net proceeds of approximately
$99.4 million, after deducting underwriting discounts, fees
and offering expenses. Our estimates assume an initial public
offering price of $20.00 per common unit and no exercise of the
underwriters overallotment option. An increase or decrease
in the initial public offering price of $1.00 per common
unit would cause the net proceeds from the offering, after
deducting underwriting discounts and commissions and offering
expenses payable by us, to increase or decrease by
$5.1 million (or $5.9 million assuming full exercise
of the underwriters overallotment option to purchase
additional common units). We anticipate using the aggregate net
proceeds of this offering to repay approximately
$99.4 million of indebtedness we will assume from Universal
Compression Holdings (excluding the net proceeds from the
exercise of the underwriters overallotment option).
In addition, we will use net proceeds of approximately
$123.8 million (net of debt financing fees) from our new
revolving credit facility to repay the balance of the
indebtedness assumed by us from Universal Compression Holdings.
The indebtedness we will assume from Universal Compression
Holdings bears interest at a rate of LIBOR plus 1.50% and
matures in 2012. Please see Certain Relationships and
Related Party Transactions Distributions and
Payments to Our General Partner and its Affiliates.
The amount of indebtedness we will assume from Universal
Compression Holdings will equal the expected net proceeds from
our new revolving credit facility plus the net proceeds from
this offering. Accordingly, if the initial public offering price
were to exceed $20.00 per common unit or if we were to
increase the number of common units in this offering (other than
through the underwriters exercise of their overallotment
option), we will assume additional debt from Universal
Compression Holdings equal to the additional proceeds (net of
offering expenses) we would receive and we will use the
additional proceeds to repay such additional assumed debt.
Likewise, if the initial public offering price were to be less
than $20.00 per common unit, we would assume and subsequently
repay a corresponding reduced amount of indebtedness from
Universal Compression Holdings.
We will use the net proceeds from any exercise of the
underwriters overallotment option to redeem from a
subsidiary of Universal Compression Holdings a number of common
units equal to the number of common units issued upon the
exercise of the underwriters overallotment option.
34
CAPITALIZATION
The following table shows:
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the cash and the capitalization of Universal Compression
Partners Predecessor, our predecessor, as of June 30,
2006; and
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our pro forma cash and capitalization as of June 30, 2006, as
adjusted to reflect this offering, the other transactions
described under Summary Formation Transactions
and Partnership Structure General and the
application of the net proceeds from this offering as described
under Use of Proceeds.
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We derived this table from, and it should be read in conjunction
with and is qualified in its entirety by reference to, the
historical and pro forma financial statements and the
accompanying notes included elsewhere in this prospectus. You
should also read this table in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
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As of June 30, 2006
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Universal
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Universal
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Compression
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Compression
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Partners
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Partners, L.P.
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Predecessor
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Pro Forma
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(dollars in thousands)
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Cash
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$
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$
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Debt(1):
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Revolving credit facility
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$
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$
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125,000
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Total debt
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125,000
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Partners capital/net parent equity:
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Net parent equity
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1,313,259
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|
Common unitholders
|
|
|
|
|
|
|
96,266
|
|
|
Subordinated unitholders
|
|
|
|
|
|
|
(23,648
|
)
|
|
General partner interest
|
|
|
|
|
|
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
Total partners capital/net parent equity
|
|
|
1,313,259
|
|
|
|
71,653
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization(2)
|
|
$
|
1,313,259
|
|
|
$
|
196,653
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In connection with the closing of this offering, we will assume
$223.2 million in indebtedness from Universal Compression
Holdings. We will repay $99.4 million of such indebtedness
with the net proceeds from this offering. In addition, we will
use net proceeds of approximately $123.8 million (net of
debt financing fees) under our new revolving credit facility to
repay the balance of the indebtedness we will assume from
Universal Compression Holdings.
|
|
(2)
|
An increase or decrease in the initial public offering price of
$1.00 per common unit would cause the net proceeds from the
offering, after deducting underwriting discounts and commissions
and offering expenses payable by us, to increase or decrease by
$5.1 million (or $5.9 million assuming full exercise
of the underwriters overallotment option). If the initial
public offering price were to exceed $20.00 per common unit
or if we were to increase the number of common units in this
offering (other than through the underwriters exercise of
their overallotment option), we will assume additional debt from
Universal Compression Holdings equal to the additional proceeds
(net of offering expenses) we would receive, and we will use the
additional proceeds to repay such additional assumed debt.
Likewise, if the initial public offering price were to be less
than $20.00 per common unit, we would assume and subsequently
repay a corresponding reduced amount of indebtedness from
Universal Compression Holdings. The pro forma information set
forth above is illustrative only and following the completion of
this offering will be adjusted based on the actual initial
public offering price and other terms of this offering
determined at pricing.
|
35
DILUTION
Dilution is the amount by which the offering price paid by the
purchasers of common units sold in this offering will exceed the
pro forma net tangible book value per unit after the offering.
On a pro forma basis as of June 30, 2006, after giving effect to
the offering of common units and the application of the related
net proceeds, and assuming the underwriters overallotment
option is not exercised, our net tangible book value was
$30.8 million, or $2.39 per unit. Purchasers of common
units in this offering will experience substantial and immediate
dilution in net tangible book value per common unit for
financial accounting purposes, as illustrated in the following
table:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per common unit
|
|
|
|
|
|
$
|
20.00
|
|
Net tangible book value per unit before the offering(a)
|
|
$
|
21.04
|
|
|
|
|
|
Decrease in net tangible book value per unit attributable to
purchasers in the offering
|
|
|
(18.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Less: Pro forma net tangible book value per unit after the
offering(b)
|
|
|
|
|
|
|
2.39
|
|
|
|
|
|
|
|
|
Immediate dilution in tangible net book value per common unit to
new investors(c)
|
|
|
|
|
|
$
|
17.61
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Determined by dividing the number of units and general partner
units (825,000 common units, 6,325,000 subordinated
units and 258,163 general partner units) to be issued to a
subsidiary of Universal Compression Holdings for its
contribution of assets and liabilities to Universal Compression
Partners, L.P. into the net tangible book value of the
contributed assets and liabilities.
|
|
(b)
|
|
Determined by dividing the total number of units and general
partner units to be outstanding after the offering (6,325,000
common units, 6,325,000 subordinated units and 258,163 general
partner units) and the application of the related net proceeds
into our pro forma net tangible book value, after giving effect
to the application of the expected net proceeds of the offering.
|
|
(c)
|
|
If the initial public offering price were to increase or
decrease by $1.00 per common unit, then dilution in net
tangible book value per common unit would equal $18.61 or
$16.61, respectively.
|
The following table sets forth the number of units that we will
issue and the total consideration contributed to us by
affiliates of our general partner, its affiliates and by the
purchasers of common units in this offering upon consummation of
the transactions contemplated by this prospectus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units Acquired
|
|
|
Total Consideration
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
General partner and affiliates(a)(b)
|
|
|
7,408,163
|
|
|
|
57.4%
|
|
|
$
|
(27.7
|
)
|
|
|
(38.6
|
)%
|
New investors
|
|
|
5,500,000
|
|
|
|
42.6%
|
|
|
|
99.4
|
|
|
|
138.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,908,163
|
|
|
|
100.0%
|
|
|
$
|
71.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The common and subordinated units and general partner units
acquired by our general partner and its affiliates consist of
825,000 common units, 6,325,000 subordinated units and 258,163
general partner units.
|
|
(b)
|
|
The assets contributed by our general partner and its affiliates
were recorded at historical cost in accordance with GAAP.
|
36
OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON
DISTRIBUTIONS
You should read the following discussion of our cash
distribution policy in conjunction with specific assumptions
included in this section. For more detailed information
regarding the factors and assumptions upon which our cash
distribution policy is based, please read
Assumptions and Considerations below. In
addition, you should read Forward-Looking Statements
and Risk Factors for information regarding
statements that do not relate strictly to historical or current
facts and certain risks inherent in our business.
For additional information regarding our historical and pro
forma operating results, you should refer to our combined
historical financial statements for the years ended
March 31, 2004 and 2005 and the nine months ended
December 31, 2005, our unaudited historical combined
financial statements for the nine months ended December 31,
2004 and the six months ended June 30, 2005 and June 30, 2006,
and our unaudited pro forma financial statements for the nine
months ended December 31, 2005 and the six months ended
June 30, 2006, included elsewhere in this prospectus. The
information presented in the following discussion assumes no
exercise of the underwriters overallotment option.
General
Rationale for Our Cash Distribution Policy.
Our
partnership agreement requires us to distribute all of our
available cash quarterly. Our available cash is our cash on hand
at the end of the quarter after the payment of our expenses and
the establishment of reserves for future capital expenditures
and operational needs, including cash from borrowings. Our cash
distribution policy reflects a basic judgment that our
unitholders will be better served by the distribution of our
cash available after expenses and reserves rather than retaining
it. Because we believe we will generally finance any capital
investments from external financing sources, we believe that our
investors are best served by our distributing all of our
available cash. Because we expect to be treated as partnership
for federal income tax purposes, we should have more cash to
distribute to you than would be the case were we treated as a
corporation for such purposes.
Limitations on Cash Distributions and Our Ability to
Change Our Cash Distribution Policy.
There is no
guarantee that unitholders will receive quarterly distributions
from us. Our distribution policy is subject to certain
restrictions and may be changed at any time, including:
|
|
|
|
|
|
Our anticipated credit facility will restrict our ability to
make distributions should we not be in compliance with the
financial covenants of that facility, including maintaining debt
of no more than 5.0x (or up to 5.5x for up two fiscal quarters
following certain acquisitions) EBITDA, as defined in the credit
agreement, and maintaining EBITDA of at least 2.5x interest
expense, as defined in the credit agreement. Should we be unable
to satisfy the potential restrictions under our credit facility
or if we are otherwise in default under our credit facility, we
would be prohibited from making cash distributions to you
notwithstanding our stated cash distribution policy.
|
|
|
|
|
The board of directors of the general partner of our general
partner will have the authority to establish reserves for the
prudent conduct of our business and for future cash
distributions to our unitholders, and the establishment of those
reserves could result in a reduction in cash distributions to
you from the levels currently anticipated pursuant to our stated
distribution policy.
|
|
|
|
While our partnership agreement requires us to distribute all of
our available cash, our partnership agreement, including
provisions that require us to make cash distributions, may be
amended. Although during the subordination period, with certain
exceptions, our partnership agreement may not be amended without
the approval of the public common unitholders, our partnership
agreement can be amended with the approval of a majority of the
outstanding common units (including common units held by
affiliates of Universal Compression Holdings) after the
subordination period has ended. At the closing of this
|
37
|
|
|
|
|
offering, a subsidiary of Universal Compression Holdings will
own our general partner and approximately 13.0% of our
outstanding common units and 100% of our outstanding
subordinated units.
|
|
|
|
Even if our cash distribution policy is not modified or revoked,
the amount of distributions we pay under our cash distribution
policy and the decision to make any distribution is determined
by our general partner, taking into consideration the terms of
our partnership agreement.
|
|
|
|
Under Section 17-607 of the Delaware Revised Uniform
Limited Partnership Act, we may not make a distribution to you
if the distribution would cause our liabilities to exceed the
fair value of our assets.
|
|
|
|
We may lack sufficient cash to pay distributions to our
unitholders due to a number of factors, including reduced demand
for our compression services, loss of a key customer, increases
in our general and administrative expense, principal and
interest payments on our outstanding debt, tax expenses, working
capital requirements and anticipated cash needs.
|
Our Ability to Grow is Dependent on Our Ability to Access
External Expansion Capital.
We expect that we will
distribute all of our available cash to our unitholders. As a
result, we expect that we will rely primarily upon external
financing sources, including commercial bank borrowings and the
issuance of debt and equity securities, to fund our acquisitions
and expansion capital expenditures. To the extent we are unable
to finance growth externally, our cash distribution policy will
significantly impair our ability to grow. In addition, because
we distribute all of our available cash, we may not grow as
quickly as businesses that reinvest their available cash to
expand ongoing operations. To the extent we issue additional
units in connection with any acquisitions or expansion capital
expenditures, the payment of distributions on those additional
units may increase the risk that we will be unable to maintain
or increase our per unit distribution level, which in turn may
impact the available cash that we have to distribute on each
unit. There are no limitations in our partnership agreement or
in the anticipated terms of our new credit facility on our
ability to issue additional units, including units ranking
senior to the common units. The incurrence of additional
commercial borrowings or other debt to finance our growth
strategy would result in increased interest expense, which in
turn may impact the available cash that we have to distribute to
our unitholders.
Our Initial Distribution Rate
Upon completion of this offering, our general partner will adopt
a cash distribution policy that will require us to pay
distributions at an initial distribution rate of $0.35 per
unit per complete quarter, or $1.40 per unit per year, no
later than 45 days after the end of each fiscal quarter
through the quarter ending September 30, 2007 to the extent
we have sufficient cash from operations after establishment of
cash reserves and payment of fees and expenses, including
payments to our general partner and its affiliates. This equates
to an aggregate cash distribution of $4.5 million per
quarter or $18.1 million per year, in each case based on
the number of common units, subordinated units and general
partner units outstanding immediately after completion of this
offering. If the underwriters overallotment option is
exercised, an equivalent number of common units will be
redeemed. Accordingly, the exercise of the underwriters
overallotment option will not affect the total amount of units
outstanding or the amount of cash needed to pay the initial
distribution rate on all units. Our ability to make cash
distributions at the initial distribution rate pursuant to this
policy will be subject to the factors described above under the
caption General Limitations
on Cash Distributions and Our Ability to Change Our Cash
Distribution Policy.
The table below sets forth the assumed number of outstanding
common units, subordinated units and general partner units upon
the closing of this offering and the aggregate distribution
amounts payable
38
on such units during the year following the closing of this
offering at our initial distribution rate of $0.35 per
common unit per quarter ($1.40 per common unit on an
annualized basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
|
One Quarter
|
|
|
Four Quarters
|
|
|
|
|
|
|
|
|
|
|
|
Publicly held common units
|
|
|
5,500,000
|
|
|
$
|
1,925,000
|
|
|
$
|
7,700,000
|
|
Common units held by Universal Compression Holdings
|
|
|
825,000
|
|
|
|
288,750
|
|
|
|
1,155,000
|
|
Subordinated units held by Universal Compression Holdings
|
|
|
6,325,000
|
|
|
|
2,213,750
|
|
|
|
8,855,000
|
|
General partner units held by Universal Compression Holdings
|
|
|
258,163
|
|
|
|
90,357
|
|
|
|
361,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,908,163
|
|
|
$
|
4,517,857
|
|
|
$
|
18,071,428
|
|
|
|
|
|
|
|
|
|
|
|
The subordination period generally will end if we have earned
and paid at least $1.40 on each outstanding unit and general
partner unit for any three consecutive, non-overlapping
four-quarter periods ending on or after September 30, 2011,
but may end prior to September 30, 2011, if additional
financial tests are met as described below. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions Subordination Period.
We do not have a legal obligation to pay distributions at our
initial distribution rate or at any other rate except as
provided in our partnership agreement. Our distribution policy
is consistent with the terms of our partnership agreement, which
requires that we distribute all of our available cash quarterly.
Under our partnership agreement, available cash is defined to
generally mean, for each fiscal quarter, cash generated from our
business in excess of the amount of reserves our general partner
determines is necessary or appropriate to provide for the
conduct of our business, to comply with applicable law, any of
our debt instruments or other agreements or to provide for
future distributions to our unitholders for any one or more of
the upcoming four quarters. Please read Provisions of Our
Partnership Agreement Relating to Cash Distributions.
If distributions on our common units are not paid with respect
to any fiscal quarter at the initial distribution rate, our
unitholders will not be entitled to receive such payments in the
future except that, to the extent we have available cash in any
future quarter during the subordination period in excess of the
amount necessary to make cash distributions to holders of our
common units at the initial distribution rate, we will use this
excess available cash to pay these deficiencies related to prior
quarters before any cash distribution is made to holders of
subordinated units. Please read Provisions of Our
Partnership Agreement Relating to Cash Distributions
Subordination Period.
Our partnership agreement provides that any determination made
by our general partner in its capacity as our general partner
must be made in good faith and that any such determination will
not be subject to any other standard imposed by our partnership
agreement, the Delaware limited partnership statute or any other
law, rule or regulation or at equity. Holders of our common
units may pursue judicial action to enforce provisions of our
partnership agreement, including those related to requirements
to make cash distributions as described above; however, our
partnership agreement provides that our general partner is
entitled to make the determinations described above without
regard to any standard other than the requirements to act in
good faith. Our partnership agreement provides that, in order
for a determination by our general partner to be made in
good faith, our general partner must believe that
the determination is in our best interests.
Our cash distribution policy, as expressed in our partnership
agreement, may not be modified or repealed without amending our
partnership agreement; however, the actual amount of our cash
distributions for any quarter is subject to fluctuations based
on the amount of cash we generate from our business and the
amount of reserves our general partner establishes in accordance
with our partnership agreement as described above. Our
partnership agreement may be amended with the approval of our
39
general partner and the holders of a majority of our outstanding
common and subordinated units, each voting as a separate class.
Upon completion of the offering, our general partner and its
affiliates will own approximately 13% of the outstanding common
units and all of the outstanding subordinated units.
Accordingly, they will not be able to amend the partnership
agreement without the approval of holders of approximately 38%
of the outstanding units.
As of the date of this offering, our general partner will be
entitled to 2% of all distributions that we make prior to our
liquidation. The general partners initial 2% interest in
these distributions may be reduced if we issue additional units
in the future and our general partner does not elect to
contribute a proportionate amount of capital to us to maintain
its initial 2% general partner interest.
We will pay our distributions on or about the 15th of each
of February, May, August and November to holders of record on or
about the 1st of each such month. If the distribution date
does not fall on a business day, we will make the distribution
on the business day immediately preceding the indicated
distribution date. We will adjust the quarterly distribution for
the period from the closing of this offering through
September 30, 2006 based on the actual length of the period.
In the sections that follow, we present in detail the basis for
our belief that we will be able to fully fund our initial
distribution rate of $0.35 per unit each quarter through
the quarter ending September 30, 2007. In those sections,
we present two tables, consisting of:
|
|
|
|
|
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
September 30, 2007. 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 September 30, 2007.
|
|
|
|
Unaudited Pro Forma Cash Available for Distribution,
in which we present the amount of cash we would have had
available for distribution for each of the twelve month periods
ended March 31, 2006 and June 30, 2006, based on our
pro forma financial statements.
|
Estimated Cash Available for Distribution for the Twelve
Months Ending September 30, 2007
As a result of the factors described in this
Estimated Cash Available for Distribution for
the Twelve Months Ending September 30, 2007 and
Assumptions and Considerations below, we
believe we will be able to pay the minimum quarterly
distribution on all of our common units, subordinated units and
general partner units for each quarter in the twelve months
ending September 30, 2007.
In order to pay the minimum quarterly distribution on all our
common units, subordinated units and general partner units of
$0.35 per unit per complete quarter for four quarters, we
estimate that our EBITDA for the twelve months ending
September 30, 2007 must be at least $33.4 million.
EBITDA should not be considered an alternative to net income,
operating income, cash flows from operating activities or any
other measure of financial performance calculated in accordance
with GAAP, as those items are used to measure our operating
performance, liquidity or ability to service debt obligations.
Please read Selected Historical and Pro Forma Financial
and Operating Data Non-GAAP Financial Measures
for an explanation of EBITDA and a reconciliation of EBITDA to
net income, its most directly comparable financial measure
calculated in and presented in accordance with GAAP.
We also anticipate that if our EBITDA for such period is at or
above our estimate, we would be permitted to make the minimum
quarterly distributions on all the common units, subordinated
units and general partner units under the applicable covenants,
if any, under our new revolving credit facility.
We believe we will generate estimated EBITDA of
$35.9 million for the twelve months ending
September 30, 2007. You should read
Assumptions and Considerations below for
a discussion of the material assumptions underlying this belief,
which reflect our judgment of conditions we expect to exist
40
and the course of action we expect to take. If our estimate is
not achieved, we may not be able to pay the minimum quarterly
distribution on all our units. We can give you no assurance that
our assumptions will be realized or that we will generate the
$33.4 million in EBITDA required to pay the minimum
quarterly distribution on all our common units, subordinated
units and general partner units. There will likely be
differences between our estimates and the actual results we will
achieve and those differences could be material. If we do not
generate the estimated minimum EBITDA or if our maintenance
capital expenditures or interest expense are higher than
estimated, we may not be able to pay the minimum quarterly
distribution on all units.
When considering our ability to generate our estimated EBITDA of
$35.9 million, you should keep in mind the risk factors and
other cautionary statements under the heading Risk
Factors and elsewhere in this prospectus. Any of these
factors or the other risks discussed in this prospectus could
cause our results of operations and cash available for
distribution to our unitholders to vary significantly from those
set forth below.
We do not as a matter of course make public projections as to
future sales, earnings, or other results. However, our
management has prepared the prospective financial information
set forth below to present the estimated cash available for
distribution for the twelve months ending September 30,
2007. The accompanying prospective financial information was not
prepared with a view toward public disclosure or with a view
toward complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to
prospective financial information, but, in the view of our
management, was prepared on a reasonable basis, reflects the
best currently available estimates and judgments, and presents,
to the best of our managements knowledge and belief, the
expected course of action and our expected future financial
performance. However, this information is not fact and should
not be relied upon as being necessarily indicative of future
results, and readers of this prospectus are cautioned not to
place undue reliance on the prospective financial information.
Neither our independent auditors, nor any other independent
accountants, have compiled, examined, or performed any
procedures with respect to the prospective financial information
contained herein, nor have they expressed any opinion or any
other form of assurance on such information or its
achievability, and assume no responsibility for, and disclaim
any association with, the prospective financial information.
We do not undertake any obligation to release publicly the
results of any future revisions we may make to the financial
forecast or to update this financial forecast to reflect events
or circumstances after the date in this prospectus. In light of
the above, the statement that we believe that we will have
sufficient cash available for distribution to allow us to make
the full minimum quarterly distribution on all our outstanding
common units, subordinated units and general partner units for
each quarter through September 30, 2007 should not be
regarded as a representation by us or the underwriters of any
other person that we will make such a distribution.
The following table shows how we calculate the estimated EBITDA
necessary to pay the minimum quarterly distribution on all our
common units, subordinated units and general partner units
through September 30, 2007. Our estimated EBITDA is based
on the projected results of operations from all of our operating
subsidiaries for the twelve months ending September 30,
2007. The assumptions that we have made that we believe are
relevant to particular line items in the table below are
explained in the corresponding footnotes set forth in
Assumptions and Considerations.
41
Universal Compression Partners, L.P.
Estimated Cash Available for Distribution
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
Ending
|
|
|
|
September 30, 2007
|
|
|
|
|
|
|
|
(In thousands,
|
|
|
|
except per unit
|
|
|
|
amounts)
|
|
Revenue
|
|
$
|
69,060
|
|
|
Cost of sales (excluding depreciation expense)
|
|
|
23,147
|
|
|
|
|
|
Gross margin
|
|
|
45,913
|
|
|
Selling, general and administrative expenses
|
|
|
10,000
|
|
|
Depreciation
|
|
|
11,677
|
|
|
Interest expense
|
|
|
9,366
|
|
|
|
|
|
|
|
Net income
|
|
|
14,870
|
|
Adjustments to reconcile net income to estimated EBITDA:
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
Depreciation
|
|
|
11,677
|
|
|
|
Interest expense
|
|
|
9,366
|
|
|
|
|
|
|
|
|
Estimated EBITDA
|
|
|
35,913
|
|
Adjustments to reconcile estimated EBITDA to estimated cash
available for distribution:
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
Cash interest expense
|
|
|
9,141
|
|
|
|
Expansion capital expenditures
|
|
|
23,337
|
|
|
|
Maintenance capital expenditures
|
|
|
6,145
|
|
|
Add:
|
|
|
|
|
|
|
Borrowings to fund expansion capital expenditures
|
|
|
23,337
|
|
|
|
|
|
|
|
|
Estimated cash available for distribution
|
|
$
|
20,627
|
|
|
|
|
|
Per unit minimum annual distribution
|
|
$
|
1.40
|
|
Annual distributions to:
|
|
|
|
|
|
Publicly held common units
|
|
$
|
7,700
|
|
|
Common units held by affiliates of our general partner
|
|
|
1,155
|
|
|
Subordinated units held by affiliates of our general partner
|
|
|
8,855
|
|
|
General partner units held by our general partner
|
|
|
361
|
|
|
|
|
|
Total minimum annual cash distributions
|
|
|
18,071
|
|
|
|
|
|
|
Excess of cash available for distributions over minimum annual
distributions
|
|
$
|
2,556
|
|
|
|
|
|
Calculation of minimum estimated EBITDA necessary to pay minimum
annual cash distributions:
|
|
|
|
|
|
Estimated EBITDA
|
|
$
|
35,913
|
|
|
|
Less:
|
|
|
|
|
|
|
|
Excess of cash available for distributions over minimum annual
distributions
|
|
|
2,556
|
|
|
|
|
|
|
|
|
|
Minimum estimated EBITDA necessary to pay minimum annual cash
distributions
|
|
$
|
33,357
|
|
|
|
|
|
Assumptions and Considerations
Based on a number of specific assumptions, we believe that,
following completion of this offering, we will have sufficient
cash available for distribution to allow us to make the full
minimum quarterly
42
distribution on all our outstanding common units, subordinated
units and general partner units for each quarter through
September 30, 2007. We believe that our assumptions, which
include the following, are reasonable:
|
|
|
|
|
Revenue is assumed to be $69.1 million for the twelve
months ending September 30, 2007, as compared to
$57.3 million for the twelve months ended June 30,
2006 on a pro forma basis. The reasons for the anticipated
increase in our revenue are presented in the bullet points below.
|
|
|
|
The amount of operating horsepower serving the compression
requirements of our customers is assumed to grow at 2.0% in the
quarter ending December 31, 2006 as compared to the quarter
ending September 30, 2006 and 1.0% per quarter for the
quarters ending March 31, 2007, June 30, 2007 and
September 30, 2007 compared to the respective preceding
quarter. For the quarters ended September 30, 2005,
December 31, 2005, March 31, 2006 and June 30,
2006, our pro forma average operating horsepower increased 4.1%,
7.4%, 3.9% and 1.4%, compared to the respective preceding
quarter. These historical and assumed increases in operating
horsepower result in approximately $5.7 million of
incremental revenue for the period covered by these estimates
over the historical periods.
|
|
|
|
We have assumed that our average fee per operating horsepower
for the twelve months ending September 30, 2007 will remain
at a level consistent with that experienced in the quarter ended
June 30, 2006. For the quarters ended September 30,
2005, December 31, 2005, March 31, 2006 and
June 30, 2006, our pro forma average fee per operating
horsepower increased by 4.1%, 1.5%, 5.0% and 6.2%, compared to
the respective preceding quarter. These historical increases in
revenue per horsepower result in approximately $6.1 million
of incremental revenue for the period covered by these estimates
over the historical period as the price increases are included
throughout each period in the estimates as opposed to only
partially included in the historical periods.
|
|
|
|
Cost of Sales (excluding Depreciation Expense)
|
|
|
|
|
|
Cost of sales (excluding depreciation expense) is assumed to be
$23.1 million for the twelve months ending
September 30, 2007, as compared to $18.3 million for
the twelve months ended June 30, 2006 on a pro forma basis.
|
|
|
|
The average cost of sales per horsepower for our operating
equipment is assumed to increase by 1.5% per quarter for
the twelve months ending September 30, 2007 due to
inflation and labor cost increases. For the quarters ended
September 30, 2005, December 31, 2005, March 31,
2006 and June 30, 2006, our average cost of sales per
operating horsepower increased by 10.7%, 3.9%, 2.3% and 9.5%,
compared to the respective preceding quarter. The increases in
cost of sales per horsepower in each of these historical periods
resulted from (1) increases in labor costs due to the
hiring and training of new field personnel as well as higher
labor rates, (2) increases in lubricant and antifreeze
costs and (3) significant increases in start-up activity,
which requires start-up expenses not experienced in subsequent
months, due to significant increases in operating horsepower. We
do not anticipate experiencing during the twelve months ended
September 30, 2007 the level of increases in cost of sales
per horsepower that we experienced during the twelve months
ended June 30, 2006 because:
|
|
|
|
|
|
we believe our field personnel levels, and the training of that
personnel, are now sufficient to meet the anticipated growth in
our business, resulting in less labor cost and training expense
growth;
|
43
|
|
|
|
|
we believe lubricant and antifreeze costs will increase at a
more moderate rate than has been experienced recently due to
lower anticipated increases in crude oil and other feedstock
prices; and
|
|
|
|
we anticipate that the level of
start-up
activity
during the twelve months ending September 30, 2007 will be
consistent with the level of
start-up
activity that
we experienced in recent quarters, resulting in less growth in
start-up
expenses. As
described in Revenue, the assumed growth
in operating horsepower in the twelve months ending
September 30, 2007 is lower than the growth in operating
horsepower in the twelve months ended June 30, 2006,
resulting in lower assumed
start-up
activity.
However,
start-up
activity associated with the anticipated addition of compressors
to replace existing compressors that are expected to become idle
due to changing customer requirements during the forecasted
period are expected to offset the lower
start-up
activity
associated with the lower growth in operating horsepower. Our
expansion capital expenditures for the twelve months ending
September 30, 2007 are expected to be higher than those
experienced in the twelve months ended June 30, 2006 as a
result of utilizing a portion of those estimated expansion
capital expenditures to replace compression equipment assumed to
become idle during the period, as described in
Capital Expenditures.
|
|
|
|
|
|
In the omnibus agreement, Universal Compression Holdings will
agree that, for a period that will terminate on the last day of
the fiscal quarter in which the second anniversary of the
completion of this offering occurs, our obligation to reimburse
it for any cost of sales that it incurs in the operation of our
business will be capped at an amount equal to $16.95 per
horsepower (after taking into account any such costs that we
incur and pay directly) on a quarterly basis. Based on our
assumptions for the twelve months ending September 30,
2007, we do not anticipate our cost of sales per horsepower will
exceed this cap and, therefore, do not currently anticipate
relying on the cap to meet our estimated EBITDA. Please read
Certain Relationships and Related Party
Transactions Omnibus Agreement Provision
of Services Necessary to Operate Our Business for
additional information regarding the terms of the omnibus
agreement.
|
|
|
|
Selling, General and Administrative Expenses
|
|
|
|
|
|
Selling, general and administrative expenses include expenses
directly attributable to us as well as expenses that are
indirectly attributable to us and allocated to us by Universal
Compression Holdings pursuant to the terms of the omnibus
agreement. The omnibus agreement will provide that all aggregate
indirect costs associated with Universal Compression
Holdings domestic contract compression business and our
business, including selling, general and administrative
expenses, will be allocated to, and reimbursable by, us on a pro
rata basis at Universal Compression Holdings actual cost
based on the amount of compression horsepower owned by us
relative to the amount owned by Universal Compression
Holdings domestic contract compression business as of the
end of each fiscal quarter, or in accordance with such other
method as our general partner deems reasonable and appropriate.
In the omnibus agreement, Universal Compression Holdings will
agree that, for a period that will terminate on the last day of
the fiscal quarter in which the second anniversary of the
completion of this offering occurs, our obligation to reimburse
it for, among other things, any selling, general and
administrative costs allocated to us will be capped at
$2.5 million per quarter (after taking into account any
such costs that we incur and pay directly). The cap is subject
to increase in connection with expansions of our operations
through the acquisition or construction of new assets or
businesses with the concurrence of our conflicts committee.
Please read Certain Relationships and Related Party
Transactions Omnibus Agreement Provision
of Services Necessary to Operate Our Business for
additional information regarding the terms of the omnibus
agreement.
|
44
|
|
|
|
|
Based on our assumptions for the twelve months ending
September 30, 2007, we anticipate our selling, general and
administrative costs will exceed the cap described above by
$0.4 million. Accordingly, we anticipate that our selling,
general and administrative costs for the twelve months ending
September 30, 2007 will be limited to $10.0 million.
Please read Certain Relationships and Related Party
Transactions Omnibus Agreement Provision
of Services Necessary to Operate Our Business for
additional information regarding the terms of the omnibus
agreement.
|
|
|
|
Without giving effect to the $10.0 million cap in the
omnibus agreement, we estimate selling, general and
administrative expenses to be $10.4 million for the twelve
months ending September 30, 2007, which includes
$2.5 million of estimated incremental selling, general and
administrative expenses relating to our operating as a separate
publicly traded limited partnership. For the twelve months ended
June 30, 2006 on a pro forma basis, our selling, general
and administrative expenses were $6.1 million, which do not
include our assumed incremental selling, general and
administrative expenses relating to our operating as a publicly
traded limited partnership. Our selling, general and
administrative expenses, not related to our operating as a
separate public company, are anticipated to increase due to an
increase in the selling, general and administrative expenses
assumed to be incurred by Universal Compression Holdings. This
increase results from the on-going implementation of Universal
Compression Holdings enterprise resource planning system
and the adoption of Statement of Financial Accounting Standards
No. 123R, Share-Based Payment, relating to
stock-based compensation.
|
|
|
|
|
|
Depreciation expense is estimated to be $11.7 million for
the twelve months ending September 30, 2007, as compared to
$9.7 million for the twelve months ended June 30, 2006
on a pro forma basis. Depreciation expense is assumed to
continue to be based on consistent average depreciable asset
lives and depreciation methodologies, taking into account
estimated capital expenditures as described below.
|
|
|
|
|
|
Maintenance capital expenditures are assumed to be approximately
$6.1 million for the twelve months ending
September 30, 2007, as compared to $5.3 million for
the twelve months ended June 30, 2006 on a pro forma basis.
|
|
|
|
Maintenance capital expenditures are estimated based on an
analysis of the anticipated overhaul requirements of the
specific compression equipment to be included in the business to
be contributed to us in connection with the closing of the
offering.
|
|
|
|
Expansion capital expenditures are estimated to be approximately
$23.3 million for the twelve months ending
September 30, 2007, consisting of the purchase of newly
fabricated or idle compression equipment from Universal
Compression Holdings. Expansion capital expenditures were
$10.0 million for the twelve months ended June 30,
2006 on a pro forma basis. Our expansion capital expenditures
are assumed to be higher for the twelve months ending
September 30, 2007 as compared to the twelve months ended
June 30, 2006, because we assume that our utilization rates
revert to historical levels of our predecessor over the course
of the twelve months. This assumed decrease in utilization rates
results in a portion of our compression fleet becoming idle due
to changing customer requirements during the twelve months
ending September 30, 2007, requiring us to acquire
compression equipment both to replace those idled units as well
as to fulfill our customers assumed growing compression
needs.
|
45
|
|
|
|
|
In connection with the closing of this offering, we anticipate
that our operating partnership will enter into a new
$225.0 million revolving credit facility.
|
|
|
|
Our debt levels are assumed not to exceed $148.3 million,
consisting of $125.0 million that will be initially drawn
to repay debt we will assume from Universal Compression Holdings
in connection with the closing of this offering and
$23.3 million estimated to be later drawn to finance our
estimated expansion capital expenditures.
|
|
|
|
Interest expense for the twelve months ending September 30,
2007 is estimated based on an assumed 6.525% interest rate on
the initial $125 million drawn under our revolving credit
facility and an assumed 7.0% interest rate on the debt assumed
to be drawn to finance all of our estimated expansion capital
expenditures. We have entered into floating-to-fixed swaps
covering the initial $125 million of borrowings under the
facility that fix our LIBOR rate at 5.275%, resulting in our
assumed interest rate being 6.525%. The 7.0% interest expense
assumed on the debt to be drawn to finance our expansion capital
expenditures is an estimated rate as we have not entered into
any swaps with respect to that debt. Interest expense also
includes amortization of deferred issuance costs of
$1.125 million, which is being amortized over 5 years,
and a commitment fee of 0.25%. Because the amortization of
deferred issuance costs is a non-cash expense, it is not
included in our cash interest expense estimate.
|
|
|
|
We assume that we will remain in compliance with the restrictive
financial covenants in our future debt agreements.
|
While we believe that our assumptions supporting our estimated
EBITDA and cash available for distribution for the twelve months
ending September 30, 2007 are reasonable in light of
managements current beliefs concerning future events, the
assumptions are inherently uncertain and are subject to
significant business, economic, regulatory and competitive risks
and uncertainties that could cause actual results to differ
materially from those we anticipate. If our assumptions are not
realized, the actual EBITDA and cash available for distribution
that we generate could be substantially less than that currently
expected and could, therefore, be insufficient to permit us to
make the full minimum quarterly distribution on all of our
units, in which event the market price of the common units may
decline materially.
46
Pro Forma Cash Available for Distribution for the Twelve
Months Ended March 31, 2006 and June 30, 2006
If we had completed the transactions contemplated in this
prospectus on April 1, 2005 or July 1, 2005, our pro forma
available cash for the twelve months ended March 31, 2006
and June 30, 2006, respectively, would have been
approximately $14.4 million and $16.7 million,
respectively. This amount would have been sufficient to pay the
full minimum quarterly distribution on the common units for the
twelve months ended June 30, 2006, but insufficient by
approximately $3.6 million and $1.3 million,
respectively, to pay the full minimum quarterly distribution on
the subordinated units and general partner units for these
periods.
Pro forma cash available for distribution includes 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,
financial statement audit, tax return and Schedule K-1
preparation and distribution, investor relations activities,
registrar and transfer agent fees, incremental director and
officer liability insurance costs and director compensation
costs. We expect these incremental general and administrative
expenses initially to total approximately $2.5 million per
year. The unaudited pro forma financial statements do not
reflect this anticipated incremental general and administrative
expense.
The pro forma financial statements, upon which pro forma cash
available for distribution is based, do not purport to present
our results of operations had the transactions contemplated in
this prospectus actually been completed as of the dates
indicated. Furthermore, cash available for distribution is a
cash accounting concept, while our pro forma financial
statements have been prepared on an accrual basis. We derived
the amounts of pro forma cash available for distribution shown
above in the manner described in the table below. As a result,
the amount of pro forma cash available for distribution should
only be viewed as a general indication of the amount of cash
available for distribution that we might have generated had we
been formed in earlier periods.
The following table illustrates, on a pro forma basis, for the
twelve months ended March 31, 2006 and June 30, 2006,
the amount of available cash that would have been available for
distributions to our unitholders, assuming in each case that the
offering had been consummated on April 1, 2005 and
July 1, 2005, respectively. Each of the pro forma
adjustments presented below is explained in the footnotes to
such adjustments.
47
Universal Compression Partners, L.P.
Unaudited Pro Forma Cash Available for Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2006(a)
|
|
|
2006(a)
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except
|
|
|
|
per unit amounts)
|
|
Pro forma revenue
|
|
$
|
52,108
|
|
|
$
|
57,303
|
|
|
Pro forma cost of sales (excluding depreciation expense)
|
|
|
16,527
|
|
|
|
18,305
|
|
|
|
|
|
|
|
|
Pro forma gross margin
|
|
|
35,581
|
|
|
|
38,998
|
|
|
Pro forma selling, general and administrative expenses
|
|
|
5,001
|
|
|
|
6,052
|
|
|
Pro forma depreciation
|
|
|
9,288
|
|
|
|
9,734
|
|
|
Pro forma interest expense
|
|
|
8,632
|
|
|
|
8,632
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income(b)
|
|
|
12,660
|
|
|
|
14,580
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Pro forma interest expense(c)
|
|
|
8,632
|
|
|
|
8,632
|
|
|
Pro forma depreciation
|
|
|
9,288
|
|
|
|
9,734
|
|
|
|
|
|
|
|
|
Pro Forma EBITDA(d)
|
|
|
30,580
|
|
|
|
32,946
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Incremental selling, general and administrative expense of being
a public partnership(e)
|
|
|
2,500
|
|
|
|
2,500
|
|
|
Pro forma cash interest expense(f)
|
|
|
8,407
|
|
|
|
8,407
|
|
|
Pro forma expansion capital expenditures(g)
|
|
|
7,087
|
|
|
|
9,982
|
|
|
Pro forma maintenance capital expenditures(h)
|
|
|
5,236
|
|
|
|
5,292
|
|
Add:
|
|
|
|
|
|
|
|
|
|
Capital contribution to fund expansion capital expenditures(i)
|
|
|
7,087
|
|
|
|
9,982
|
|
|
|
|
|
|
|
|
Pro forma cash available for distribution
|
|
$
|
14,437
|
|
|
$
|
16,747
|
|
|
|
|
|
|
|
|
Per unit minimum annual distribution
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
Pro forma annual distributions to:
|
|
|
|
|
|
|
|
|
|
Publicly held common units(j)
|
|
$
|
7,700
|
|
|
$
|
7,700
|
|
|
Common units held by affiliates of our general partner(j)
|
|
|
1,155
|
|
|
|
1,155
|
|
|
Subordinated units held by affiliates of our general partner(j)
|
|
|
8,855
|
|
|
|
8,855
|
|
|
General partner units held by our general partner(j)
|
|
|
361
|
|
|
|
361
|
|
|
|
|
|
|
|
|
Total minimum annual distributions(j)
|
|
|
18,071
|
|
|
|
18,071
|
|
|
|
|
|
|
|
|
Surplus/(Shortfall)(k)
|
|
$
|
(3,634
|
)
|
|
$
|
(1,324
|
)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Unaudited pro forma cash available for distribution for the
twelve months ended March 31, 2006 was derived by combining
pro forma amounts for the nine months ended December 31,
2005 and the three months ended March 31, 2006 (not
included in this prospectus). Unaudited pro forma cash available
for distribution for the twelve months ended June 30, 2006
was derived by combining pro forma amounts for the six months
ended December 31, 2005 (not included in this prospectus)
and the six months ended June 30, 2006.
|
|
(b)
|
|
Reflects our pro forma net income for the period indicated and
gives effect to the offering and the related transactions.
|
48
|
|
|
(c)
|
|
Represents pro forma cash interest expense including commitment
fees and cash payments related to interest rate swaps designated
as cash flow hedges discussed below. Also included is the
non-cash amortization of debt issuance costs. In connection with
the closing of this offering, we anticipate that our operating
partnership will enter into a revolving credit facility. We
expect to borrow $125.0 million under the revolving credit
facility at the closing of this offering and to borrow
additional amounts as necessary to fund pro forma expansion
capital expenditures. We anticipate that this revolving credit
facility will bear interest at LIBOR plus 1.25%. We have entered
into floating-to-fixed swaps covering the initial
$125 million of borrowings under this facility that fix our
LIBOR rate at 5.275%, resulting in our assumed interest rate
being 6.525%.
|
|
(d)
|
|
EBITDA is defined as net income plus interest expense and
depreciation expense. Please read Selected Historical and
Pro Forma Financial and Operating Data Non-GAAP
Financial Measures for more information regarding EBITDA.
|
|
(e)
|
|
Reflects an adjustment to our EBITDA for an estimated
incremental cash expense associated with being a publicly traded
limited partnership, including costs associated with annual and
quarterly reports to unitholders, financial statement audit, tax
return and Schedule K-1 preparation and distribution,
investor relations activities, registrar and transfer agent
fees, incremental director and officer liability insurance costs
and director compensation. The unaudited pro forma financial
statements do not reflect this anticipated incremental selling,
general and administrative expense.
|
|
(f)
|
|
Reflects pro forma cash interest expense including commitment
fees and cash payments related to interest rate swaps designated
as cash flow hedges. It differs from pro forma interest expense
discussed in (c) above as it excludes non-cash amortization of
debt issuance costs.
|
|
(g)
|
|
Reflects pro forma expansion capital expenditures. Expansion
capital expenditures are capital expenditures made to expand or
to replace partially or fully depreciated assets or to expand
the operating capacity or revenue of existing or new assets,
whether through construction, acquisition or modification.
|
|
(h)
|
|
Reflects pro forma maintenance capital expenditures. Maintenance
capital expenditures are capital expenditures made to maintain
the existing operating capacity of our assets and related cash
flows further extending the useful lives of the assets.
|
|
(i)
|
|
Reflects cash provided by Universal Compression Holdings to fund
expansion capital expenditures.
|
|
(j)
|
|
The table below sets forth the assumed number of outstanding
common units, subordinated units and general partner units upon
the closing of this offering and the estimated aggregate
distribution amounts payable on our common units, subordinated
units and general partner units for four quarters at our initial
distribution rate of $0.35 per common unit per quarter
($1.40 per common unit on an annualized basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
|
One Quarter
|
|
|
Four Quarters
|
|
|
|
|
|
|
|
|
|
|
|
Publicly held common units
|
|
|
5,500,000
|
|
|
$
|
1,925,000
|
|
|
$
|
7,700,000
|
|
Common units held by affiliates of our general partner
|
|
|
825,000
|
|
|
|
288,750
|
|
|
|
1,155,000
|
|
Subordinated units held by affiliates of our general partner
|
|
|
6,325,000
|
|
|
|
2,213,750
|
|
|
|
8,855,000
|
|
General partner units held by affiliates of our general partner
|
|
|
258,163
|
|
|
|
90,357
|
|
|
|
361,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,908,163
|
|
|
$
|
4,517,857
|
|
|
$
|
18,071,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k)
|
|
Pro forma cash distributions are based on an assumed
distribution of $0.35 per common unit per quarter. Our pro
forma cash available for distribution for the twelve months
ended March 31, 2006 and June 30, 2006 would have been
sufficient to pay the full minimum quarterly distribution on the
common units and 60% and 85%, respectively, of the minimum
quarterly distribution on the subordinated units during these
periods.
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49
PROVISIONS OF OUR PARTNERSHIP AGREEMENT
RELATING TO CASH DISTRIBUTIONS
Set forth below is a summary of the significant provisions of
our partnership agreement that relate to cash distributions.
Distributions of Available Cash
General.
Within 45 days after the end of each
quarter, beginning with the quarter ending December 31,
2006, we will distribute all of our available cash to
unitholders of record on the applicable record date. We will
adjust the quarterly distribution for the period from the
closing of this offering through December 31, 2006 based on
the actual length of the period.
Definition of Available Cash.
Available cash
generally means, for any quarter, all cash on hand at the end of
that quarter:
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less the amount of cash reserves established by our general
partner to:
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provide for the proper conduct of our business;
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comply with applicable law, any of our debt instruments or other
agreements; or
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provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters;
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plus, if our general partner so determines, all or a portion of
cash on hand on the date of determination of available cash for
the quarter.
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Intent to Distribute the Minimum Quarterly
Distribution.
We will distribute to the holders of
common units and subordinated units on a quarterly basis at
least the minimum quarterly distribution of $0.35 per unit,
or $1.40 per year, to the extent we have sufficient cash
from our operations after establishment of cash reserves and
payment of fees and expenses, including payments to our general
partner. However, there is no guarantee that we will pay the
minimum quarterly distribution on the units in any quarter. Even
if our cash distribution policy is not modified or revoked, the
amount of distributions paid under our policy and the decision
to make any distribution is determined by our general partner,
taking into consideration the terms of our partnership
agreement. We will be prohibited from making any distributions
to unitholders if it would cause an event of default, or an
event of default is existing, under our credit agreement. Please
read Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources Our Liquidity and
Capital Resources Description of Credit
Facility for a discussion of the restrictions to be
included in our credit agreement that may restrict our ability
to make distributions.
General Partner Interest and Incentive Distribution
Rights.
Initially, our general partner will be entitled
to 2% of all quarterly distributions since inception that we
make prior to our liquidation. This general partner interest
will be represented by 258,163 general partner units. Our
general partner has the right, but not the obligation, to
contribute a proportionate amount of capital to us to maintain
its current general partner interest. The general partners
initial 2% interest in these distributions may be reduced if we
issue additional units in the future and our general partner
does not contribute a proportionate amount of capital to us to
maintain its 2% general partner interest.
Our general partner also currently holds incentive distribution
rights that entitle it to receive increasing percentages, up to
a maximum of 50%, of the cash we distribute from operating
surplus (as defined below) in excess of $0.4025 per unit
per quarter. The maximum distribution of 50% includes
distributions paid to our general partner on its 2% general
partner interest and assumes that our general partner maintains
its general partner interest at 2%. The maximum distribution of
50% does not include any distributions that our general partner
may receive on units that it owns. Please read
General Partner Interest and Incentive
Distribution Rights for additional information.
50
Operating Surplus and Capital Surplus
General.
All cash distributed to unitholders will
be characterized as either operating surplus or
capital surplus. Our partnership agreement requires
that we distribute available cash from operating surplus
differently than available cash from capital surplus.
Operating Surplus.
Operating surplus generally
consists of:
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our cash balance on the closing date of this offering; plus
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an amount equal to three times the amount needed for any one
quarter for us to pay a distribution on all of our units
(including the general partner units) and the incentive
distribution rights at the same per-unit amount as was
distributed in the immediately preceding quarter; plus
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all of our cash receipts after the closing of this offering,
excluding cash from (1) borrowings, (2) sales of
equity and debt securities, (3) sales or other dispositions
of assets outside the ordinary course of business, and
(4) capital contributions; less
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all of our operating expenditures after the closing of this
offering (but not the repayment of borrowings) and maintenance
capital expenditures; less
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the amount of cash reserves established by our general partner
for future operating expenditures.
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Maintenance capital expenditures represent capital expenditures
made to maintain the existing operating capacity of our assets
and related cash flows further extending the useful lives of the
assets. Expansion capital expenditures differ from maintenance
capital expenditures and represent capital expenditures made to
expand or to replace partially or fully depreciated assets or to
expand the operating capacity or revenue of existing or new
assets, whether through construction, acquisition or
modification. Our partnership agreement provides that our
general partner determines how to allocate a capital expenditure
for the acquisition or expansion of our assets between
maintenance capital expenditures and expansion capital
expenditures.
Capital Surplus.
Capital surplus consists of:
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borrowings other than working capital borrowings;
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sales of our equity and debt securities; and
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sales or other dispositions of assets for cash, other than
inventory, accounts receivable and other current assets sold in
the ordinary course of business or as part of normal retirement
or replacement of assets.
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Characterization of Cash Distributions.
We will
treat all available cash distributed as coming from operating
surplus until the sum of all available cash distributed since we
began operations equals the operating surplus as of the most
recent date of determination of available cash. We will treat
any amount distributed in excess of operating surplus,
regardless of its source, as capital surplus. As reflected
above, operating surplus includes an amount equal to
three times the amount needed for any one quarter for us to
pay a distribution on all of our units (including the general
partner units) and the incentive distribution rights at the same
per-unit amount as was distributed in the immediately preceding
quarter. This amount, which initially equals approximately
$13.55 million, does not reflect actual cash on hand that
is available for distribution to our unitholders. Rather, it is
a provision that will enable us, if we choose, to distribute as
operating surplus up to this amount of cash we receive in the
future from non-operating sources, such as borrowings, issuances
of securities, and asset sales, that would otherwise be
distributed as capital surplus. We do not anticipate that we
will make any distributions from capital surplus. The
characterization of cash distributions as operating surplus
versus capital surplus does not result in a different impact to
unitholders for federal tax purposes. Please read Material
Tax Consequences Tax
51
Consequences of Unit Ownership Treatment of
Distributions for a discussion of the tax treatment of
cash distributions.
Subordination Period
General.
Our partnership agreement provides that,
during the subordination period (which we define below and in
Appendix B), the common units will have the right to
receive distributions of available cash from operating surplus
in an amount equal to the minimum quarterly distribution of
$0.35 per common unit per quarter, plus any arrearages in
the payment of the minimum quarterly distribution on the common
units from prior quarters, before any distributions of available
cash from operating surplus may be made on the subordinated
units. These units are deemed subordinated because
for a period of time, referred to as the subordination period,
the subordinated units will not be entitled to receive any
distributions until the common units have received the minimum
quarterly distribution plus any arrearages from prior quarters.
Furthermore, no arrearages will be paid on the subordinated
units. The practical effect of the existence of the subordinated
units is to increase the likelihood that during the
subordination period there will be available cash to be
distributed on the common units. As of the closing of this
offering, all of the subordinated units will be owned by one or
more affiliates of Universal Compression Holdings. Please read
Security Ownership of Certain Beneficial Owners and
Management.
Subordination Period.
The subordination period
will extend until the first day of any quarter beginning after
September 30, 2011 that each of the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded the minimum quarterly
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;
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the adjusted operating surplus (as defined below)
generated during each of the three consecutive, non-overlapping
four-quarter periods immediately preceding that date equaled or
exceeded the sum of the minimum quarterly distributions on all
of the outstanding common units, subordinated units and general
partner units during those periods on a fully diluted
basis; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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Expiration of the Subordination Period.
When the
subordination period expires, each outstanding subordinated unit
will convert into one common unit and will then participate pro
rata with the other common units in distributions of available
cash. In addition, if the unitholders remove our general partner
other than for cause and units held by the general partner and
its affiliates are not voted in favor of such removal:
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the subordination period will end and each subordinated unit
will immediately convert into one common unit;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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the general partner will have the right to convert its general
partner interest and its incentive distribution rights, if any,
into common units or to receive cash in exchange for those
interests.
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Early Termination of Subordination Period.
The
subordinated units may convert into common units prior to
September 30, 2011 under either of two different scenarios.
If the tests for ending the subordination period described above
are satisfied for any three consecutive four-quarter periods
ending on or after September 30, 2009, 25% of the
subordinated units will
52
convert into common units on a one-for-one basis. Similarly, if
those tests are also satisfied for any three consecutive
four-quarter periods ending on or after September 30, 2010,
an additional 25% of the subordinated units (measured as if the
first 25% of the subordinated units had not previously converted
to common units) will convert into common units on a one-for-one
basis. The second early conversion of subordinated units may not
occur, however, until at least one year following the end of the
period for the first early conversion of subordinated units.
In addition, the subordination period will automatically
terminate on the first day of any quarter beginning on
September 30, 2008 if each of the following tests are met:
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distributions of available cash from operating surplus on each
of the outstanding common units, subordinated units and general
partner units equaled or exceeded $2.10 (150% of the annualized
minimum quarterly distribution on such common units,
subordinated units and general partner units) for any
four-quarter period immediately preceding that date;
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the adjusted operating surplus (as defined below)
generated during any four-quarter period immediately preceding
that date equaled or exceeded the sum of a distribution of $2.10
(150% of the annualized minimum quarterly distribution) on all
of the outstanding common units, subordinated units and general
partner units on a fully diluted basis; and
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there are no arrearages in payment of the minimum quarterly
distribution on the common units.
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Adjusted Operating Surplus.
Adjusted operating
surplus is intended to reflect the cash generated from
operations during a particular period and therefore excludes net
drawdowns of reserves of cash generated in prior periods.
Adjusted operating surplus consists of:
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operating surplus generated with respect to that period
(excluding any amounts attributable to the items described in
the first two bullet points under Operating
Surplus and Capital Surplus Operating Surplus
above); plus
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any net decrease made in subsequent periods in cash reserves for
operating expenditures initially established with respect to
that period; less
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any net decrease in cash reserves for operating expenditures
with respect to that period not relating to an operating
expenditure made with respect to that period; plus
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any net increase in cash reserves for operating expenditures
with respect to that period required by any debt instrument for
the repayment of principal, interest or premium.
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Distributions of Available Cash from Operating Surplus During
the Subordination Period
We will make distributions of available cash from operating
surplus for any quarter during the subordination period in the
following manner:
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first
, 98% to the common unitholders, pro rata, and 2% to
the general partner, until we distribute for each outstanding
common unit an amount equal to the minimum quarterly
distribution for that quarter;
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second
, 98% to the common unitholders, pro rata, and 2%
to the general partner, until we distribute for each outstanding
common unit an amount equal to any arrearages in payment of the
minimum quarterly distribution on the common units for any prior
quarters during the subordination period;
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third
, 98% to the subordinated unitholders, pro rata, and
2% to the general partner, until we distribute for each
subordinated unit an amount equal to the minimum quarterly
distribution for that quarter; and
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thereafter
, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
Distributions of Available Cash from Operating Surplus after
the Subordination Period
We will make distributions of available cash from operating
surplus for any quarter after the subordination period in the
following manner:
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first
, 98% to all unitholders, pro rata, and 2% to the
general partner, until we distribute for each outstanding unit
an amount equal to the minimum quarterly distribution for that
quarter; and
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thereafter
, in the manner described in
General Partner Interest and Incentive
Distribution Rights below.
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The preceding discussion is based on the assumptions that our
general partner maintains its 2% general partner interest and
that we do not issue additional classes of equity securities.
General Partner Interest and Incentive Distribution Rights
Our partnership agreement provides that our general partner
initially will be entitled to 2% of all distributions that we
make prior to our liquidation. Our general partner has the
right, but not the obligation, to contribute a proportionate
amount of capital to us to maintain its 2% general partner
interest if we issue additional units. Our general
partners 2% interest, and the percentage of our cash
distributions to which it is entitled, will be proportionately
reduced if we issue additional units in the future and our
general partner does not contribute a proportionate amount of
capital to us in order to maintain its 2% general partner
interest. Our general partner will be entitled to make a capital
contribution in order to maintain its 2% general partner
interest in the form of the contribution to us of common units
based on the current market value of the contributed common
units.
Incentive distribution rights represent the right to receive an
increasing percentage (13%, 23% and 48%) of quarterly
distributions of available cash from operating surplus after the
minimum quarterly distribution and the target distribution
levels have been achieved. Our general partner currently holds
the incentive distribution rights, but may transfer these rights
separately from its general partner interest, subject to
restrictions in the partnership agreement.
The following discussion assumes that the general partner
maintains its 2% general partner interest and continues to own
the incentive distribution rights.
If for any quarter:
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we have distributed available cash from operating surplus to the
common and subordinated unitholders in an amount equal to the
minimum quarterly distribution; and
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we have distributed available cash from operating surplus on
outstanding common units in an amount necessary to eliminate any
cumulative arrearages in payment of the minimum quarterly
distribution;
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then, we will distribute any additional available cash from
operating surplus for that quarter among the unitholders and the
general partner in the following manner:
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first
, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder receives a total of
$0.4025 per unit for that quarter (the first target
distribution);
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second
, 85% to all unitholders, pro rata, and 15% to the
general partner, until each unitholder receives a total of
$0.4375 per unit for that quarter (the second target
distribution);
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third
, 75% to all unitholders, pro rata, and 25% to the
general partner, until each unitholder receives a total of
$0.525 per unit for that quarter (the third target
distribution); and
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thereafter
, 50% to all unitholders, pro rata, and 50% to
the general partner.
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In each case, the amount of the target distribution set forth
above is exclusive of any distributions to common unitholders to
eliminate any cumulative arrearages in payment of the minimum
quarterly distribution.
Percentage Allocations of Available Cash from Operating
Surplus
The following table illustrates the percentage allocations of
the additional available cash from operating surplus between the
unitholders and our general partner up to the various target
distribution levels. The amounts set forth under Marginal
Percentage Interest in Distributions are the percentage
interests of our general partner and the unitholders in any
available cash from operating surplus we distribute up to and
including the corresponding amount in the column Total
Quarterly Distribution Per Unit, until available cash from
operating surplus we distribute reaches the next target
distribution level, if any. The percentage interests shown for
the unitholders and the general partner for the minimum
quarterly distribution are also applicable to quarterly
distribution amounts that are less than the minimum quarterly
distribution. The percentage interests set forth below for our
general partner include its 2% general partner interest and
assume our general partner has contributed any additional
capital to maintain its 2% general partner interest and has not
transferred its incentive distribution rights.
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Marginal Percentage
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Interest in
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Total Quarterly
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Distributions
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Distribution Per Unit
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General
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Target Amount
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Unitholders
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Partner
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Minimum Quarterly Distribution
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$0.35
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98%
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2%
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First Target Distribution
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above $0.35 up to $0.4025
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98%
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2%
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Second Target Distribution
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above $0.4025 up to $0.4375
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85%
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15%
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Third Target Distribution
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above $0.4375 up to $0.525
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75%
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25%
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Thereafter
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above $0.525
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50%
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50%
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Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be
Made.
Our partnership agreement requires that we make
distributions of available cash from capital surplus, if any, in
the following manner:
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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;
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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
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thereafter
, we will make all distributions of available
cash from capital surplus as if they were from operating surplus.
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Effect of a Distribution from Capital Surplus.
Our
partnership agreement treats a distribution of capital surplus
as the repayment of the initial unit price from this initial
public offering, which is a return of capital. The initial
public offering price less any distributions of capital surplus
per unit is referred to as the unrecovered initial unit
price. Each time a distribution of capital surplus is
made, the minimum quarterly distribution and the target
distribution levels will be reduced in the same proportion as
the corresponding reduction in the unrecovered initial unit
price. Because distributions of capital surplus will
55
reduce the minimum quarterly distribution, after any of these
distributions are made, it may be easier for the general partner
to receive incentive distributions and for the subordinated
units to convert into common units. However, any distribution of
capital surplus before the unrecovered initial unit price is
reduced to zero cannot be applied to the payment of the minimum
quarterly distribution or any arrearages.
Once we distribute capital surplus on a unit issued in this
offering in an amount equal to the initial unit price, our
partnership agreement specifies that the minimum quarterly
distribution and the target distribution levels will be reduced
to zero. Our partnership agreement specifies that we then make
all future distributions from operating surplus, with 50% being
paid to the holders of units and 50% to the general partner. The
percentage interests shown for our general partner include its
2% general partner interest and assume the general partner has
not transferred the incentive distribution rights.
Adjustment to the Minimum Quarterly Distribution and Target
Distribution Levels
In addition to adjusting the minimum quarterly distribution and
target distribution levels to reflect a distribution of capital
surplus, if we combine our units into fewer units or subdivide
our units into a greater number of units, our partnership
agreement specifies that the following items will be
proportionately adjusted:
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the minimum quarterly distribution;
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target distribution levels;
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the unrecovered initial unit price; and
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the number of common units into which a subordinated unit is
convertible.
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For example, if a two-for-one split of the common units should
occur, the minimum quarterly distribution, the target
distribution levels and the unrecovered initial unit price would
each be reduced to 50% of its initial level and each
subordinated unit would be convertible into two common units.
Our partnership agreement provides that we not make any
adjustment by reason of the issuance of additional units for
cash or property.
In addition, if legislation is enacted or if existing law is
modified or interpreted by a governmental taxing authority, so
that we become taxable as a corporation or otherwise subject to
taxation as an entity for federal, state or local income tax
purposes, our partnership agreement specifies that the minimum
quarterly distribution and the target distribution levels for
each quarter will be reduced by multiplying each distribution
level by a fraction, the numerator of which is available cash
for that quarter and the denominator of which is the sum of
available cash for that quarter plus the general partners
estimate of our aggregate liability for the quarter for such
income taxes payable by reason of such legislation or
interpretation. To the extent that the actual tax liability
differs from the estimated tax liability for any quarter, the
difference will be accounted for in subsequent quarters.
Distributions of Cash Upon Liquidation
General.
If we dissolve in accordance with the
partnership agreement, we will sell or otherwise dispose of our
assets in a process called liquidation. We will first apply the
proceeds of liquidation to the payment of our creditors. We will
distribute any remaining proceeds to the unitholders and the
general partner, in accordance with their capital account
balances, as adjusted to reflect any gain or loss upon the sale
or other disposition of our assets in liquidation.
The allocations of gain and loss upon liquidation are intended,
to the extent possible, to entitle the holders of outstanding
common units to a preference over the holders of outstanding
subordinated units upon our liquidation, to the extent required
to permit common unitholders to receive their unrecovered
initial unit price plus the minimum quarterly distribution for
the quarter during which liquidation occurs plus any unpaid
arrearages in payment of the minimum quarterly distribution on
the common units. However, there may not be sufficient gain upon
our liquidation to enable the holders of common units to fully
recover all of these amounts, even though there may be cash
available for distribution to the holders
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of subordinated units. Any further net gain recognized upon
liquidation will be allocated in a manner that takes into
account the incentive distribution rights of the general partner.
Manner of Adjustments for Gain.
The manner of the
adjustment for gain is set forth in the partnership agreement.
If our liquidation occurs before the end of the subordination
period, we will allocate any gain to the partners in the
following manner:
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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;
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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;
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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;
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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;
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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;
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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
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thereafter
, 50% to all unitholders, pro rata, and 50% to
the general partner.
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The percentage interests set forth above for our general partner
include its 2% general partner interest and assume the general
partner has not transferred the incentive distribution rights.
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that clause (3) of the second
bullet point above and all of the third bullet point above will
no longer be applicable.
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Manner of Adjustments for Losses.
If our
liquidation occurs before the end of the subordination period,
we will generally allocate any loss to the general partner and
the unitholders in the following manner:
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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;
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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.
|
If the liquidation occurs after the end of the subordination
period, the distinction between common units and subordinated
units will disappear, so that all of the first bullet point
above will no longer be applicable.
Adjustments to Capital Accounts.
Our partnership
agreement requires that we make adjustments to capital accounts
upon the issuance of additional units. In this regard, our
partnership agreement specifies that we allocate any unrealized
and, for tax purposes, unrecognized gain or loss resulting from
the adjustments to the unitholders and the general partner in
the same manner as we allocate gain or loss upon liquidation. In
the event that we make positive adjustments to the capital
accounts upon the issuance of additional units, our partnership
agreement requires that we allocate any later negative
adjustments to the capital accounts resulting from the issuance
of additional units or upon our liquidation in a manner which
results, to the extent possible, in the general partners
capital account balances equaling the amount which they would
have been if no earlier positive adjustments to the capital
accounts had been made.
58
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING
DATA
The following table shows selected historical consolidated
financial and operating data of Universal Compression Partners
Predecessor, our predecessor, and pro forma financial and
operating data of Universal Compression Partners, L.P. for the
periods and as of the dates presented. In connection with this
offering, Universal Compression Holdings and various
wholly-owned subsidiaries will contribute a portion of the
business of our predecessor to us. Since our operations will
only represent a portion of the business of our predecessor and
due to the other factors described in Managements
Discussion and Analysis of Financial Condition and Results of
Operations Overview Items Impacting
the Comparability of Our Financial Results, our future
results of operations will not be comparable to our
predecessors historical results.
In December 2005, Universal Compression Holdings changed its
fiscal year end from March 31 to December 31,
effective in 2005. As a result, the selected historical
financial and operating data below for our predecessor includes
the nine month periods ended December 31, 2004 and 2005 and
the pro forma financial and operating data below for Universal
Compression Partners, L.P. includes the nine month period ended
December 31, 2005.
The selected historical financial data as of March 31,
2004, March 31, 2005 and December 31, 2005, as well as
the selected historical financial data for the twelve months
ended March 31, 2004 and 2005 and the nine months ended
December 31, 2005 have been derived from the audited
combined financial statements of our predecessor. The selected
historical financial data as of December 31, 2004 and
June 30, 2006, as well as the selected historical financial
data for the nine months ended December 31, 2004, the
twelve months ended March 31, 2002 and 2003 and the six
months ended June 30, 2005 and 2006 have been derived from
the unaudited combined financial statements of our predecessor.
The selected pro forma financial data for the nine months ended
December 31, 2005 and the six months ended June 30,
2006 are derived from the unaudited pro forma financial
statements of Universal Compression Partners, L.P. included
elsewhere in this prospectus. The pro forma adjustments have
been prepared as if certain transactions to be effected at the
closing of this offering had taken place on June 30, 2006,
in the case of the pro forma balance sheet, or as of
April 1, 2005, in the case of the pro forma statements of
operations for the nine months ended December 31, 2005 and
the six months ended June 30, 2006. These transactions
include:
|
|
|
|
|
the issuance by us of common units to the public and the use of
the net proceeds therefrom;
|
|
|
|
the contribution by Universal Compression Holdings of a portion
of its domestic contract compression business to us;
|
|
|
|
our assumption of $223.2 million of debt from Universal
Compression Holdings; and
|
|
|
|
our use of net proceeds of approximately $123.8 million
(net of debt financing fees) under our new revolving credit
facility to repay the portion of the assumed debt not repaid
with the net proceeds from this offering.
|
We derived the information in the following table from, and that
information should be read together with and is qualified in its
entirety by reference to, the historical combined and pro forma
financial statements and the accompanying notes included
elsewhere in this prospectus. The table should be read together
with Managements Discussion and Analysis of
Financial Condition and Results of Operations.
59
The following table includes the non-GAAP financial measures of
EBITDA and gross margin. We define EBITDA as net income plus
interest expense and depreciation expense. We define gross
margin as total revenue less cost of sales (excluding
depreciation expense). For a reconciliation of EBITDA and gross
margin to their most directly comparable financial measures
calculated and presented in accordance with GAAP, please read
Non-GAAP Financial Measures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal Compression
|
|
|
|
Universal Compression Partners Predecessor
|
|
|
Partners, L.P. Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
|
|
|
Six
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
Months
|
|
|
Months
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per unit and operating data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
267,550
|
|
|
$
|
265,465
|
|
|
$
|
280,951
|
|
|
$
|
296,239
|
|
|
$
|
219,321
|
|
|
$
|
248,414
|
|
|
$
|
156,590
|
|
|
$
|
195,505
|
|
|
$
|
36,816
|
|
|
$
|
31,757
|
|
|
Gross margin(1)
|
|
|
169,892
|
|
|
|
169,868
|
|
|
|
178,543
|
|
|
|
186,865
|
|
|
|
139,187
|
|
|
|
160,256
|
|
|
|
99,574
|
|
|
|
126,799
|
|
|
|
24,973
|
|
|
|
21,871
|
|
|
Selling, general and administrative expenses
|
|
|
23,838
|
|
|
|
24,050
|
|
|
|
26,076
|
|
|
|
26,319
|
|
|
|
19,158
|
|
|
|
22,437
|
|
|
|
14,128
|
|
|
|
22,479
|
|
|
|
3,437
|
|
|
|
3,730
|
|
|
Depreciation
|
|
|
29,156
|
|
|
|
39,714
|
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
33,488
|
|
|
|
38,001
|
|
|
|
6,787
|
|
|
|
5,068
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,473
|
|
|
|
4,316
|
|
|
Other (income) loss, net
|
|
|
(286
|
)
|
|
|
(799
|
)
|
|
|
600
|
|
|
|
(344
|
)
|
|
|
208
|
|
|
|
1,220
|
|
|
|
(166
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
117,184
|
|
|
$
|
106,903
|
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
$
|
8,276
|
|
|
$
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.64
|
|
|
$
|
0.68
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital(2)
|
|
$
|
18,299
|
|
|
$
|
15,443
|
|
|
$
|
12,172
|
|
|
$
|
14,038
|
|
|
$
|
13,732
|
|
|
$
|
16,058
|
|
|
$
|
13,833
|
|
|
$
|
49,294
|
|
|
|
|
|
|
$
|
|
|
|
Total assets
|
|
|
726,923
|
|
|
|
1,344,737
|
|
|
|
1,290,011
|
|
|
|
1,296,318
|
|
|
|
1,303,950
|
|
|
|
1,275,922
|
|
|
|
1,284,691
|
|
|
|
1,320,986
|
|
|
|
|
|
|
|
196,653
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
Partners capital/net parent equity
|
|
|
721,749
|
|
|
|
1,341,041
|
|
|
|
1,286,174
|
|
|
|
1,290,289
|
|
|
|
1,299,063
|
|
|
|
1,268,938
|
|
|
|
1,282,049
|
|
|
|
1,313,259
|
|
|
|
|
|
|
|
71,653
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3)
|
|
$
|
146,340
|
|
|
$
|
146,617
|
|
|
$
|
151,867
|
|
|
$
|
160,890
|
|
|
$
|
119,821
|
|
|
$
|
136,599
|
|
|
$
|
85,612
|
|
|
$
|
104,897
|
|
|
$
|
21,536
|
|
|
$
|
18,141
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion(4)(5)
|
|
$
|
106,531
|
|
|
$
|
31,569
|
|
|
$
|
24,271
|
|
|
$
|
46,637
|
|
|
$
|
34,530
|
|
|
$
|
33,550
|
|
|
$
|
21,344
|
|
|
$
|
37,529
|
|
|
$
|
5,107
|
|
|
$
|
6,204
|
|
|
|
Maintenance(5)(6)
|
|
|
23,950
|
|
|
|
25,579
|
|
|
|
24,388
|
|
|
|
35,745
|
|
|
|
26,545
|
|
|
|
28,057
|
|
|
|
18,491
|
|
|
|
14,376
|
|
|
|
4,296
|
|
|
|
2,377
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
139,483
|
|
|
$
|
148,917
|
|
|
$
|
155,085
|
|
|
$
|
158,464
|
|
|
$
|
117,708
|
|
|
$
|
135,207
|
|
|
$
|
85,865
|
|
|
$
|
71,086
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
(145,790
|
)
|
|
|
(44,043
|
)
|
|
|
(17,858
|
)
|
|
|
(68,582
|
)
|
|
|
(49,697
|
)
|
|
|
(53,829
|
)
|
|
|
(33,770
|
)
|
|
|
(47,184
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
6,307
|
|
|
|
(104,874
|
)
|
|
|
(137,227
|
)
|
|
|
(89,882
|
)
|
|
|
(68,011
|
)
|
|
|
(81,378
|
)
|
|
|
(52,095
|
)
|
|
|
(23,902
|
)
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available horsepower (at period end)
|
|
|
1,890,935
|
|
|
|
1,957,015
|
|
|
|
1,903,614
|
|
|
|
1,925,189
|
|
|
|
1,908,439
|
|
|
|
1,965,337
|
|
|
|
1,920,859
|
|
|
|
1,988,798
|
|
|
|
319,828
|
|
|
|
336,360
|
|
Average operating horsepower
|
|
|
1,592,435
|
|
|
|
1,602,093
|
|
|
|
1,646,342
|
|
|
|
1,675,242
|
|
|
|
1,662,058
|
|
|
|
1,759,949
|
|
|
|
1,728,140
|
|
|
|
1,797,425
|
|
|
|
297,051
|
|
|
|
327,765
|
|
Horsepower utilization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot (at period end)
|
|
|
83.9
|
%
|
|
|
83.1
|
%
|
|
|
85.0
|
%
|
|
|
89.9
|
%
|
|
|
89.6
|
%
|
|
|
91.9
|
%
|
|
|
90.9
|
%
|
|
|
89.6
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Average
|
|
|
88.0
|
%
|
|
|
83.0
|
%
|
|
|
85.0
|
%
|
|
|
88.0
|
%
|
|
|
87.5
|
%
|
|
|
90.7
|
%
|
|
|
90.0
|
%
|
|
|
91.1
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
(1)
|
Please read Non-GAAP Financial Measures
for more information regarding gross margin.
|
|
(2)
|
Working capital is defined as current assets minus current
liabilities.
|
|
(3)
|
Please read Non-GAAP Financial Measures
for more information regarding EBITDA.
|
|
(4)
|
Expansion capital expenditures are capital expenditures made to
expand or to replace partially or fully depreciated assets or to
expand the operating capacity or revenue of existing or new
assets, whether through construction, acquisition or
modification.
|
|
(5)
|
Pro forma capital expenditures were estimated by multiplying our
predecessors expansion and maintenance capital
expenditures per average available horsepower by the pro forma
average available horsepower of Universal Compression Partners,
L.P. for each period.
|
|
(6)
|
Maintenance capital expenditures are capital expenditures made
to maintain the existing operating capacity of our assets and
related cash flows further extending the useful lives of the
assets.
|
60
Non-GAAP Financial Measures
We include in this prospectus the non-GAAP financial measures of
EBITDA and gross margin. We provide reconciliations of these
non-GAAP financial measures to their most directly comparable
financial measures as calculated and presented in accordance
with GAAP.
We believe disclosure of these non-GAAP financial measures
provides useful information to investors because, when viewed
with our GAAP results and the accompanying reconciliations, they
provide a more complete understanding of our performance than
GAAP results alone. We also believe that investors benefit from
having access to the same financial measures that management
uses in evaluating the results of our business. When using these
measures to compare to other companies, which we believe can be
a useful tool to evaluate us, please note that these non-GAAP
financial measures may be calculated differently between
companies. We cannot ensure that these non-GAAP financial
measures are directly comparable to other companies
similarly titled measures.
EBITDA
We define EBITDA as net income plus interest expense and
depreciation expense. EBITDA is used as a supplemental
performance measure by our management.
Management uses EBITDA as a supplemental performance measure to
evaluate the current period operating performance and management
decisions made during the reporting period. EBITDA excludes
interest expense and depreciation expense, which are driven less
by current period operating performance and management decisions
than by our capital structure and asset base. The operational
factors highlighted in the evaluation using EBITDA include
pricing, marketing, utilization rates, maintenance and repair
costs and staffing. EBITDA presents an assessment of the
performance and changes in profitability driven by these
operational factors irrespective of changes in interest expense
or depreciation expense.
Although interest expense is a material expense for us and
reflects an important component of our overall performance, as
it reflects costs incurred to finance our operations, interest
expense also reflects the impact of our financial arrangements
in ways that are unrelated to the shorter-term performance of
our operations. EBITDA removes the effect of the performance of
these past historical financial transactions, whether beneficial
or detrimental to our GAAP results, both in the current period
and from
period-to
-period, so
that the performance of the core operations can be more
transparently evaluated.
Management also believes that EBITDA is a meaningful measure to
evaluate performance because, although we are a
capital-intensive business and depreciation expense is a
material expense for us, this expense may not accurately reflect
the costs required to maintain and replenish the operational
usage of our assets and therefore may not portray the costs from
current operational transaction activity. Rather, depreciation
expense reflects the systematic allocation of the historical
fixed asset values over the estimated useful lives of those
assets. By excluding depreciation expense, EBITDA provides a
measure with which to evaluate the performance independent of
whether depreciation expense accurately captures the costs to
maintain and replenish our operational usage of our assets.
EBITDA is also a financial measure that we expect to report to
our lenders and to use as a gauge for compliance with some of
our anticipated financial covenants under our credit facility.
Gross Margin
We define gross margin as total revenue less cost of sales
(excluding depreciation expense). Gross margin is used as a
supplemental performance measure by our management as it
represents the results of service fee revenue and cost of sales
(excluding depreciation expense), which are key components of
our operations. Gross margin differs from gross profit which
includes depreciation expense. We believe gross margin is
important because it focuses on the current operating
performance of our field operations and excludes the impact of
the prior historical cost of the assets acquired or constructed
that are utilized in those operations, the indirect cost
associated with our selling, general and administrative
activities and the
61
impact of our financing methods and capital structure. As
described in EBITDA, depreciation
expense may not accurately reflect the costs required to
maintain and replenish the operational usage of our assets and
therefore may not portray the costs from current operating
activity. Rather, depreciation expense reflects the systematic
allocation of the historical fixed asset values over the
estimated useful lives of those assets.
Material Limitations
Each of EBITDA and gross margin has certain material limitations
associated with its use as compared to net income. These
limitations are primarily due to the exclusion of interest
expense and depreciation expense in the case of EBITDA and the
additional exclusion of selling, general and administrative
expense, in the case of gross margin. Each of these excluded
expenses is material to our consolidated results of operations.
Because we intend to finance a portion of our operations through
borrowings, interest expense will be a necessary element of our
costs and our ability to generate revenue. Additionally, because
we use capital assets, depreciation expense is a necessary
element of our costs and our ability to generate revenue and
selling, general and administrative expense is a necessary cost
to support our operations and required corporate activities. In
order to compensate for these limitations, management uses these
non-GAAP measures as supplemental measures to other GAAP results
to provide a more complete understanding of our performance.
Neither EBITDA nor gross margin should be considered an
alternative to, or more meaningful than, net income, operating
income or any other measure of financial performance presented
in accordance with GAAP as measures of operating performance.
Reconciliation
The following table reconciles net income to EBITDA and gross
margin:
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Universal Compression
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Partners, L.P. Pro
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Universal Compression Partners Predecessor
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Forma
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Nine
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Six
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Twelve Months Ended
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Nine Months Ended
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Six Months Ended
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Months
|
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Months
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March 31,
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December 31,
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June 30,
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Ended
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Ended
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December 31,
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June 30,
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2002
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2003
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2004
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2005
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2004
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2005
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2005
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2006
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2005
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2006
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(dollars in thousands)
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Net income
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$
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117,184
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$
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106,903
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$
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92,847
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$
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97,970
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$
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73,430
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$
|
84,004
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$
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52,124
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$
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66,896
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$
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8,276
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$
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8,757
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Interest expense, net
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6,473
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4,316
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Depreciation
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29,156
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39,714
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59,020
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62,920
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46,391
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52,595
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33,488
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38,001
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6,787
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5,068
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EBITDA
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146,340
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146,617
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151,867
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160,890
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|
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119,821
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136,599
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85,612
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104,897
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21,536
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18,141
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Other (income) loss, net
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(286
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)
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|
(799
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)
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600
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(344
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)
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208
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1,220
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(166
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)
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(577
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)
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Selling, general and administrative expenses
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23,838
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|
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24,050
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|
|
|
26,076
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26,319
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|
19,158
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|
|
|
22,437
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|
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14,128
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22,479
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3,437
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3,730
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Gross margin
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$
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169,892
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$
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169,868
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$
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178,543
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$
|
186,865
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|
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$
|
139,187
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|
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$
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160,256
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$
|
99,574
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$
|
126,799
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$
|
24,973
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|
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$
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21,871
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62
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The historical financial statements included elsewhere in
this prospectus reflect the assets, liabilities and operations
of Universal Compression Partners Predecessor, which is our
predecessor. In connection with this offering, approximately 17%
(by available horsepower) of our predecessor is being
contributed to us by Universal Compression Holdings, Inc. (along
with its subsidiaries Universal Compression
Holdings). The following discussion analyzes the
historical financial condition and results of operations of our
predecessor. You should read the following discussion of the
historical financial condition and results of operations for our
predecessor in conjunction with our predecessors
historical combined financial statements and notes and the pro
forma financial statements for Universal Compression Partners,
L.P. included elsewhere in this prospectus.
Overview
We are a Delaware limited partnership recently formed by
Universal Compression Holdings to provide natural gas contract
compression services to customers throughout the United States.
Our contract compression services include designing, sourcing,
owning, installing, operating, servicing, repairing and
maintaining equipment to provide compression to our customers.
Following this offering, we will have a fleet of approximately
830 compressor units, comprising approximately
336,000 horsepower, or approximately 17% (by available
horsepower) of Universal Compression Holdings domestic
contract compression business. We and our customers typically
contract for our services on an application specific, or
site-by-site basis. While our contracts typically have terms of
six months, they generally have run for a term of three years.
We charge a fixed monthly fee for our compression services. Our
customers generally are required to pay our monthly fee even
during periods of limited or disrupted natural gas flows.
Generally, our overall business activity and revenue increase as
the demand for natural gas increases. Demand for our compression
services is linked more directly to natural gas consumption and
production than to exploration activities, which limits our
direct exposure to commodity price risk. Because we do not take
title to the natural gas we compress, and because the natural
gas we use as fuel for our compressors is provided to us by our
customers, our direct exposure to commodity price risk is
further reduced.
Items Impacting the Comparability of Our Financial
Results
Our future results of operations may not be comparable to the
historical results of operations for the periods presented below
for our predecessor, for the reasons described below:
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Only approximately 17% (by available horsepower) of our
predecessor will be contributed to us upon closing of this
offering. Accordingly, the results of operations of our
predecessor reflect a substantially larger business than the
business to be contributed to us;
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Due to the contribution only of operating horsepower in
connection with this offering, our utilization will initially be
100%, which is higher than the historical utilization achieved
by our predecessor. We expect our utilization rate to decline
over time, ultimately approximating the utilization rates of our
predecessor;
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Because the average horsepower of the compression assets
contributed to us is larger than the average horsepower of the
fleet of our predecessor, we will initially generate lower
revenue per horsepower and incur lower costs per horsepower than
our predecessor, and we will generate a higher gross margin
percentage than our predecessors historical gross margin
percentage; however, we expect this difference to become less
pronounced over time as we acquire additional assets and grow
our business;
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Because our revenue per horsepower will initially be lower than
that for our predecessor and because our selling, general and
administrative expenses will be allocated to us by Universal
Compression Holdings based on horsepower, our selling, general
and administrative expenses
|
63
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|
initially will be higher as a percentage of revenue than
historically experienced by our predecessor;
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Because we will initially own a substantially smaller fleet of
compressors than our predecessor, our operating costs per
horsepower may be subject to more variability than those of our
predecessor. This additional variability in our operating costs
per horsepower may result from, among other things, the fact
that repair costs associated with our compressors that
experience unanticipated downtime will be allocated over our
smaller fleet of compressors.
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In addition, upon completion of this offering, we anticipate
incurring incremental selling, general and administrative
expenses of approximately $2.5 million per year as a result
of being a publicly traded limited partnership, including costs
associated with annual and quarterly reports to unitholders,
financial statement audit, tax return and Schedule K-1
preparation and distribution, investor relations activities,
registrar and transfer agent fees, incremental director and
officer liability insurance costs and director compensation;
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In the omnibus agreement, Universal Compression Holdings will
agree that, for a period that will terminate on the last day of
the fiscal quarter in which the second anniversary of the
completion of this offering occurs, our obligation to reimburse
it for (1) any cost of sales that it incurs in the
operation of our business will be capped at an amount equal to
$16.95 per horsepower (after taking into account any such costs
we incur and pay directly) on a quarterly basis and (2) any
selling, general and administrative costs allocated to us will
be capped at $2.5 million per quarter (after taking into
account any such costs we incur and pay directly).
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|
No working capital will be contributed to us in connection with
this offering; and
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|
Upon closing of this offering, we will borrow approximately
$125 million under a new revolving credit facility and
incur related interest expense, whereas our predecessor
historically had no debt.
|
Industry Conditions and Trends
U.S. Natural Gas Industry.
Natural gas consumption
in the United States has increased by approximately
1.1% per annum since 1990 and is expected to increase by
0.7% per annum until 2030 according to the Energy
Information Administration.
U.S. Natural Gas Compression Services Industry.
We
estimate that approximately six million horsepower of
compression is currently owned by contract compression providers
in the United States, such as us. We believe the outlook for
contract compression services in the United States will continue
to benefit from aging producing natural gas fields that will
require more compression to continue producing the same volume
of natural gas, and from increasing production from
unconventional sources, which include tight sands, shale and
coal beds, which generally require more compression than has
been required for conventional sources.
Change in Fiscal Year End
In December 2005, our predecessor changed its fiscal year end
from March 31 to December 31, effective in 2005. As a
result, we compare:
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|
|
|
certain financial and operating data for the six months ended
June 30, 2006 with similar information for the six months ended
June 30, 2005;
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|
|
|
certain financial and operating data for the nine months ended
December 31, 2005 with similar information for the nine
months ended December 31, 2004; and
|
64
|
|
|
|
|
certain financial and operating data for the twelve months ended
March 31, 2005 with similar information for the twelve
months ended March 31, 2004.
|
Operating Highlights
The following table summarizes total available horsepower,
average operating horsepower and horsepower utilization
percentages of our predecessor for the periods presented.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available horsepower (at period end)
|
|
|
1,903,614
|
|
|
|
1,925,189
|
|
|
|
1,908,439
|
|
|
|
1,965,337
|
|
|
|
1,920,859
|
|
|
|
1,988,798
|
|
Average operating horsepower
|
|
|
1,646,342
|
|
|
|
1,675,242
|
|
|
|
1,662,058
|
|
|
|
1,759,949
|
|
|
|
1,728,140
|
|
|
|
1,797,425
|
|
Horsepower utilization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot (at period end)
|
|
|
85.0%
|
|
|
|
89.9%
|
|
|
|
89.6%
|
|
|
|
91.9%
|
|
|
|
90.9%
|
|
|
|
89.6%
|
|
|
Average
|
|
|
85.0%
|
|
|
|
88.0%
|
|
|
|
87.5%
|
|
|
|
90.7%
|
|
|
|
90.0%
|
|
|
|
91.1%
|
|
The increase in available horsepower as of December 31,
2005 compared to December 31, 2004 was primarily
attributable to large horsepower units added to our
predecessors fleet to meet the incremental demand by
customers. Average operating horsepower increased by 5.9% for
the nine months ended December 31, 2005 compared to the
nine months ended December 31, 2004. This increase was
primarily attributable to higher customer demand as well as
larger horsepower units added to our predecessors fleet.
Financial Results of Operations
Six months ended June 30, 2006 compared to six months
ended June 30, 2005
The following table summarizes the revenue, gross margin, gross
margin percentage, expenses and net income of our predecessor
for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
Percent Change
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|
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|
|
|
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|
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|
(dollars in thousands)
|
|
|
|
Revenue
|
|
$
|
156,590
|
|
|
$
|
195,505
|
|
|
|
24.9
|
%
|
Gross margin(1)
|
|
|
99,574
|
|
|
|
126,799
|
|
|
|
27.3
|
%
|
Gross margin percentage
|
|
|
63.6
|
%
|
|
|
64.9
|
%
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
14,128
|
|
|
$
|
22,479
|
|
|
|
59.1
|
%
|
|
Depreciation
|
|
|
33,488
|
|
|
|
38,001
|
|
|
|
13.5
|
%
|
|
Other (income) loss, net
|
|
|
(166
|
)
|
|
|
(577
|
)
|
|
|
247.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
|
28.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Selected Historical and
Pro Forma Financial and Operating Data Non-GAAP
Financial Measures.
|
Revenue.
Revenue increased due to higher average contract
rates and higher operating horsepower in the six months ended
June 30, 2006. Revenue per average operating horsepower
increased to $18.13 per month in the six months ended
June 30, 2006. This was a 20.1% increase from the prior
year period amount of $15.10. Average operating horsepower
increased to 1,797,425 for the six months ended June 30,
2006. This represented a 4.0% increase from the prior year
period.
65
Gross Margin.
The higher gross margin (defined as revenue
less cost of sales (excluding depreciation expense)) in the six
months ended June 30, 2006 was primarily attributable to
the revenue increase discussed above, partially offset by higher
expenses including labor and benefits cost, parts cost,
lubricant cost, fleet automation cost and vehicle fuel cost.
Gross Margin Percentage.
Gross margin percentage for the
six months ended June 30, 2006 increased from 63.6% in the
prior year period to 64.9% in the current year period. The
increase resulted from price increases to our customers,
partially offset by the higher expenses discussed above.
Selling, General and Administrative Expenses.
Selling,
general and administrative (SG&A) expenses are
allocations of indirect corporate overhead from Universal
Compression Holdings to cover costs of centralized corporate
functions such as legal, accounting, treasury, insurance
administration and claims processing, risk management, health,
safety and environmental, information technology, human
resources, credit, payroll, taxes and other corporate services.
SG&A expenses also include an allocation of costs from
Universal Compression Holdings related to costs associated with
its office building and other facilities that we use. The
increase in SG&A expenses for the six months ended
June 30, 2006 was due primarily to Universal Compression
Holdings on-going implementation of its Enterprise
Resource Planning (ERP) system and its adoption of
Statement of Financial Accounting Standards No. 123R,
Share-Based Payment, relating to stock-based
compensation. The allocated SG&A expenses represented 11.5%
of revenue for the six months ended June 30, 2006, compared
to 9.0% of revenue for the six months ended June 30, 2005.
Depreciation.
The increase in depreciation expense for
the six months ended June 30, 2006 compared to the prior
year period primarily resulted from on-going capital
expenditures, consisting primarily of additions to our
predecessors contract compression fleet and compressor
maintenance capital expenditures.
Nine months ended December 31, 2005 compared to nine
months ended December 31, 2004
The following table summarizes the revenue, gross margin, gross
margin percentage, expenses and net income of our predecessor
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Revenue
|
|
$
|
219,321
|
|
|
$
|
248,414
|
|
|
|
13.3
|
%
|
Gross margin(1)
|
|
|
139,187
|
|
|
|
160,256
|
|
|
|
15.1
|
%
|
Gross margin percentage
|
|
|
63.5
|
%
|
|
|
64.5
|
%
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
19,158
|
|
|
$
|
22,437
|
|
|
|
17.1
|
%
|
|
Depreciation
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
13.4
|
%
|
|
Other (income) loss, net
|
|
|
208
|
|
|
|
1,220
|
|
|
|
486.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Selected Historical and
Pro Forma Financial and Operating Data Non-GAAP
Financial Measures.
|
Revenue.
Revenue increased due primarily to higher
average contract prices and higher operating horsepower in the
nine months ended December 31, 2005. Revenue per average
operating horsepower increased to $15.68 per month in the
nine months ended December 31, 2005. This was a 7.0%
increase from the prior year period amount of $14.66 per
horsepower per month. Average operating horsepower increased to
1,759,949 for the nine months ended December 31, 2005. This
represented a 5.9% increase from the prior year period.
66
Gross Margin.
The higher gross margin for the nine months
ended December 31, 2005 compared to the same period in the
prior year was primarily attributable to the revenue increase
discussed above, partially offset by higher expenses in the
current year period, including lubricant cost, fleet automation
cost due to additional installations, vehicle fuel cost and
labor cost.
Gross Margin Percentage.
Gross margin percentage for the
nine months ended December 31, 2005 increased from 63.5% in
the prior year period to 64.5% in the current year period. This
increase resulted from price increases to our customers,
partially offset by the higher expenses discussed above.
Selling, General and Administrative Expenses.
The
increase in SG&A expenses for the nine months ended
December 31, 2005 was due primarily to Universal
Compression Holdings on-going implementation of their ERP system
and increases in salaries and wages. The allocated SG&A
expenses represented 9.0% of revenue for the nine months ended
December 31, 2005, compared to 8.7% of revenue for the nine
months ended December 31, 2004.
Depreciation.
The increase in depreciation expense for
the nine months ended December 31, 2005 compared to the
prior year period primarily resulted from on-going capital
expenditures, consisting primarily of additions to our
predecessors contract compression fleet and compressor
maintenance capital expenditures.
Other (Income) Loss, Net.
The other loss in the nine
months ended December 31, 2005 primarily related to a
litigation settlement accrual and losses incurred related to
Hurricanes Katrina and Rita.
Twelve months ended March 31, 2005 compared to twelve
months ended March 31, 2004
The following table summarizes the revenue, gross margin, gross
margin percentage, expenses and net income of our predecessor
for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Revenue
|
|
$
|
280,951
|
|
|
$
|
296,239
|
|
|
|
5.4
|
%
|
Gross margin(1)
|
|
|
178,543
|
|
|
|
186,865
|
|
|
|
4.7
|
%
|
Gross margin percentage
|
|
|
63.5
|
%
|
|
|
63.1
|
%
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
26,076
|
|
|
$
|
26,319
|
|
|
|
0.9
|
%
|
|
Depreciation and amortization
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
6.6
|
%
|
|
Other (income) loss, net
|
|
|
600
|
|
|
|
(344
|
)
|
|
|
(157.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For a reconciliation of gross margin to its most directly
comparable financial measure calculated and presented in
accordance with GAAP, please read Selected Historical and
Pro Forma Financial and Operating Data Non-GAAP
Financial Measures.
|
Revenue.
Revenue increased due primarily to higher
average contract prices and higher operating horsepower in the
twelve months ended March 31, 2005. Revenue per average
operating horsepower increased to $14.73 per month in the
twelve months ended March 31, 2005. This was a 3.6%
increase from the prior year period amount of $14.22 per
horsepower per month. Average operating horsepower increased to
1,675,242 for the twelve months ended March 31, 2005. This
represented a 1.8% increase from the prior year period.
Gross Margin.
The change in gross margin for the twelve
months ended March 31, 2005 compared to the prior year
period was primarily attributable to the revenue increase
discussed above,
67
partially offset by higher expenses in the current year period,
including fleet automation cost due to additional installations,
lubricant costs and vehicle fuel costs.
Gross Margin Percentage.
Gross margin percentage for the
twelve months ended March 31, 2005 decreased from 63.5% in
the prior year period to 63.1% in the current year period. This
decrease resulted from the higher expenses discussed above,
partially offset by price increases to customers.
Selling, General and Administrative Expenses.
SG&A
expenses increased 0.9% in the twelve months ended
March 31, 2005 as compared to the prior year period. The
allocated SG&A expenses represented 8.9% of revenue for the
twelve months ended March 31, 2005, compared to 9.3% of
revenue for the twelve months ended March 31, 2004. This
decrease in SG&A expenses as a percentage of revenue was due
primarily to a higher percentage of Universal Compression
Holdings revenue being generated from its Fabrication and
International Contract Compression segments in the twelve months
ended March 31, 2005. Revenue is one of the factors used by
Universal Compression Holdings to allocate SG&A expenses.
Depreciation.
The increase in depreciation expense for
the twelve months ended March 31, 2005 compared to the
prior period primarily resulted from on-going capital
expenditures, consisting primarily of additions to our
predecessors contract compression fleet and compressor
maintenance capital expenditures.
Effects of Inflation
In recent years, inflation has been modest and has not had a
material impact upon the results of our predecessors
operations.
Liquidity and Capital Resources
Our Predecessors Liquidity and Capital
Resources
Historically, our predecessors sources of liquidity
included cash generated from operations and funding from
Universal Compression Holdings. Our predecessors cash
receipts were deposited in Universal Compression Holdings
bank accounts and all cash disbursements were made from these
accounts. Thus, historically our predecessors financial
statements have reflected no cash balances. Cash transactions
handled by Universal Compression Holdings for our predecessor
were reflected as changes in net parent equity.
The following table summarizes our predecessors sources
and uses of cash for the nine months ended December 31,
2004 and 2005 and the six months ended June 30, 2005 and
2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Net cash provided by operating activities
|
|
$
|
117,708
|
|
|
$
|
135,207
|
|
|
$
|
85,865
|
|
|
$
|
71,086
|
|
Net cash used in investing activities
|
|
|
(49,697
|
)
|
|
|
(53,829
|
)
|
|
|
(33,770
|
)
|
|
|
(47,184
|
)
|
Net cash used in financing activities
|
|
|
(68,011
|
)
|
|
|
(81,378
|
)
|
|
|
(52,095
|
)
|
|
|
(23,902
|
)
|
Operating Activities.
Net cash provided by operating
activities increased $17.5 million, or 14.9%, for the nine
months ended December 31, 2005, as compared to the same
period in the prior year primarily as a result of increased
earnings and changes in working capital. Net cash provided by
operating activities decreased $14.8 million, or 17.2%, for
the six months ended June 30, 2006, as compared to the same
period in the prior year primarily due to an increase in working
capital which was partially offset by increased earnings.
Investing Activities.
Capital expenditures for the nine
months ended December 31, 2005 and the six months ended
June 30, 2006 were $61.6 million and
$51.9 million, respectively, consisting of
68
$33.6 million and $37.5 million, respectively for
fleet additions and $28.0 million and $14.4 million,
respectively, for compressor maintenance activities. Proceeds
from asset sales were $7.8 million and $4.7 million
for the nine months ended December 31, 2005 and six months
ended June 30, 2006, respectively.
Financing Activities.
Net cash used in financing
activities represents the pass through of our predecessors
net cash flows to Universal Compression Holdings under its cash
management program.
Our Liquidity and Capital Resources
Following this offering, we plan to maintain our own bank
accounts but Universal Compression Holdings personnel will
continue to manage our cash and investments.
All of the net proceeds from this offering will be used to repay
a portion of the debt that will be assumed from Universal
Compression Holdings in connection with this offering. The
remaining portion of the debt to be assumed from Universal
Compression Holdings will be repaid from borrowings under our
new revolving credit facility we intend to enter into in
connection with this offering. See Description
of Credit Facility. We expect our future sources of
liquidity to include cash generated from operations, borrowings
under our credit facility, issuance of additional partnership
units and debt offerings. We believe that cash generated from
these sources will be sufficient to meet our short-term working
capital requirements, long-term capital expenditure requirements
and quarterly cash distributions.
Capital Requirements.
The natural gas compression
business is capital intensive, requiring significant investment
to maintain and upgrade existing operations. Our
predecessors capital requirements have consisted primarily
of, and we anticipate that our capital requirements will
continue to consist of, the following:
|
|
|
|
|
maintenance capital expenditures, which are capital expenditures
made to maintain the existing operating capacity of our assets
and related cash flows further extending the useful lives of the
assets; and
|
|
|
|
expansion capital expenditures, which are capital expenditures
made to expand or to replace partially or fully depreciated
assets or to expand the operating capacity or revenue of
existing or new assets, whether through construction,
acquisition or modification.
|
Given our objective of growth through acquisitions, expansion
capital expenditure projects and other internal growth projects,
we anticipate that we will continue to invest significant
amounts of capital to grow and acquire assets. We will actively
consider a variety of assets for potential acquisitions and
expansion projects. We expect to fund future capital
expenditures with borrowings under our new credit facility, the
issuance of additional partnership units as appropriate given
market conditions, and if necessary, future debt offerings.
As more completely discussed in Our Cash Distribution
Policy and Restrictions on Distributions Assumptions
and Considerations, for the twelve months ending
September 30, 2007, we estimate that maintenance capital
expenditures will be approximately $6.1 million based on an
analysis of the anticipated overhaul requirements of the
specific compression equipment included in the business to be
contributed to us in connection with the closing of this
offering. For the twelve months ending September 30, 2007,
we estimate that expansion capital expenditures will be
approximately $23.3 million, consisting of the purchase of
newly fabricated or idle compression equipment from Universal
Compression Holdings.
Our Ability to Grow Depends on Our Ability to Access External
Expansion Capital
. We expect that we will distribute all of
our available cash to our unitholders. Available cash is reduced
by cash reserves established by our general partner to provide
for the proper conduct of our business (including for future
capital expenditures). However, we expect that we will rely
primarily upon external financing sources, including commercial
bank borrowings and the issuance of debt and equity securities,
rather than cash reserves established by our general partner to
fund our acquisitions and expansion capital
69
expenditures. To the extent we are unable to finance growth
externally and we are unwilling to establish cash reserves to
fund future acquisitions, our cash distribution policy will
significantly impair our ability to grow. In addition, because
we distribute all of our available cash, we may not grow as
quickly as businesses that reinvest their available cash to
expand ongoing operations. To the extent we issue additional
units in connection with any acquisitions or expansion capital
expenditures, the payment of distributions on those additional
units may increase the risk that we will be unable to maintain
or increase our per unit distribution level, which in turn may
impact the available cash that we have to distribute on each
unit. There are no limitations in our partnership agreement or
in the anticipated terms of our new credit facility on our
ability to issue additional units, including units ranking
senior to the common units.
Description of Credit Facility.
In connection with
the closing of this offering, we will enter into a five year
credit agreement for up to a $225 million revolving credit
facility with a syndicate of financial institutions.
We expect that the revolving credit facility will be available
for general partnership purposes, including working capital,
capital expenditures, distributions and repayment of
indebtedness that is assumed in connection with acquisitions. We
expect that we will borrow approximately $125 million under
our revolving credit facility at the closing of this offering
and, as a result, that we will have approximately
$100 million of remaining borrowing capacity under the
revolving credit facility immediately after the closing. Please
read Use of Proceeds.
We expect that our obligations under the revolving credit
facility will be secured at all times by substantially all of
our assets and all assets of our subsidiaries.
We may prepay all advances at any time without penalty, subject
to the reimbursement of lender breakage costs in the case of
prepayment of LIBOR borrowings. Indebtedness under the revolving
credit facility will bear interest, at our option, at either
(1) the higher of lenders prime rate and the federal
funds rate plus 0.50%, plus an applicable margin which ranges
0.0% to 1.0% dependent on our total leverage ration, or
(2) LIBOR, in either case, plus an applicable margin which
ranges from 1.0% to 2.0% dependent upon our total leverage ratio.
We expect that the credit agreement will prohibit us from making
distributions of available cash to unitholders if any default or
event of default (as defined in the credit agreement) exists. We
expect the credit agreement will require us to maintain a
leverage ratio (the ratio of our consolidated indebtedness to
our consolidated EBITDA, in each case as will be defined by the
credit agreement) of not more than 5.0 to 1.0 and on a temporary
basis for not more than two consecutive quarters following the
consummation of certain acquisitions, not more than 5.5 to 1.0.
We expect the credit agreement will require us to maintain an
interest coverage ratio (the ratio of our consolidated EBITDA to
our consolidated interest expense, in each case as will be
defined by the credit agreement) of not less than 2.5 to 1.0
determined as of the last day of each quarter for the
four-quarter period ending on the date of determination.
In addition, we expect the credit agreement will contain various
covenants that may limit, among other things, our ability to:
|
|
|
|
|
grant liens;
|
|
|
|
incur additional indebtedness;
|
|
|
|
engage in a merger, consolidation or dissolution;
|
|
|
|
enter into transactions with affiliates;
|
|
|
|
sell or otherwise dispose of our assets, businesses and
operations;
|
|
|
|
materially alter the character of our business as conducted at
the closing of this offering; and
|
|
|
|
make acquisitions, investments and capital expenditures.
|
70
If an event of default exists under the credit agreement, the
lenders will be able to accelerate the maturity of the credit
agreement and exercise other rights and remedies. We expect each
of the following could be an event of default under the credit
agreement:
|
|
|
|
|
failure to pay any principal when due or any interest or fees
within five business days of the due date;
|
|
|
|
failure to perform or otherwise comply with the covenants in the
credit agreement;
|
|
|
|
failure of any representation or warranty to be true and correct
in any material respect;
|
|
|
|
failure to pay debt;
|
|
|
|
a change of control; and
|
|
|
|
other customary defaults, including specified bankruptcy or
insolvency events, the Employee Retirement Income Security Act
of 1974, or ERISA, violations, and judgment defaults.
|
The credit agreement is subject to a number of conditions,
including the negotiation, execution and delivery of definitive
documentation.
We have entered into floating-to-fixed swaps that fix our
interest rate for the initial $125 million of borrowings
under our revolving credit facility beginning December 1,
2006 for the remaining term of that facility.
Contractual Obligations.
In addition to the credit
facility described above, we and our general partner will enter
into an omnibus agreement with Universal Compression Holdings or
its affiliates at the closing of this offering pursuant to which
Universal Compression Holdings or its affiliates will provide
all operational staff, corporate staff and support services
necessary to run our business. The services may include, without
limitation, operations, marketing, maintenance and repair,
periodic overhauls of compression equipment, inventory
management, legal, accounting, treasury, insurance
administration and claims processing, risk management, health,
safety and environmental, information technology, human
resources, credit, payroll, internal audit, taxes and
engineering. Universal Compression Holdings will be entitled to
be reimbursed by us for the provision of the services and shall
charge costs to us on either a direct or indirect basis.
Critical Accounting Policies and Estimates
Our predecessors discussion and analysis of its financial
condition and results of operation is based upon its combined
financial statements. Our predecessor prepared these financial
statements in conformity with United States generally accepted
accounting principles. As such, our predecessor is required to
make certain estimates, judgments and assumptions that affect
the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the periods presented. Our predecessor based its
estimates on historical experience, available information and
various other assumptions our predecessor believes to be
reasonable under the circumstances. On an on-going basis, our
predecessor evaluates its estimates; however, actual results may
differ from these estimates under different assumptions or
conditions. The accounting policies that our predecessor
believes require managements most difficult, subjective or
complex judgments and are the most critical to its reporting of
results of operations and financial position are as follows:
Allowances and Reserves
Our predecessors customers are evaluated for
creditworthiness prior to the extension of credit. Our
predecessor maintains an allowance for bad debts based on
specific customer collection issues and historical experience.
On an on-going basis, our predecessor conducts an evaluation of
the financial strength of its customers based on payment history
and makes adjustments to the allowance as necessary. A 10%
increase in our predecessors estimated reserve for
uncollectible accounts at June 30, 2006 would increase its
bad debt expense and its allowance for doubtful accounts by
$0.1 million.
71
Depreciation
Property and equipment are carried at cost. Depreciation for
financial reporting purposes is computed on the straight-line
basis using estimated useful lives and salvage values. If the
actual useful life of our predecessors property and
equipment is less than the estimate used for purposes of
computing depreciation expense, our predecessor could experience
an acceleration in depreciation expense. At June 30, 2006,
our predecessor has approximately 6,300 compressor units which
it is depreciating. Given the large number of compressor units
being depreciated, the impact of a particular unit incurring an
actual useful life which is less than the estimated useful life
would not have a material impact on our predecessors
results of operations.
Business Combinations and Goodwill
Goodwill and intangible assets acquired in connection with
business combinations represent the excess of consideration over
the fair value of tangible net assets acquired. Certain
assumptions and estimates are employed in determining the fair
value of assets acquired and liabilities assumed, as well as in
determining the allocation of goodwill to the appropriate
reporting unit.
Our predecessor performs an impairment test for goodwill assets
annually or earlier if indicators of potential impairment exist.
Our predecessors goodwill impairment test involves a
comparison of the fair value of its reporting unit with its
carrying value. The fair value is determined using discounted
cash flows and other market-related valuation models. Certain
estimates and judgments are required in the application of the
fair value models. In February 2005 and 2006, our predecessor
performed an impairment analysis in accordance with
SFAS No. 142 and determined that no impairment had
occurred. As of February 2006, the estimated fair value of our
predecessors reporting unit exceeded its carrying value by
$376.9 million. A 10% reduction in the estimated fair value
would have resulted in an estimated fair value of our
predecessors reporting unit in excess of its carrying
value of $284.6 million. During the nine months ended
December 31, 2005, no event occurred or circumstances
changed that would more likely than not reduce the fair value of
our predecessors reporting unit below its carrying value.
As a result, an interim test for goodwill impairment between our
predecessors annual test dates was not performed. If for
any reason the fair value of our predecessors goodwill
declines below the carrying value in the future, our predecessor
may incur charges for the impairment.
Long-Lived Assets
Long-lived assets, which include property and equipment,
comprise a significant amount of our predecessors total
assets. In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, long-lived assets to be held and used by our
predecessor are reviewed to determine whether any events or
changes in circumstances indicate the carrying amount of the
asset may not be recoverable. For long-lived assets to be held
and used, our predecessor bases its evaluation on impairment
indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors
that may be present. If such impairment indicators are present
or other factors exist that indicate the carrying amount of the
asset may not be recoverable, our predecessor determines whether
an impairment has occurred through the use of an undiscounted
cash flows analysis. If an impairment has occurred, our
predecessor recognizes a loss for the difference between the
carrying amount and the estimated fair value of the asset. The
fair value of the asset is measured using quoted market prices
or, in the absence of quoted market prices, is based on an
estimate of discounted cash flows. As of June 30, 2006, our
predecessor had compression equipment with a carrying value of
$3.2 million for which it has recorded an impairment under
SFAS No. 144. The impairment recognized to date for
these assets is $1.0 million. A 10% reduction in the
estimated fair value of this equipment would result in an
additional impairment of $0.3 million.
72
Self-Insurance
Our predecessor and Universal Compression Holdings, which
allocates certain insurance cost to our predecessor, are
self-insured up to certain levels, excluding our
predecessors offshore assets, for general liability,
vehicle liability, group medical and for workers
compensation claims for certain of Universal Compression
Holdings employees. Our predecessor has elected to fully
self-insure its offshore assets. Our predecessor records
self-insurance accruals based on claims filed and an estimate
for significant claims incurred but not reported. Our
predecessor regularly reviews estimates of reported and
unreported claims and provides for losses through insurance
reserves. Although our predecessor believes adequate reserves
have been provided for expected liabilities arising from its
self-insured obligations, it is reasonably possible our
predecessors estimates of these liabilities will change
over the near term as circumstances develop. A 10% increase in
the amount of the estimated liability that has been allocated to
our predecessor by Universal Compression Holdings at
June 30, 2006 would increase our predecessors cost of
sales (excluding depreciation expense) and SG&A expenses by
$0.1 million.
Allocation Methodologies Used to Derive Our
Predecessors Financial Statements on a Carve-out
Basis
Our predecessor employed various allocation methodologies to
separate certain selling, general and administrative expenses
incurred by Universal Compression Holdings and recorded in its
financial statements presented herein. Universal Compression
Holdings provides to our predecessor centralized corporate
functions such as legal, accounting, treasury, insurance
administration and claims processing, risk management, health,
safety and environmental, information technology, human
resources, credit, payroll, taxes and other corporate services
and the use of facilities that support these functions. The
allocation methodologies vary based on the nature of the charge
and include, among other things, revenue, employee headcount and
net assets. Our predecessors management believes that the
allocation methodologies used to allocate indirect costs to it
are reasonable. If certain selling, general and administrative
expenses were allocated using different methodologies, our
predecessors results of operations could have
significantly differed from those presented herein.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29, to address the measurement of
exchanges of nonmonetary assets. SFAS No. 153
eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. This statement was
adopted by our predecessor beginning July 1, 2005. The
adoption of this statement did not have a material impact on our
predecessors financial statements.
In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB
Statement No. 143. This statement clarifies that an
entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred, if
the liabilitys fair value can be reasonably estimated. The
provisions of FIN 47 were effective December 31, 2005.
The adoption of this interpretation did not have a material
impact on our predecessors financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 requires retrospective
application to prior periods financial statements for
changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative
effect of the change. SFAS No. 154 also requires that
a change in depreciation, amortization or depletion method for
long-lived, non-financial assets be accounted for as a change in
accounting estimate affected by a change in accounting
principle. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The adoption of
SFAS No. 154 did not have a material impact on our
predecessors financial statements.
73
Quantitative and Qualitative Disclosures About Market Risk
Variable Rate Debt
We will be exposed to market risk due to variable interest rates
under the credit facility that we expect to enter into in
connection with the closing of this offering. At the closing of
this offering, we expect to enter into a five year,
$225 million revolving credit facility and to borrow
$125 million under that facility. While we have entered
into floating-to-fixed swaps that fix our interest rate for the
initial $125 million of borrowings under this facility
beginning December 1, 2006 for the remaining term of this
facility, any additional borrowings that we may make under our
revolving credit facility will bear interest at floating rates.
Changes in economic conditions could result in higher interest
rates, thereby increasing our interest expense and reducing our
funds available for capital investment, operations or
distributions to our unitholders. Additionally, if domestic
interest rates continue to increase, the interest rates on any
of our future credit facilities and debt offerings could be
higher than current levels, causing our financing costs to
increase accordingly.
74
NATURAL GAS COMPRESSION INDUSTRY
Natural gas compression, a mechanical process whereby a volume
of natural gas at an existing pressure is compressed to a
desired higher pressure for transportation from one point to
another, is essential to the transportation and production of
natural gas. Typical equipment employed in the industry includes
both slow and high speed reciprocating compressors driven either
by internal combustion engines or electric motors. Rotary screw
compressors are also used for specialized applications. Most
natural gas compression applications involve compressing gas for
its delivery from one point to another. Low pressure or aging
natural gas wells require compression for transportation of
produced gas into higher pressured gas gathering or pipeline
systems. Compression at the wellhead is often required because,
over the life of an oil or gas well, natural reservoir pressure
typically declines as reserves are produced. As the natural
reservoir pressure of the well declines below the line pressure
of the gas gathering or pipeline system used to transport the
gas to market, gas no longer naturally flows into the pipeline.
Compression equipment is applied in both field and gathering
systems to boost pressure levels allowing gas to be brought to
market. Compression is also used to reinject natural gas down
producing oil wells to help lift liquids to the surface, known
as gas lift operations. In secondary oil recovery operations,
compression is used to inject natural gas into wells to maintain
reservoir pressure. Compression is also used in gas storage
projects to inject gas into underground reservoirs during
off-peak seasons for withdrawal later during periods of high
demand. Compressors may also be used in combination with oil and
gas production equipment to process and refine oil and gas into
more marketable energy sources. In addition, compression
services are used for compressing feedstocks in refineries and
petrochemical plants, and for refrigeration applications in
natural gas processing plants.
Typically, compression is required several times during the
natural gas production cycle, including: (1) at the
wellhead; (2) throughout gathering and distribution
systems; (3) into and out of processing and storage
facilities; and (4) along intrastate and interstate
pipelines. Natural gas compression that is used to transport gas
from the wellhead through the gathering system is considered
field compression. Natural gas compression that is
used during the transportation of gas from the gathering systems
to storage or the end-user is considered pipeline
compression. During the production phase, compression is
used to boost the pressure of natural gas from the wellhead so
that natural gas can flow into the gathering system or pipeline
for transmission to end-users. Typically, these applications
require portable, low to mid-range horsepower compression
equipment located at or near the wellhead. The continually
dropping pressure levels in natural gas fields require periodic
modification and variation of
on-site
compression
equipment.
Compression is also used to increase the efficiency of a low
capacity gas field by providing a central compression point from
which the gas can be produced and injected into a pipeline for
transmission to facilities for further processing. In an effort
to reduce costs for wellhead operators, operators of gathering
systems tend to keep the pressure of the gathering systems low.
As a result, more pressure is often needed to force the gas from
the low pressure gathering systems into the higher pressure
pipelines. Similarly, as gas is transported through a pipeline,
compression allows the natural gas to continue to flow through
the pipeline to its destination. These applications generally
require larger horsepower compression equipment (1,000
horsepower and higher).
We believe outsourcing contract compression services offers
customers:
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the ability to efficiently meet their changing compression needs
over time while limiting their capital investments in
compression equipment and the underutilization of their existing
compression equipment;
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access to the compression services providers specialized
personnel and technical skills, including engineers and field
service and maintenance employees, which generally leads to
improved production rates;
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the ability to increase their revenue by transporting or
producing a higher volume of natural gas through decreased
compression downtime and reduced operating, maintenance and
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75
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equipment costs by allowing the compression service provider to
efficiently manage their changing compression needs; and
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the flexibility to deploy their capital on projects more
directly related to their primary business by reducing their
compression equipment and maintenance capital requirements.
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We believe the domestic natural gas compression services
industry continues to have significant growth potential due to
the following factors:
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natural gas consumption in the United States has increased by
approximately 1.1% per annum since 1990 and is expected to
increase by 0.7% per annum until 2030 according to the
Energy Information Administration;
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the aging of producing natural gas fields in the United States
will require more compression to continue producing the same
volume of natural gas;
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natural gas production from unconventional sources, including
tight sands, shales, and coalbeds, is expected to continue to
increase at higher rates than conventional natural gas
production, according to the Energy Information Administration,
and production from these unconventional sources requires more
compression than has generally been required for conventional
sources; and
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natural gas producers, transporters and processors are
continuing to outsource their natural gas compression
requirements to reduce overall compression costs, improve
run-time performance, reduce capital expenditures and better
meet changing compression needs.
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76
BUSINESS
Overview
We are a Delaware limited partnership formed in June 2006 by
Universal Compression Holdings, NYSE: UCO, to
provide natural gas contract compression services to customers
throughout the United States. Natural gas compression, a
mechanical process whereby a volume of natural gas at an
existing pressure is increased to a desired higher pressure for
transportation from one point to another, is essential to the
transportation and production of natural gas. Our contract
compression services include designing, sourcing, owning,
installing, operating, servicing, repairing and maintaining
equipment to provide compression to our customers. We also
monitor our customers compression services requirements
over time and, as necessary, modify the level of services and
related equipment we employ to address changing operating
conditions. Following this offering, we will serve our
customers compression needs with a fleet of approximately
830 compressor units, comprising approximately
336,000 horsepower, or approximately 17% (by available
horsepower) of Universal Compression Holdings domestic
contract compression business.
We believe that our customers, by outsourcing their compression
requirements, can increase their revenue by transporting or
producing a higher volume of natural gas through decreased
compression downtime and reduce their operating, maintenance and
equipment costs by allowing us to efficiently manage their
changing compression needs. Additionally, by reducing our
customers compression equipment and maintenance capital
requirements, we provide our customers with the flexibility to
deploy their capital on projects more directly related to their
primary business.
We and our customers typically contract for our services on an
application specific, or site-by-site, basis. While our
contracts typically have minimum terms of six months, they have
generally run for an average term of three years. We charge a
fixed monthly fee for our compression services. Our customers
generally are required to pay our monthly fee even during
periods of limited or disrupted natural gas flows, which
enhances the stability and predictability of our cash flows.
Demand for our compression services is linked more directly to
natural gas consumption and production than to exploration
activities, which limits our overall exposure to commodity price
risk. Because we do not take title to the natural gas we
compress, and because the natural gas we use as fuel for our
compressors is supplied by our customers, our direct exposure to
commodity price risk is further reduced.
Universal Compression Holdings is the second largest compression
services company in the United States, by horsepower, with
approximately 6,300 compressor units (including those to be
contributed to us) comprising approximately 2.0 million
horsepower in the United States as of June 30, 2006. We
believe we will be one of the ten largest compression services
companies in the United States by revenue upon completion of
this offering. Universal Compression Holdings provides a full
range of contract compression, sales, operations, maintenance
and fabrication services to the domestic and international
natural gas industry. Since its initial public offering in 2000,
Universal Compression Holdings management team has grown
domestic operating horsepower from approximately 480,000 to
approximately 1.8 million as of June 30, 2006.
Universal Compression Holdings will support our operations by
providing us with all operational and administrative support
necessary to conduct our business and meet the full service
needs of our customers.
77
The following table sets forth certain information regarding our
compressor fleet and the domestic compressor fleet of Universal
Compression Holdings as of June 30, 2006 (giving effect to the
completion of this offering):
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Remaining
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Domestic Fleet of
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Our Fleet
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Universal Compression Holdings
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Number of units
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826
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5,502
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Total horsepower
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336,360
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1,652,438
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Universal Compression Holdings recently began providing its
domestic contract compression services to certain customers
under a new form of agreement, which was adopted in an effort to
ensure that Universal Compression Holdings provides contract
compression services to customers rather than leases them
equipment. The economics of the new form of agreement are
substantially the same as the prior form of agreement.
Initially, we will only provide compression services to
customers under the new form of agreement. As of
September 30, 2006, Universal Compression Holdings had
entered into agreements under the new form with
106 additional domestic customers that are not being
contributed to us at the closing of this offering, comprising an
additional 34% (by available horsepower) of its domestic
contract compression services business prior to this offering.
Universal Compression Holdings intends for us to be the primary
vehicle for the growth of its domestic contract compression
business. As we have a lower cost of capital due to our
partnership structure Universal Compression Holdings
intends to offer us the opportunity to purchase the remainder of
its domestic contract compression business over time, but is not
obligated to do so. Likewise, we are not required to purchase
any additional portions of such business. The consummation of
any future purchases of additional portions of that business and
the timing of such purchases will depend upon, among other
things, Universal Compression Holdings ability to continue
to convert its existing compression agreements to the new form
of agreement, compliance with debt agreements, our reaching an
agreement with Universal Compression Holdings regarding the
terms of such purchase, which will require the approval of the
conflicts committee of our board of directors, and our ability
to finance such a purchase on acceptable terms. Universal
Compression Holdings does not currently intend to offer us the
opportunity to purchase its international contract compression
business, its aftermarket services business or its fabrication
business.
Business Strategies
Our primary business objectives are to generate stable cash
flows sufficient to make quarterly cash distributions to our
unitholders and to increase quarterly cash distributions per
unit over time by executing the following strategies:
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Leverage our relationship with Universal Compression
Holdings.
Our relationship with Universal Compression
Holdings should provide us numerous revenue and cost advantages,
including the ability to access new and idle compression
equipment, deploy that equipment in most of the major natural
gas producing regions in the United States and provide
maintenance and operational support on a more cost effective
basis than we could without that relationship.
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Build our business organically by capitalizing on the
positive long-term fundamentals for the domestic natural gas
compression industry.
We believe our ability to
efficiently manage our customers changing compression
needs, including by generally providing assurance in our
customer contracts that our compression service will be
available at least 95% of the time, our long-standing customer
relationships and our large compressor fleet will enable us to
capitalize on what we believe are positive fundamentals for the
domestic natural gas compression industry, including increasing
unconventional gas production, which typically requires
significantly more compression than conventional production, and
the continued outsourcing of compression services.
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78
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Grow our business through accretive acquisitions.
We plan to grow through accretive acquisitions of businesses or
assets from Universal Compression Holdings, third-party
compression providers and natural gas transporters or producers.
In connection with the closing of this offering, Universal
Compression Holdings will contribute to us approximately 17% (by
available horsepower) of its domestic contract compression
services business and intends to offer to us the remaining 83%
of that business for purchase over time. We also believe there
will be a number of opportunities to pursue accretive
acquisitions of third-party compression services providers as
well as opportunities to acquire compression equipment from
natural gas transporters or producers and in turn offer them
contract compression services as a cost-effective alternative.
We believe that our publicly traded limited partnership
structure will give us additional financing options and an
attractive currency to pursue such acquisitions.
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Competitive Strengths
We believe that we are well positioned to execute our primary
business objectives and strategies successfully because of the
following competitive strengths:
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Our relationship with Universal Compression
Holdings.
Our relationship with Universal Compression
Holdings and our access to its personnel, fabrication
operations, logistical capabilities, geographic scope and
operational efficiencies should allow us to provide a full
complement of compression services while maintaining lower
operating costs than we could otherwise achieve. This
relationship should also provide us an advantage in pursuing
compression opportunities throughout the United States. In
addition, immediately following the completion of this offering,
Universal Compression Holdings will own approximately
1.7 million horsepower of compression in its domestic
contract compression business. We believe we will benefit from
Universal Compression Holdings intention to offer us the
opportunity to purchase the rest of that business over time.
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Stable and growing fee-based cash flows.
We charge
a fixed monthly fee for our compression services that our
customers are generally required to pay, regardless of the
volume of natural gas we compress in that month. We believe this
fee structure reduces volatility and enhances our ability to
generate relatively stable, predictable cash flows. Universal
Compression Holdings management team has been successful
in increasing its domestic contract compression EBITDA from
$151.9 million to $197.0 million, or 29.7%, and its
net income from $92.8 million to $123.3 million, or
32.9%, from the twelve-month period ended March 31, 2004 to
the twelve-month period ended June 30, 2006. Our pro forma
EBITDA and net income for the twelve-month period ended June 30,
2006 were $32.9 million and $14.6 million,
respectively. Please read Selected Historical and Pro
Forma Financial and Operating Data Non-GAAP
Financial Measures for an explanation of EBITDA, a
non-GAAP financial measure we use to evaluate our performance,
and a reconciliation of EBITDA to its most directly comparable
financial measure calculated and presented in accordance with
GAAP.
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Large fleet in many major producing regions.
Our
large fleet and numerous operating locations throughout the
United States, combined with our ability, as a result of our
relationship with Universal Compression Holdings, to efficiently
move equipment among producing regions, means that we are not
dependent on production activity in any particular region. We
provide compression services in some of the fastest growing
natural gas producing regions in the United States, including
the Barnett Shale and Rocky Mountains, which we believe will
allow us to generate organic growth in our business. The size
and scope of our operations and our relationship with Universal
Compression Holdings provide us significant competitive
advantages, as it is difficult to timely or cost-effectively
recreate the breadth, depth or quality of our service offerings
or compressor fleet, particularly in light
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79
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of the current lack of substantial additional compression
equipment available for purchase from manufacturers.
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Long-standing customer relationships.
Universal
Compression Holdings has developed long-standing customer
relationships by efficiently managing our customers
changing compression needs. Universal Compression Holdings will
contribute to us certain of these customer relationships,
including those with growing customers such as Dominion
Exploration and Production, Inc. and Samson Investment Company.
Customers who have continuous relationships of at least five
years with Universal Compression Holdings represented in excess
of 80% of our pro forma revenue for the six months ended
June 30, 2006. These relationships provide a firm platform
for our continued organic growth as we continue to seek to meet
our customers increasing compression needs.
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Strong management team with a track record of substantial
organic and acquisition growth.
Our management team and
the board of directors of our general partner include senior
officers from Universal Compression Holdings who have over
80 combined years of experience in the compression services
business. From Universal Compression Holdings initial
public offering in 2000 through June 30, 2006, this
management team has grown Universal Compression Holdings
total compressor fleet by approximately 2.0 million
horsepower, or 308%. A significant portion of this growth was
organic and driven by Universal Compression Holdings
reputation as a reliable, cost-effective operator. In addition
to generating such organic growth, our management team completed
five acquisitions of contract compression services businesses
during this period that added approximately 1.3 million
horsepower to Universal Compression Holdings fleet.
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Our Relationship with Universal Compression Holdings
One of our principal attributes is our relationship with
Universal Compression Holdings, a leading natural gas
compression services company that provides a full range of
contract compression, sales, operations, maintenance and
fabrication services to the domestic and international natural
gas industry. Universal Compression Holdings has a long history
of successfully achieving organic growth and consummating and
integrating acquisitions, and intends to use us as its primary
growth vehicle for its domestic contract compression services
business. We believe our relationship with Universal Compression
Holdings will provide us access to management talent and
long-standing commercial relationships throughout the energy
industry. In addition, we anticipate that our relationship with
Universal Compression Holdings will also provide us with the
following benefits:
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Universal Compression Holdings intends, but is not obligated, to
offer us over time the opportunity to purchase the remainder of
its domestic contract compression business;
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Universal Compression Holdings intends, but is not obligated, to
offer us the opportunity to purchase newly fabricated
compression equipment; and
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we and Universal Compression Holdings intend to manage our
respective domestic compression fleets as one pool of
compression equipment from which we can more easily fulfill our
respective customers needs.
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Please read Certain Relationships and Related Party
Transactions Omnibus Agreement.
UCO General Partner, LP, our general partner, is an indirect,
wholly-owned subsidiary of Universal Compression Holdings and
has sole responsibility for conducting our business and for
managing our operations. Because our general partner is a
limited partnership, its general partner, UCO GP, LLC, will
conduct our business and operations, and the board of directors
and officers of UCO GP, LLC will make decisions on our behalf.
All of those directors will be elected by Universal Compression
Holdings. For more information about these individuals, please
read Management of Universal Compression Partners,
L.P. Directors and Executive Officers.
80
Following this offering, Universal Compression Holdings will
have a significant economic interest in our partnership through
its ownership of a 55.4% limited partner interest, all of our 2%
general partner interest and our incentive distribution rights.
Universal Compression Holdings has been in the natural gas
compression business for more than 50 years and trades on
the NYSE under the symbol UCO. Our relationship with
Universal Compression Holdings will create several potential
conflicts of interest. Please read Conflicts of Interest
and Fiduciary Duties for a description of these potential
conflicts.
Our Operations
Contract Compression Services
The contract compression services we provide include designing,
sourcing, owning, installing, operating, servicing, repairing
and maintaining equipment to provide compression to our
customers. When providing contract compression services, we work
closely with a customers field service personnel so that
the compression services can be adjusted to efficiently match
changing characteristics of the natural gas produced. We
routinely repackage or reconfigure a portion of our existing
fleet to adapt to our customers compression services needs.
We intend to work with Universal Compression Holdings to attempt
to manage our respective domestic fleets as one pool of
compression equipment from which we can each readily fulfill our
respective customers needs. When one of our salespersons
is advised of a new compression services opportunity, he or she
will obtain relevant information concerning the project
including gas flow, pressure and gas composition, and then he or
she will review both our fleet and the fleet of Universal
Compression Holdings for an available appropriate compressor
unit. If an appropriate compressor unit is not available in
either our fleet or the fleet of Universal Compression Holdings,
the salesperson will then look to third parties for idle
equipment available for purchase. In the event that a customer
presents us with an opportunity to provide compression services
for a project with appropriate lead time, we may choose to
purchase newly-fabricated equipment from Universal Compression
Holdings or others to fulfill our customers needs. Please
read Certain Relationships and Related Party
Transactions Omnibus Agreement for more
information about the manner in which we may transfer equipment
with Universal Compression Holdings.
Contract Compression Fleet
Upon the closing of this offering, Universal Compression
Holdings will contribute to us approximately 17% (by available
horsepower) of its domestic contract compression services
business supported by compression services agreements with
nine customers with operations across the United States. As
of June 30, 2006, the fleet to be contributed to us
consisted of approximately 830 compressors comprising
approximately 336,000 total horsepower compared with
Universal Compression Holdings domestic fleet of
approximately 6,300 compressors comprising approximately
2.0 million total horsepower, as reflected in the following
table:
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Total Horsepower
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% of Horsepower
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Number of Units
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Horsepower Range
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Our Fleet
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Predecessor
|
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Our Fleet
|
|
Predecessor
|
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Our Fleet
|
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Predecessor
|
|
|
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|
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|
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0-99
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16,994
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159,526
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5.1%
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8.0%
|
|
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|
231
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|
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|
2,116
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100-299
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49,863
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409,296
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|
14.8%
|
|
|
|
20.6%
|
|
|
|
265
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|
|
|
2,333
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300-599
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48,927
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|
322,038
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14.5%
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|
16.2%
|
|
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|
124
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|
844
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600-999
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56,276
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|
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|
316,959
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16.7%
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15.9%
|
|
|
|
78
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|
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|
438
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1,000 and over
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164,300
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780,979
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48.9%
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39.3%
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|
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|
128
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|
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|
597
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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336,360
|
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|
1,988,798
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100.0%
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|
100.0%
|
|
|
|
826
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|
|
|
6,328
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|
|
|
|
|
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|
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We intend to operate our compression fleet in a manner
substantially similar to that in which Universal Compression
Holdings operates its fleet. However, because Universal
Compression Holdings will not contribute idle horsepower to us,
our compression fleet initially will be operated at a 100%
utilization rate, which is higher than the level at which
Universal Compression Holdings has operated its domestic fleet
on a
81
historical basis. Our fleet utilization will decrease as our
equipment becomes idle, requires repairs or overhauls and we
acquire additional compression equipment from Universal
Compression Holdings or others. The following table illustrates
important operational statistics for our fleet on a pro forma
basis and Universal Compression Holdings domestic fleet on
a historical basis for the periods presented.
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Nine Months Ended
|
|
Six Months Ended
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|
|
December 31, 2005
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|
June 30, 2006
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|
|
|
|
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Our Fleet
|
|
Predecessor
|
|
Our Fleet
|
|
Predecessor
|
|
|
|
|
|
|
|
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Average operating horsepower
|
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297,051
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|
1,759,949
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|
|
|
327,765
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|
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|
1,797,425
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Horsepower utilization:
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Spot (at period end)
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100.0%
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|
|
|
91.9%
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|
|
|
100.0%
|
|
|
|
89.6%
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|
Average
|
|
|
100.0%
|
|
|
|
90.7%
|
|
|
|
100.0%
|
|
|
|
91.1%
|
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Universal Compression Holdings has undertaken to standardize its
compressor fabrication operations around major components and
key suppliers. This high level of fleet standardization:
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enables us to minimize our fleet operating costs and maintenance
capital requirements;
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facilitates low-cost compressor resizing; and
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allows Universal Compression Holdings to develop technical
proficiency in our maintenance and overhaul operations, which
enables us to achieve higher run-time rates while maintaining
low operating costs, a benefit both to us and our customers.
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Our field compression equipment is maintained in accordance with
daily, weekly, monthly and annual maintenance schedules. These
maintenance procedures are updated as technology changes and as
Universal Compression Holdings operations group develops
new techniques and procedures. In addition, because Universal
Compression Holdings field technicians provide maintenance
on substantially all of our contract compression equipment, they
are familiar with the condition of our equipment and can readily
identify potential problems. We expect that these procedures
will maximize equipment life and unit availability and minimize
avoidable downtime. Generally, each of our units undergoes a
major overhaul once every six to eight years, but because of the
size of our fleet, we expect such overhauls to take place on a
relatively consistent, ongoing basis. A major overhaul involves
the rebuilding of the unit to materially extend its economic
useful life or to enhance the units ability to fulfill
broader or different contract compression applications.
If a unit requires maintenance or reconfiguration, we expect
Universal Compression Holdings maintenance personnel will
service it as quickly as possible to meet the needs of the
customer. If providing the appropriate unit would entail
significant overhaul cost, the salesperson will communicate with
the customer, engineer and field service personnel and contact a
supervisor to determine the timing of the required maintenance
or overhaul to develop a competitive services proposal.
General Contract Compression Contract Terms
The following discussion describes the material terms generally
common to contracts used in connection with our contract
compression customers. We enter into a new contract with a given
customer with respect to each distinct application for which we
will provide contract compression services.
Term and Termination.
Each contract typically has an
initial term of six months, following which the contract would
typically operate on a
month-to
-month basis
until terminated by us or our customer. Following the initial
fixed term, either we or our customer may terminate a contract
with 30 days notice.
Fees and Expenses.
Our customers pay a fixed monthly fee
for our compression services, the level of which generally is
based on expected natural gas volumes and pressures associated
with a specific application. We are not responsible for acts of
force majeure and our customers generally are required to pay
our monthly fee even during periods of limited or disrupted
natural gas flows. We are responsible for
82
the costs and expenses associated with our compression
equipment, other than fuel gas, which is provided by our
customers.
Service Standards and Specifications.
We are responsible
for providing contract compression services in accordance with
the particular specifications of a job, as set forth in the
applicable contract. These are typically turn-key service
contracts under which we supply all service and support and use
our own compression equipment as necessary for a particular
application.
Title; Risk of Loss.
All compression equipment we use in
connection with our provision of compression services remains
our property and we bear risk of loss for our equipment to the
extent not caused by an act or omission of our customer.
Insurance.
Both we and our customers are required to
carry general liability, workers compensation,
employers liability, automobile and excess liability
insurance with respect to a particular project.
Marketing and Sales
Our marketing and client service functions are performed on a
coordinated basis by Universal Compression Holdings sales
and field service personnel. Salespeople and field service
personnel regularly visit our customers to ensure customer
satisfaction, to determine customer needs as to services
currently being provided and to ascertain potential future
compression services requirements. This ongoing communication
allows us to quickly identify and respond to customer requests.
Customers
The customers comprising the business to be contributed to us in
connection with the closing of the offering consist of
nine companies in the oil and gas industry in the United
States, including natural gas producers, processors and
gatherers. Our only customers for the nine months ended
December 31, 2005 and the six months ended June 30,
2006 from which we derived 10% or more of our pro forma revenue
were Dominion Exploration and Production, Inc. and Samson
Investment Company. Contracts with those companies contributed
34% and 21% and 34% and 19% of our pro forma revenue for those
periods, respectively.
Suppliers and Service Providers
All of our compression equipment will be contributed to us by
Universal Compression Holdings in connection with the closing of
the offering. In the future, we may purchase newly fabricated
compression equipment from Universal Compression Holdings at a
fixed margin over its fabrication costs or on other terms. We
may also transfer compression equipment with Universal
Compression Holdings. We may also purchase newly fabricated or
idle compression equipment from third parties. Please read
Certain Relationships and Related Party
Transactions Omnibus Agreement.
Many of our compressors were fabricated by Universal Compression
Holdings. Universal Compression Holdings principal
suppliers of parts for the compression equipment it produces
include Caterpillar and Waukesha for engines, Air Xchangers for
coolers, and Ariel for compressors. Although Universal
Compression Holdings relies primarily on these suppliers, it
believes alternative sources are generally available. Universal
Compression Holdings has not experienced any material supply
problems to date, and believes its relations with its suppliers
are good.
Competition
The domestic natural gas contract compression services business
is highly competitive. We face competition from large national
and multinational companies with greater financial resources
and, on a regional basis, from numerous smaller companies. Our
main competitors in the domestic contract compression business,
based on horsepower, are Hanover Compressor Company, Universal
Compression Holdings, Compressor Systems, Inc. and J-W Operating
Company. Please read Certain Relationships and
83
Related Party Transactions Omnibus
Agreement Non-competition for more information
about the non-competition provisions we will enter into with
Universal Compression Holdings in connection with the closing of
this offering.
We believe that we compete effectively on the basis of our
customer service, including our access to personnel in remote
locations, price, technical expertise, our flexibility in
meeting customer needs and the quality and reliability of our
compressors and related services.
Compression services providers can achieve operating and cost
advantages through increased size and geographic scope. As the
number of compression applications and size of the compression
fleet increases, the number of required sales, administrative
and maintenance personnel does not increase proportionately,
resulting in operational efficiencies and potential cost
advantages. Additionally, broad geographic scope allows
compression services providers to more efficiently provide
services to all customers, particularly those with compression
applications in remote locations. We believe that our
relationship with Universal Compression Holdings allows us to
access a large, diverse fleet of compression equipment and a
broad geographic base of operations and related operational
personnel that gives us more flexibility in meeting our
customers needs than many of our competitors. We also
believe that our relationship with Universal Compression
Holdings and its over 50-year history of providing its customers
with compression services provides us with resources that allow
us to efficiently manage our customers compression
services needs. Additionally, during times of high demand for
compression services and equipment, having access to component
parts and fabrication capabilities provides a competitive
advantage in the ability to provide equipment to customers on a
timely basis. We believe we will be better positioned to provide
compression services to our customers than many of our
competitors as a result of our relationship with Universal
Compression Holdings, which allows us to benefit from Universal
Compression Holdings historical relationships with
component parts providers and its fabrication capabilities.
Seasonality
Our results of operations have not historically reflected any
material seasonal tendencies, nor do we currently have reason to
believe seasonal fluctuations will have a material impact in the
foreseeable future.
Insurance
We believe that our insurance coverage is customary for the
industry and adequate for our business. As is customary in the
natural gas services industry, we review our safety equipment
and procedures and carry insurance against some, but not all,
risks of our business.
Losses and liabilities not covered by insurance would increase
our costs. The natural gas contract compression business can be
hazardous, involving unforeseen circumstances such as
uncontrollable flows of gas or well fluids, fires and explosions
or environmental damage. To address the hazards inherent in our
business, we maintain insurance coverage that includes physical
damage coverage, third party general liability insurance,
employers liability, environmental and pollution and other
coverage, although coverage for environmental and
pollution-related losses is subject to significant limitations.
However, we do not carry insurance for our offshore operations
due to increased costs associated with such insurance in the
wake of hurricanes Katrina and Rita. As a result, we will likely
be wholly responsible for any loss to our offshore operations.
Under the terms of our standard compression services contract,
we are responsible for the maintenance of insurance coverage on
our compression equipment.
Environmental and Safety Regulations
We are subject to stringent and complex federal, state and local
laws and regulations governing the discharge of materials into
the environment or otherwise relating to protection of human
health and the environment. Compliance with these environmental
laws and regulations may expose us to significant costs and
liabilities and cause us to incur significant capital
expenditures in our operations. Moreover, failure to comply with
these laws and regulations may result in the assessment of
administrative, civil, and
84
criminal penalties, imposition of remedial obligations, and the
issuance of injunctions delaying or prohibiting operations.
While we believe that our operations are in substantial
compliance with applicable environmental laws and regulations
and that continued compliance with current requirements would
not have a material adverse effect on us, there is no assurance
that this trend will continue in the future. In addition, the
clear trend in environmental regulation is to place more
restrictions on activities that may affect the environment, and
thus, any changes in these laws and regulations that result in
more stringent and costly waste handling, storage, transport,
disposal or remediation requirements could have a material
adverse effect on our operations and financial position.
Primary federal environmental laws that our operations are
subject to include the Clean Air Act and regulations thereunder,
which regulate air emissions; the Clean Water Act, and
regulations thereunder, which regulate the discharge of
pollutants in industrial wastewater and storm water runoff; the
Resource Conservation and Recovery Act (RCRA), and
regulations, thereunder, which regulate the management and
disposal of solid and hazardous waste; and the federal
Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), and regulations thereunder,
known more commonly as Superfund, which regulates
the release of hazardous substances in the environment. We are
also subject to regulation under the Occupational Safety and
Health Act (OSHA), and regulations thereunder, which
regulate the protection of the health and safety of workers.
Analogous state laws and regulations may also apply.
The Clean Air Act and implementing regulations establish limits
on the levels of various substances that may be emitted into the
atmosphere during the operation of our fleet of natural gas
compressors. These substances are regulated in permits, which
are applied for and obtained through the various regulatory
agencies, either state or federal depending on the level of
emissions. While our standard contract typically provides that
the customer will assume the permitting responsibilities and
environmental risks related to site operations, we have in some
cases obtained air permits as the owner and operator of the
compressors. Under most of our contract compression service
agreements, our customers must indemnify us for certain losses
or liabilities we may suffer as a result of the failure to
comply with applicable environmental laws, including permit
conditions. Increased obligations of operators to reduce air
emissions of nitrogen oxides and other pollutants from internal
combustion engines in transmission service are anticipated. For
example, EPA recently proposed rules that would establish
emission standards for new spark ignition engines and require
emission controls of certain new and existing stationary
reciprocating engines that were excluded from current
regulation. As currently drafted, we do not expect these
recently proposed rules to have a material adverse effect on our
operations or financial condition. Nevertheless, there can be no
assurance that those rules, once finalized, or any other new
regulations requiring the installation of more sophisticated
emission control equipment would not have a material adverse
impact. In any event, we believe that in most cases these
obligations would be allocated to our clients under the
above-referenced contracts. Moreover, we expect that such
requirements would not have any more significant effect on our
operations or financial condition than on any similarly situated
company providing contract compression services.
The Clean Water Act and implementing regulations prohibit the
discharge of industrial wastewater without a permit and
establish limits on the levels of pollutants contained in these
discharges. In addition, the Clean Water Act regulates storm
water discharges associated with industrial activities depending
on a facilitys primary standard industrial classification.
Many of Universal Compression Holdings facilities upon
which we may store inactive compression units have applied for
and obtained industrial wastewater discharge permits as well as
sought coverage under local wastewater ordinances. In addition,
many of those facilities have filed notices of intent for
coverage under statewide storm water general permits and
developed and implemented storm water pollution prevention
plans, as required. Federal laws also require spill prevention,
control, and countermeasures, including appropriate containment
berms and similar structures to help prevent the contamination
of navigable waters in the event of a petroleum hydrocarbon tank
spill, rupture, or leak at such facilities.
The RCRA and implementing regulations control the management and
disposal of solid and hazardous waste. These laws and
regulations govern the generation, storage, treatment, transfer
and
85
disposal of wastes that we generate including, but not limited
to, used oil, antifreeze, filters, sludges, paint, solvents, and
sandblast materials. The Environmental Protection Agency and
various state agencies have limited the approved methods of
disposal for these types of wastes.
In the United States, CERCLA and comparable state laws and
regulations impose strict, joint and several liability without
regard to fault or the legality of the original conduct on
certain classes of persons that contributed to the release of a
hazardous substance into the environment. These persons include
the owner and operator of a disposal site where a hazardous
substance release occurred and any company that transported,
disposed of, or arranged for the transport or disposal of
hazardous substances released at the site. Under CERCLA, such
persons may be liable for the costs of remediating the hazardous
substances that have been released into the environment, for
damages to natural resources, and for the costs of certain
health studies. In addition, where contamination may be present,
it is not uncommon for the neighboring landowners and other
third parties to file claims for personal injury, property
damage and recovery of response costs.
While we do not own or lease any material facilities or
properties, we may use Universal Compression Holdings
properties pursuant to our omnibus agreement for the storage and
possible maintenance and repair of inactive compressor units.
Many of Universal Compression Holdings properties have
been utilized for many years, including some by third parties
over whom we have no control, in support of natural gas
compression services or other industrial operations. Moreover,
certain of the Universal Compression Holdings properties
we use are currently undergoing remediation or groundwater
monitoring by Universal Compression Holdings or by former owners
and operators of those properties. While we are not currently
responsible for any remedial activities at these properties we
use pursuant to the omnibus agreement, there is always the
possibility that our future use of such properties, or of other
properties where we provide contract compression services, may
result in spills or releases of petroleum hydrocarbons, wastes,
or other regulated substances into the environment that may
cause us to become subject to remediation costs and liabilities
under CERCLA, RCRA or other environmental laws. We cannot
provide any assurance that the costs and liabilities associated
with the future imposition of such remedial obligations upon us
would not have a material adverse effect on our operations or
financial position.
We are subject to the requirements of OSHA and comparable state
statutes. These laws and the implementing regulations strictly
govern the protection of the health and safety of employees. The
OSHA hazard communication standard, the EPA community
right-to
-know
regulations under the Title III of CERCLA and similar state
statutes require that we organize and/or disclose information
about hazardous materials used or produced in our operations.
Properties
We do not own or lease any material facilities or properties.
Pursuant to our omnibus agreement, we reimburse Universal
Compression Holdings for our pro rata portion of the properties
it utilizes in connection with its domestic contract compression
services business and our business.
Employees
We do not have any employees. Universal Compression Holdings or
its affiliates employ approximately 1,800 persons who
provide direct or indirect support for our operations. We
reimburse Universal Compression Holdings for the cost of those
employees. Universal Compression Holdings considers its employee
relations to be good.
Legal Proceedings
From time to time, we may be involved in litigation relating to
claims arising out of our operations in the normal course of
business. We do not believe we are party to any legal
proceedings which, if determined adversely to us, individually
or in the aggregate, would have a material adverse effect on our
financial position, results of operations or cash flows.
86
MANAGEMENT OF UNIVERSAL COMPRESSION PARTNERS, L.P.
Because our general partner is a limited partnership, its
general partner, UCO GP, LLC, will manage our operations
and activities. Our general partner is not elected by our
unitholders and will not be subject to re-election on a regular
basis in the future. The directors of UCO GP, LLC will
oversee our operations. Unitholders will not be entitled to
elect the directors of UCO GP, LLC or directly or
indirectly participate in our management or operation. Our
general partner owes a fiduciary duty to our unitholders. Our
general partner will be liable, as general partner, for all of
our debts (to the extent not paid from our assets), except for
indebtedness or other obligations that are made expressly
nonrecourse to it. Our general partner therefore may cause us to
incur indebtedness or other obligations that are nonrecourse to
it.
Upon the closing of this offering, UCO GP, LLC will have seven
directors, two of whom (James G. Crump and Mark A. McCollum)
will be independent as defined under the independence standards
established by the Nasdaq Global Market. In compliance with the
rules of the Nasdaq Global Market, one additional independent
director will be appointed to the board of directors of UCO GP,
LLC within twelve months of listing. The Nasdaq Global Market
does not require a listed limited partnership like us to have a
majority of independent directors on the board of directors of
our general partner or to establish a compensation committee or
a nominating committee.
At least two members of the board of directors of UCO GP,
LLC will serve on a conflicts committee to review specific
matters that the board believes may involve conflicts of
interest. Messrs. Crump and McCollum will serve as the
initial members of the conflicts committee. The conflicts
committee will determine if the resolution of the conflict of
interest is fair and reasonable to us. The members of the
conflicts committee may not be officers or employees of our
general partner or directors, officers, or employees of its
affiliates, including Universal Compression Holdings, and must
meet the independence and experience standards established by
the NASDAQ Global Market and the Securities Exchange Act of 1934
(the Exchange Act) to serve on an audit committee of
a board of directors, and certain other requirements. Any
matters approved by the conflicts committee will be conclusively
deemed to be fair and reasonable to us, approved by all of our
partners and not a breach by our general partner of any duties
it may owe us or our unitholders.
In addition, UCO GP, LLC will have an audit committee of at
least three directors who meet the independence and experience
standards established by the NASDAQ Global Market and the
Exchange Act. Messrs. Crump and McCollum will serve as the
initial independent members of the audit committee and
Mr. Anderson will serve as an initial member of the audit
committee until an additional independent director is appointed
to the board of directors of UCO GP, LLC. The audit
committee will assist the board of directors in its oversight of
the integrity of our financial statements and our compliance
with legal and regulatory requirements and corporate policies
and controls. The audit committee will have the sole authority
to retain and terminate our independent registered public
accounting firm, approve all auditing services and related fees
and the terms thereof, and pre-approve any non-audit services to
be rendered by our independent registered public accounting
firm. The audit committee will also be responsible for
confirming the independence and objectivity of our independent
registered public accounting firm. Our independent registered
public accounting firm will be given unrestricted access to the
audit committee.
All of the executive officers of our general partner listed
below will allocate their time between managing our business and
affairs and the business and affairs of Universal Compression
Holdings. The executive officers of our general partner may face
a conflict regarding the allocation of their time between our
business and the other business interests of Universal
Compression Holdings. Universal Compression Holdings intends to
seek to cause the executive officers to devote as much time to
the management of our business and affairs as is necessary for
the proper conduct of our business and affairs. We will also
utilize a significant number of other employees of Universal
Compression Holdings to operate our business and provide us with
general and administrative services. We will reimburse Universal
Compression Holdings for (1) allocated expenses of
operational personnel who perform services for our benefit,
(2) direct costs incurred with operating and maintaining
our assets and (3) for allocated general and administrative
expenses. Please read Reimbursement of
Expenses of Our General Partner.
87
Directors and Executive Officers
The following table shows information regarding the current
directors, director nominees and executive officers of
UCO GP, LLC. Directors are elected for one-year terms.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position with UCO GP, LLC
|
|
|
|
|
|
|
Stephen A. Snider
|
|
|
57
|
|
|
President, Chief Executive Officer and Chairman of the Board
|
Ernie L. Danner
|
|
|
52
|
|
|
Executive Vice President and Director Nominee
|
Daniel K. Schlanger
|
|
|
32
|
|
|
Senior Vice President and Chief Financial Officer and Director
Nominee
|
J. Michael Anderson.
|
|
|
44
|
|
|
Senior Vice President and Director Nominee
|
Kirk E. Townsend
|
|
|
48
|
|
|
Senior Vice President and Director Nominee
|
D. Bradley Childers
|
|
|
42
|
|
|
Senior Vice President
|
Richard Leong
|
|
|
56
|
|
|
Senior Vice President
|
Donald C. Wayne
|
|
|
39
|
|
|
Vice President, General Counsel and Secretary
|
Kenneth R. Bickett
|
|
|
44
|
|
|
Vice President and Controller
|
James G. Crump
|
|
|
65
|
|
|
Director Nominee
|
Mark A. McCollum
|
|
|
46
|
|
|
Director Nominee
|
Our directors hold office until the earlier of their death,
resignation, removal or disqualification or until their
successors have been elected and qualified. Officers serve at
the discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.
Stephen A. Snider.
Mr. Snider was elected President,
Chief Executive Officer and Chairman of the Board of Directors
of UCO GP, LLC in June 2006. Mr. Snider has been
President, Chief Executive Officer and a director of Universal
Compression Holdings since consummation of the Tidewater
Compression Service, Inc. acquisition in 1998. Mr. Snider
has over 25 years of experience in senior management of
operating companies, and also serves as a director of Energen
Corporation (a diversified energy company focusing on natural
gas distribution and oil and gas exploration and production) and
T-3
Energy
Services, Inc. (a provider of a broad range of oilfield products
and services). Mr. Snider also serves on the Board of
Directors of the Memorial Hermann Hospital System.
Ernie L. Danner.
Mr. Danner will serve as director
of UCO GP, LLC upon the pricing of this offering.
Mr. Danner was elected Executive Vice President of UCO GP,
LLC in June 2006. Mr. Danner became the Chief Financial
Officer, Executive Vice President and a director of Universal
Compression Holdings upon consummation of the acquisition of
Tidewater Compression Service, Inc. in 1998. Mr. Danner
held the position of Chief Financial Officer of Universal
Compression Holdings until April 1999, after which time he
retained the position of Executive Vice President.
Mr. Danner became President, Latin America Division, of the
wholly-owned subsidiary, Universal Compression, Inc., in
November 2002. In April 2005, Mr. Danner became Executive
Vice President and President, International Division. In July
2006, Mr. Danner became Executive Vice President and Chief
Operating Officer. Prior to joining Universal Compression
Holdings, Mr. Danner served as Chief Financial Officer and
Senior Vice President of MidCon Corp. (an interstate pipeline
company and a wholly-owned subsidiary of Occidental Petroleum
Corporation). From 1988 until May 1997, Mr. Danner served
as Vice President, Chief Financial Officer and Treasurer of
INDSPEC Chemical Company and he also served as a director of
INDSPEC. Mr. Danner is also a director of Tide-Air, Inc. (a
distributor of Atlas Copco air compressors), Copano Energy, LLC
(a midstream natural gas company), Horizon Lines, LLC (a Jones
Act shipping company) and serves on the Board of Trustees of the
John Cooper School in The Woodlands, Texas.
88
Daniel K. Schlanger.
Mr. Schlanger will serve as a
director of UCO GP, LLC upon the pricing of this offering.
Mr. Schlanger was elected Senior Vice President and Chief
Financial Officer of UCO GP, LLC in June 2006 and Vice
President Corporate Development of Universal
Compression Holdings in May 2006. From August 1996 through May
2006, Mr. Schlanger was employed as an investment banker
with Merrill Lynch & Co. where he focused on the energy
sector.
J. Michael Anderson.
Mr. Anderson will serve as
a director of UCO GP, LLC upon the pricing of this offering, and
will also serve as a member of the audit committee of the board
of directors of UCO GP, LLC. Mr. Anderson was elected
Senior Vice President of UCO GP, LLC in June 2006.
Mr. Anderson became the Senior Vice President and Chief
Financial Officer of Universal Compression Holdings in March
2003. From 1999 to March 2003, Mr. Anderson held various
positions with Azurix Corp. primarily as the companys
Chief Financial Officer and later, as Chairman and Chief
Executive Officer. Prior to that time, Mr. Anderson spent
ten years in the Global Investment Banking Group of J. P.
Morgan Chase & Co. where he specialized in merger and
acquisition advisory services.
Kirk E. Townsend.
Mr. Townsend will serve as a
director of UCO GP, LLC upon the pricing of this offering.
Mr. Townsend was elected Senior Vice President of UCO GP,
LLC in June 2006. Mr. Townsend became the Senior Vice
President of Universal Compression Holdings in February 2001,
and is President, North America Division, of Universal
Compression, Inc., a wholly-owned subsidiary, which position he
has held since October 2001. Mr. Townsend is responsible
for all business activities of Universal Compression, Inc.
within the United States and Canada. Mr. Townsend joined
Universal Compression, Inc.s predecessor company in 1979
as a domestic sales representative. In 1986, he became an
international sales representative. Mr. Townsend was
promoted to Vice President of Business Development in April
1999, and Vice President of Sales in October 1999.
Mr. Townsend has over 25 years of sales and management
experience in the natural gas compression industry.
D. Bradley Childers.
Mr. Childers was elected
Senior Vice President of UCO GP, LLC in June 2006. In July 2006,
Mr. Childers became the Senior Vice President and President,
International Division of Universal Compression Holdings.
Previously, Mr. Childers served as the Senior Vice
President Business Development, General Counsel and
Secretary of Universal Compression Holdings since April 2005 and
as the Senior Vice President, General Counsel and Secretary of
Universal Compression Holdings since September 2002. Prior to
joining Universal Compression Holdings, Mr. Childers held
various positions with Occidental Petroleum Corporation and its
subsidiaries, including as Vice President, Business Development
at Occidental Oil and Gas Corporation from 1999 to August 2002,
and as a corporate counsel in the legal department from 1994 to
1999. Prior to that time, Mr. Childers was an associate
corporate attorney in the Los Angeles office of
Sullivan & Cromwell from 1989 to 1994.
Richard Leong.
Mr. Leong was elected Senior Vice
President of UCO GP, LLC in June 2006. Mr. Leong became the
Senior Vice President Marketing of Universal
Compression Holdings in April 2005. Previously, Mr. Leong
had been the Vice President and President, Asia Pacific
Division, of Universal Compression, Inc. since December 2001.
From 1996 until May 2001, Mr. Leong worked with Cooper
Energy Services in various managerial and sales positions,
serving most recently as Vice President, Sales &
Marketing. Mr. Leong has over 31 years of marketing
and general management experience in the energy industry.
Donald C. Wayne.
Mr. Wayne was elected Vice
President and General Counsel and Secretary of UCO GP, LLC and
Universal Compression Holdings in August 2006. Previously,
Mr. Wayne served as Vice President, General Counsel of U.S.
Concrete, Inc., a producer of ready-mixed concrete and
concrete-related products, from May 1999 to August 2006. Prior
to joining U.S. Concrete in 1999, Mr. Wayne served as an
attorney with the law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
Kenneth R. Bickett.
Mr. Bickett was elected Vice
President and Controller of UCO GP, LLC in June 2006.
Mr. Bickett became the Vice President and Corporate
Controller of Universal Compression Holdings in July 2005.
Previously, Mr. Bickett served as Vice President and
Assistant Controller for Reliant Energy, Inc., an electricity
and energy services provider. Prior to joining Reliant Energy in
2002,
89
Mr. Bickett was employed by Azurix Corp. since 1998, where
he most recently served as Vice President and Controller.
James G. Crump.
Mr. Crump will serve as a director
of UCO GP, LLC upon the pricing of this offering, and will also
serve as a member of the audit and conflicts committees of the
board of directors of UCO GP, LLC. Mr. Crump worked as an
accountant at PricewaterhouseCoopers and its predecessors from
1962 until his retirement in 2001, including in numerous
management and leadership roles such as Global Energy and Mining
Cluster Leader, as a member of the U.S. Management Committee and
the Global Management Committee and as Houston Office Managing
Partner. Mr. Crump also serves as a director of Copano
Energy, L.L.C., a midstream energy company.
Mark A McCollum.
Mr. McCollum will serve as a
director of UCO GP, LLC upon the pricing of this offering, and
will also serve as a member of the audit and conflicts
committees of the board of directors of UCO GP, LLC. Since
August 2003, Mr. McCollum has served as the Chief
Accounting Officer of Halliburton Company. Previously,
Mr. McCollum served as the Senior Vice President and Chief
Financial Officers of Tenneco Automotive, Inc., from November
1999 to August 2003.
Executive Compensation
We, our general partner and UCO GP, LLC were formed in June
2006. We have no employees. We are managed by the employees of
UCO GP, LLC. For the calendar year ended December 31, 2005,
Universal Compression Holdings allocated approximately $82,000
of salary and bonus expense to us on a pro forma basis for
Stephen A. Snider, the chairman of the board and chief
executive officer of our general partner, and approximately
$23,000 for all other expenses related to his compensation.
Allocated expenses related to Mr. Sniders
compensation, other than salary and bonus, included restricted
stock awards, matching contributions made under a 401(k) plan
and a supplemental savings plan, health care premium payments
made under an executive medical and dental plan and life
insurance and AD&D premium payments made under a group life
insurance and AD&D plan. No other executive officer of our
general partner received salary and bonus compensation allocable
to us in excess of $100,000. UCO GP, LLC has not accrued any
obligations with respect to management incentive or retirement
benefits for its directors and officers for the 2005 or 2006
fiscal years.
It is the current intention that UCO GP, LLC will initially have
nine officers including the Chief Executive Officer, the Chief
Financial Officer and all of the other officers noted above. The
officers and employees of UCO GP, LLC may participate in
employee benefit plans and arrangements sponsored by Universal
Compression Holdings. UCO GP, LLC has not entered into any
employment agreements with any of its officers. Upon completion
of this offering, we intend to grant 107,143 and 32,143 options
to purchase common units to each of Messrs. Schlanger and
Bickett, respectively, pursuant to the Long-Term Incentive Plan
described below. In addition, upon the completion of this
offering, we intend to grant 122,143 options to purchase common
units to other employees of Universal Compression Holdings. The
options will all vest on January 1, 2009, will have an
exercise price equal to the initial public offering price and
will otherwise have the terms described below under
Long-Term Incentive Plan Unit
Option Grant Agreement.
Compensation of Directors
Officers or employees of UCO GP, LLC or its affiliates who also
serve as directors will not receive additional compensation for
their service as a director of UCO GP, LLC. Our general partner
anticipates that directors who are not officers or employees of
UCO GP, LLC or its affiliates will receive compensation for
attending meetings of the board of directors and committee
meetings. The amount of such compensation has not yet been
determined. In addition, each non-employee director will be
reimbursed for his
out-of
-pocket expenses
in connection with attending meetings of the board of directors
or committees. Each director will be fully indemnified by us for
his actions associated with being a director to the fullest
extent permitted under Delaware law. Upon completion of this
offering, we intend to grant 2,000 phantom units to each of
Messrs. Crump and McCollum pursuant to the Long-Term
Incentive
90
Plan described below. The phantom units will all vest on
January 1, 2009 and will otherwise have the terms described
below under Long-Term Incentive
Plan Phantom Unit Grant Agreement.
Long-Term Incentive Plan
General.
UCO GP, LLC intends to adopt a Long-Term
Incentive Plan (the Plan) for employees, consultants
and directors of UCO GP, LLC and its affiliates, including
Universal Compression Holdings, who perform services for us. The
summary of the Plan contained herein does not purport to be
complete and is qualified in its entirety by reference to the
Plan. The Plan provides for the grant of units, restricted
units, phantom units, unit options and substitute awards and,
with respect to unit options and phantom units, the grant of
distribution equivalent rights, or DERs. Subject to adjustment
for certain events, an aggregate of 632,500 common units
may be delivered pursuant to awards under the Plan. Units that
are cancelled, forfeited or are withheld to satisfy UCO GP,
LLCs tax withholding obligations are available for
delivery pursuant to other awards. The Plan will be administered
by the board of directors of UCO GP, LLC or a committee thereof,
which we refer to as the plan administrator.
Unit Awards.
The plan administrator may grant unit awards
to eligible individuals. A unit award is an award of common
units that are fully vested upon grant and not subject to
forfeiture.
Restricted Units and Phantom Units.
A restricted unit is
a common unit that is subject to forfeiture. Upon vesting, the
grantee receives a common unit that is not subject to
forfeiture. A phantom unit is a notional unit that entitles the
grantee to receive a common unit upon the vesting of the phantom
unit or, in the discretion of the plan administrator, cash equal
to the fair market value of a common unit. The plan
administrator may make grants of restricted units and phantom
units under the Plan to eligible individuals containing such
terms, consistent with the Plan, as the plan administrator may
determine, including the period over which restricted units and
phantom units granted will vest. The plan administrator may, in
its discretion, base vesting on the grantees completion of
a period of service or upon the achievement of specified
financial objectives or other criteria. In addition, the
restricted and phantom units will vest automatically upon a
change of control (as defined in the Plan) of us, Universal
Compression Holdings or UCO GP, LLC, subject to any contrary
provisions in the award agreement.
If a grantees employment, consulting or membership on the
board terminates for any reason, the grantees restricted
units and phantom units will be automatically forfeited unless,
and to the extent, the award agreement or the plan administrator
provides otherwise. Common units to be delivered with respect to
these awards may be common units acquired by UCO GP, LLC in the
open market, common units already owned by UCO GP, LLC, common
units acquired by UCO GP, LLC directly from us or any other
person, or any combination of the foregoing. UCO GP, LLC will be
entitled to reimbursement by us for the cost incurred in
acquiring common units. If we issue new common units with
respect to these awards, the total number of common units
outstanding will increase.
Distributions made by us with respect to awards of restricted
units may, in the plan administrators discretion, be
subject to the same vesting requirements as the restricted
units. The plan administrator, in its discretion, may also grant
tandem DERs with respect to phantom units on such terms as it
deems appropriate. DERs are rights that entitle the grantee to
receive, with respect to a phantom unit, cash equal to the cash
distributions made by us on a common unit.
We intend for the restricted units and phantom units granted
under the Plan to serve as a means of incentive compensation for
performance and not primarily as an opportunity to participate
in the equity appreciation of the common units. Therefore,
participants will not pay any consideration for the common units
they receive with respect to these types of awards, and neither
we nor our general partner will receive remuneration for the
units delivered with respect to these awards.
Phantom Unit Grant Agreement.
Upon completion of this
offering, we intend to grant 2,000 phantom units to each of
Messrs. Crump and McCollum. The phantom units will be
granted with tandem DERs, which shall be credited with an amount
equal to any cash distributions made by us on common units
during the period such phantom units are outstanding and are
payable upon vesting without interest.
91
Under the phantom unit grant agreements, all of the phantom
units vest in full on January 1, 2009. In addition, all of
the phantom units will vest, subject to certain conditions, upon
the occurrence of any of the following:
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the grantee becomes disabled;
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the grantee dies;
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the grantees employment or membership on the board is
terminated; and
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upon a change of control of us, Universal Compression Holdings
or our general partner.
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Unit Options.
The Plan also permits the grant of options
covering common units. Unit options may be granted to such
eligible individuals and with such terms as the plan
administrator may determine, consistent with the Plan; however,
a unit option must have an exercise price equal to the fair
market value of a common unit on the date of grant.
Upon exercise of a unit option, UCO GP, LLC will acquire common
units in the open market at a price equal to the prevailing
price on the principal national securities exchange upon which
the common units are then traded, or directly from us or any
other person, or use common units already owned by the general
partner, or any combination of the foregoing. UCO GP, LLC will
be entitled to reimbursement by us for the difference between
the cost incurred by UCO GP, LLC in acquiring the common units
and the proceeds received by UCO GP, LLC from an optionee at the
time of exercise. Thus, we will bear the cost of the unit
options. If we issue new common units upon exercise of the unit
options, the total number of common units outstanding will
increase, and UCO GP, LLC will remit the proceeds it received
from the optionee upon exercise of the unit option to us. The
unit option plan has been designed to furnish additional
compensation to employees, consultants and directors and to
align their economic interests with those of common unitholders.
Unit Option Grant Agreement.
Upon completion of this
offering, we intend to grant options to purchase an aggregate of
approximately 261,429 common units to officers of our general
partner and employees of Universal Compression Holdings. The
options will have an exercise price equal to the initial public
offering price. We expect Messrs. Schlanger and Bickett
will receive options to purchase 107,143 and 32,143 common
units, respectively, pursuant to unit option grant agreements.
Under the unit option grant agreements, all of the options will
vest and may be exercised on January 1, 2009. In addition,
all of the unit options will vest and become exercisable,
subject to certain conditions, upon the occurrence of any of the
following:
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the grantee becomes disabled;
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the grantee dies;
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the grantees employment is terminated; and
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upon a change of control of us, Universal Compression Holdings
or our general partner.
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Substitution Awards.
The plan administrator, in its
discretion, may grant substitute or replacement awards to
eligible individuals who, in connection with an acquisition made
by us, UCO GP, LLC or an affiliate, have forfeited an
equity-based award in their former employer. A substitute award
that is an option may have an exercise price less than the value
of a common unit on the date of grant of the award.
Termination of Long-Term Incentive Plan.
UCO GP,
LLCs board of directors, in its discretion, may terminate
the Plan at any time with respect to the common units for which
a grant has not theretofore been made. The Plan will
automatically terminate on the earlier of the
10th anniversary of the date it was initially approved by
our unitholders or when common units are no longer available for
delivery pursuant to awards under the Plan. UCO GP,
LLCs board of directors will also have the right to alter
or amend the Plan or any part of it from time to time and the
plan administrator may amend any award; provided, however, that
no change in any outstanding award may be made that would
materially impair
92
the rights of the participant without the consent of the
affected participant. Subject to unitholder approval, if
required by the rules of the principal national securities
exchange upon which the common units are traded, the board of
directors of UCO GP, LLC may increase the number of common
units that may be delivered with respect to awards under the
Plan.
Reimbursement of Expenses of Our General Partner
Our general partner will not receive any management fee or other
compensation for its management of us. Our general partner and
its affiliates will be reimbursed for all expenses incurred on
our behalf, including the compensation of employees of Universal
Compression Holdings that perform services on our behalf. These
expenses include all expenses necessary or appropriate to the
conduct of our business and that are allocable to us. Our
partnership agreement provides that our general partner will
determine in good faith the expenses that are allocable to us.
There is no cap on the amount that may be paid or reimbursed to
our general partner or its affiliates for compensation or
expenses incurred on our behalf. Please read Certain
Relationships and Related Party Transactions Omnibus
Agreement Provision of Services Necessary to Operate
Our Business.
93
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the beneficial ownership of our
units that will be issued upon the consummation of this offering
and the related transactions and held by:
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each person who then will beneficially own 5% or more of the
then outstanding units;
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all of the directors and director nominees of UCO GP, LLC;
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each executive officer of UCO GP, LLC; and
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all directors and officers of UCO GP, LLC as a group.
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Percentage of
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Percentage of Total
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Percentage of
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Subordinated
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Subordinated
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Common and
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Common Units
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Common Units
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Units to be
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Units to be
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Subordinated Units
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to be Beneficially
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to be Beneficially
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Beneficially
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Beneficially
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to be Beneficially
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Name of Beneficial Owner(1)
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Owned
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Owned
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Owned
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Owned
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Owned
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Universal Compression Holdings, Inc.(2)
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825,000
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13.0
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%
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6,325,000
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100.0
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%
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56.5
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%
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UCI MLP LP LLC(2)
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825,000
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13.0
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%
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6,325,000
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100.0
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%
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56.5
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%
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Stephen A. Snider(3)
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%
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%
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%
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Ernie L. Danner(3)
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%
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%
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%
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Daniel K. Schlanger(3)(4)
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%
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%
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%
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J. Michael Anderson(3)
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%
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%
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%
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Kirk E. Townsend(3)
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%
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%
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%
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D. Bradley Childers(3)
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%
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%
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%
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Richard Leong(3)
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%
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%
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%
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Donald C. Wayne(3)
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%
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%
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%
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Kenneth R. Bickett(3)(4)
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%
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%
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%
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James G. Crump(3)(5)
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%
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%
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%
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Mark A. McCollum(3)(5)
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%
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%
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%
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All directors and officers as a group (11 persons)
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%
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%
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%
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(1)
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The address for all the beneficial owners in this table is 4444
Brittmoore Road, Houston, Texas 77041.
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(2)
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Universal Compression Holdings, Inc. is the ultimate parent
company of UCI MLP LP LLC and may, therefore, be
deemed to beneficially own the units held by
UCI MLP LP LLC.
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(3)
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Does not include common units that may be purchased in the
directed unit program.
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(4)
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Does not include common units that may be acquired through the
exercise of options to purchase common units to be granted in
connection with the completion of the offering as follows:
Mr. Schlanger 107,143 and
Mr. Bickett 32,143. None of such options are
exercisable within 60 days of the date of this prospectus.
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(5)
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Does not include common units that may be issuable upon the
vesting of the 2,000 phantom units to be granted to each of
Messrs. Crump and McCollum in connection with the
completion of this offering.
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94
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
After this offering, our general partner and its affiliates will
own 825,000 common units and 6,325,000 subordinated units
representing an aggregate 55.4% limited partner interest in us.
In addition, our general partner will own a 2% general partner
interest in us and the incentive distribution rights.
Distributions and Payments to Our General Partner and its
Affiliates
The following table summarizes the distributions and payments to
be made by us to our general partner and its affiliates in
connection with the formation, ongoing operation and any
liquidation of Universal Compression Partners, L.P. These
distributions and payments were determined by and among
affiliated entities and, consequently, are not the result of
arms-length negotiations.
Formation Stage
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The consideration received
by Universal Compression
Holdings and its subsidiaries for
the contribution of the assets
and liabilities to us
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825,000 common units;
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6,325,000 subordinated units;
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258,163 general partner units;
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the incentive distribution rights; and
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our assumption of $223.2 million of indebtedness
from Universal Compression Holdings.
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Operational Stage
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Distributions of available cash to
our general partner and its
affiliates
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We will generally make cash distributions 98% to our unitholders
pro rata, including our general partner and its affiliates, as
the holders of an aggregate 825,000 common units and 6,325,000
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
distribution level.
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Assuming we have sufficient available cash to pay the full
minimum quarterly distribution on all of our outstanding units
for four quarters, our general partner and its affiliates would
receive an annual distribution of approximately
$0.4 million on their general partner units and
$10.0 million on their common and subordinated units.
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Payments to our general partner
and its affiliates
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We will reimburse Universal Compression Holdings and its
affiliates for the payment of all direct and indirect expenses
incurred on our behalf. For further information regarding the
reimbursement of these expenses, please read
Omnibus Agreement.
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Withdrawal or removal of our
general partner
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If our general partner withdraws or is removed, its general
partner interest and its incentive distribution rights will
either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair
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market value of those interests. Please read The
Partnership Agreement Withdrawal or Removal of the
General Partner.
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Liquidation Stage
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Liquidation
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Upon our liquidation, the partners, including our general
partner, will be entitled to receive liquidating distributions
according to their respective capital account balances.
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Agreements Governing the Transactions
We and other parties have entered into or will enter into the
various documents and agreements that will effect the offering
transactions, including the vesting of assets in, and the
assumption of liabilities by, us and our subsidiaries, and the
application of the proceeds of this offering. These agreements
will not be the result of arms-length negotiations, and
they, or any of the transactions that they provide for, may not
be effected on terms at least as favorable to the parties to
these agreements as they could have been obtained from
unaffiliated third parties. All of the transaction expenses
incurred in connection with these transactions, including the
expenses associated with transferring assets into our
subsidiaries, will be paid from the proceeds of this offering.
Omnibus Agreement
Upon the closing of this offering, we will enter into an omnibus
agreement with Universal Compression Holdings, our general
partner and others. The following discussion describes
provisions of the omnibus agreement. The omnibus agreement
(other than the indemnification obligations described below
under Indemnification for Environmental and
Related Liabilities) will terminate on a change of control
of our general partner or the removal or withdrawal of our
general partner.
Non-competition
Under the omnibus agreement, subject to the termination and
modification provisions described below, Universal Compression
Holdings will agree, and will cause its controlled affiliates
(other than us, our general partner and our subsidiaries) to
agree, not to offer or provide compression services in the
United States to our contract compression services customers
comprising part of the business to be contributed to us in
connection with the closing of the offering. Compression
services will be defined to include the provision of natural gas
contract compression services to customers, including through a
lease of compression equipment partnered with a dated services
agreement. Compression services will be defined to exclude
fabrication of compression equipment, sales of compression
equipment or material, parts or equipment that are components of
compression equipment, leasing of compression equipment without
also providing related compression equipment service and
operating, maintenance, service, repairs or overhauls of
compression equipment owned by third parties. In addition, under
the omnibus agreement, we will agree, and will cause our
subsidiaries to agree, not to offer or provide compression
services to Universal Compression Holdings domestic
contract compression services customers not part of the business
contributed to us in connection with the closing of the offering.
Universal Compression Holdings will also agree that new
customers for contract compression services (neither our
customers nor customers of Universal Compression Holdings for
domestic contract compression services at the time of this
offering) will be for our account unless the new customer is
unwilling to contract with us or unwilling to do so under the
new form of compression services agreement. If a new customer is
unwilling to enter into such an arrangement with us, then
Universal Compression Holdings may provide compression services
to the new customer. In the event that either we or Universal
Compression Holdings enter into a contract to provide
compression services to a new customer, either we or Universal
Compression, as applicable, will receive the protection of the
applicable non-competition arrangements described above in the
same manner as if such new customer had been a compression
services customer of either us or Universal Compression Holdings
at the time of the completion of this offering.
96
The non-competition arrangements described above will not apply
to:
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Our provision of compression services to a particular Universal
Compression Holdings customer or customers, with the approval of
Universal Compression Holdings;
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Universal Compression Holdings provision of compression
services to a particular customer or customers of ours, with the
approval of the conflicts committee of our general partner;
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Our purchase and ownership of not more than five percent of any
class of securities of any entity which provides compression
services to the compression services customers of Universal
Compression Holdings;
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Universal Compression Holdings purchase and ownership of
not more than five percent of any class of securities of any
entity which provides compression services to our compression
services customers;
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Universal Compression Holdings ownership of us;
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Our acquisition, ownership and operation of any business that
provides compression services to Universal Compression
Holdings compression services customers if Universal
Compression Holdings has been offered the opportunity to
purchase the business for its fair market value from us and
Universal Compression Holdings declines to do so. However, if
neither the omnibus agreement nor the non-competition
arrangements described above have already terminated, we will
agree not to provide compression services to Universal
Compression Holdings customers that are also customers of
the acquired business at the sites at which Universal
Compression Holdings is providing compression services to them
at the time of the acquisition;
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Universal Compression Holdings acquisition, ownership and
operation of any business that provides compression services to
our compression services customers if we have been offered the
opportunity to purchase the business for its fair market value
from Universal Compression Holdings and we decline to do so with
the concurrence of the conflicts committee of our general
partner. However, if neither the omnibus agreement nor the
non-competition arrangements described above have already
terminated, Universal Compression Holdings will agree not to
provide compression services to our customers that are also
customers of the acquired business at the sites at which we are
providing compression services to them at the time of the
acquisition; or
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A situation in which one of our customers (or its applicable
business) and a customer of Universal Compression Holdings (or
its applicable business) merge or are otherwise combined, in
which case, each of we and Universal Compression Holdings may
continue to provide compression services to the applicable
combined entity or business without being in violation of the
non-competition provisions, but Universal Compression Holdings
and the conflicts committee of our general partner must
negotiate in good faith to implement procedures or such other
arrangements, as necessary, to protect the value to each of
Universal Compression Holdings and us of the business of
providing compression services to each such customer or its
applicable business, as applicable.
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Unless the omnibus agreement is terminated earlier as described
above, the non-competition provisions of the omnibus agreement
will terminate on the first to occur of the third anniversary of
the completion of this offering or a change of control of
Universal Compression Holdings. If a change of control of
Universal Compression Holdings occurs, and neither the omnibus
agreement nor the non-competition arrangements have already
terminated, Universal Compression Holdings will agree for the
remaining term of the non-competition arrangements not to
provide compression services to our customers at the sites at
which we are providing compression services to them at the time
of the change of control.
97
Provision of Services Necessary to Operate Our
Business
Universal Compression Holdings or its affiliates will provide
all operational staff, corporate staff and support services
reasonably necessary to run our business. The services will be
substantially similar in nature to the services Universal
Compression Holdings employs with respect to the rest of its
domestic contract compression business not contributed to us at
the closing of the offering. These services will be provided to
us in a manner that is in the good faith judgment of Universal
Compression Holdings commercially reasonable and upon the
reasonable request of our general partner.
The services may include, without limitation, operations,
marketing, maintenance and repair, periodic overhauls of
compression equipment, inventory management, legal, accounting,
treasury, insurance administration and claims processing, risk
management, health, safety and environmental, information
technology, human resources, credit, payroll, internal audit,
taxes, facilities management, investor relations, ERP, training,
executive, sales, business development and engineering.
Universal Compression Holdings will not be required to provide
us with compression equipment as part of the services.
Universal Compression Holdings will be entitled to be reimbursed
by us for all of the services it provides us at its cost to
provide such services. Costs directly attributable to Universal
Compression Holdings transportation, operation,
maintenance or repair of our compression equipment will be
directly allocated to us based on the specific customer
application with which they are associated. In addition, any
other costs associated with Universal Compression Holdings
provision of services to us will be allocated to us in the
manner that our general partner deems reasonable. We expect that
any of such costs associated with both Universal Compression
Holdings domestic contract compression business and our
business, including general and administrative costs, will be
allocated to us on a pro rata basis based on the amount of
compression horsepower owned by us relative to the amount owned
by Universal Compression Holdings domestic contract
compression business during a fiscal quarter.
Universal Compression Holdings will agree that, for a period
that will terminate on the last day of the fiscal quarter in
which the second anniversary of the completion of this offering
occurs, our obligation to reimburse it for (1) any cost of
sales that it incurs in the operation of our business will be
capped at an amount equal to $16.95 per horsepower (after taking
into account any such costs we incur and pay directly) on a
quarterly basis and (2) any selling, general and
administrative costs allocated to us will be capped at
$2.5 million per quarter (after taking into account any
such costs we incur and pay directly). These caps may be subject
to increases in connection with expansions of our operations
through the acquisition or construction of new assets or
businesses with the concurrence of the conflicts committee of
our general partner.
Indemnification for Environmental and Related
Liabilities
Under the omnibus agreement, Universal Compression Holdings will
indemnify us for three years after the closing of this offering
against certain potential environmental claims, losses and
expenses associated with the operation of our assets and
occurring before the closing date of this offering. Universal
Compression Holdings maximum liability for this
indemnification obligation will not exceed $5 million and
Universal Compression Holdings will not have any obligation
under this indemnification until our aggregate losses exceed
$250,000. Universal Compression Holdings will have no
indemnification obligations with respect to environmental claims
made as a result of additions to or modifications of
environmental laws promulgated after the closing date of this
offering. We have agreed to indemnify Universal Compression
Holdings against environmental liabilities related to our assets
to the extent Universal Compression Holdings is not required to
indemnify us.
Additionally, Universal Compression Holdings will indemnify us
for losses attributable to title defects, retained assets and
income taxes attributable to pre-closing operations. We will
indemnify Universal Compression Holdings for all losses
attributable to the postclosing operations of the assets
contributed to us, to the extent not subject to Universal
Compression Holdings indemnification obligations.
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Purchase of New Compression Equipment from Universal
Compression Holdings
Pursuant to the omnibus agreement, we will be permitted to
purchase newly fabricated compression equipment from Universal
Compression Holdings or its affiliates at Universal Compression
Holdings cost to fabricate such equipment plus a fixed
margin of 10%, which may be modified with the approval of
Universal Compression Holdings and the conflicts committee of
our general partner. Universal Compression Holdings intends to
permit us to purchase newly fabricated compression equipment and
is incentivized to do so to facilitate our growth given its
significant equity ownership position in us. However, Universal
Compression Holdings will be under no obligation to offer to us
such equipment for purchase or permit us to purchase it if we
request to do so and we will be under no obligation to purchase
such equipment. The conflicts committee of our general partner
will meet on a quarterly basis to review our purchases of newly
fabricated equipment from Universal Compression Holdings. Any
modifications to the pricing or procedures under which we
purchase such equipment will be subject to approval by the
conflicts committee.
Transfer of Compression Equipment with Universal
Compression Holdings
Pursuant to the omnibus agreement, in the event that Universal
Compression Holdings or its affiliates determines in good faith
that there exists a need on the part of Universal Compression
Holdings contract compression services business or on our
part to transfer compression equipment between Universal
Compression Holdings and us so as to fulfill the compression
services obligations of either of Universal Compression Holdings
or us, such equipment may be so transferred if it will not cause
us to breach any of our existing contracts or to suffer a loss
of revenue under an existing compression services contract or
incur any unreimbursed costs (other than as described below).
In consideration for such transfer of compression equipment, the
transferee will either (1) transfer to the transferor
compression equipment equal in value to the appraised value of
the compression equipment transferred to it, (2) agree to
lease such compression equipment from the transferor or
(3) pay the transferor an amount in cash equal to the
appraised value of the compression equipment transferred
to it.
The amount of compression equipment that may be transferred in
exchange for a lease or in cash as described above may be
subject to a cap to be determined from time to time by Universal
Compression Holdings (with respect to transfers of compression
equipment by it to us) or the conflicts committee of our general
partner (with respect to transfers of compression equipment by
us to Universal Compression Holdings).
The conflicts committee of our general partner will meet on a
quarterly basis to review all of the transfers of compression
equipment between Universal Compression Holdings. Any
modifications to the procedures set forth above must be
pre-approved by the conflicts committee of our general partner.
Unless the omnibus agreement is terminated earlier as discussed
above, the transfer of compression equipment provisions of the
omnibus agreement described above will terminate on the first to
occur of the third anniversary of the completion of this
offering or a change of control of Universal Compression
Holdings.
Intellectual Property License
Universal Compression Holdings and its affiliates will grant a
license to us for the use of certain marks, including our logo,
for as long as Universal Compression Holdings controls our
general partner, at no charge.
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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
Conflicts of Interest
Conflicts of interest exist and may arise in the future as a
result of the relationships between our general partner and its
affiliates (including Universal Compression Holdings) on the one
hand, and our partnership and our limited partners, on the other
hand. The directors and officers of UCO GP, LLC have fiduciary
duties to manage UCO GP, LLC and our general partner in a manner
beneficial to its owners. At the same time, our general partner
has a fiduciary duty to manage our partnership in a manner
beneficial to us and our unitholders.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us or any other partner, on the
other hand, our general partner will resolve that conflict. Our
partnership agreement contains provisions that modify and limit
our general partners fiduciary duties to our unitholders.
Our partnership agreement also restricts the remedies available
to unitholders for actions taken that, without those
limitations, might constitute breaches of fiduciary duty.
Our general partner will not be in breach of its obligations
under the partnership agreement or its duties to us or our
unitholders if the resolution of the conflict is:
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approved by the conflicts committee, which approval may be
granted in advance of a known conflict, if such approval is
contingent upon compliance with pre-approved, documented
guidelines and procedures, although our general partner is not
obligated to seek such approval;
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates;
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the totality of
the relationships among the parties involved, including other
transactions that may be particularly favorable or advantageous
to us.
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Our general partner may, but is not required to, seek the
approval of such resolution from the conflicts committee of its
board of directors. If our general partner does not seek
approval from the conflicts committee and its board of directors
determines that the resolution or course of action taken with
respect to the conflict of interest satisfies either of the
standards set forth in the third and fourth bullet points above,
then it will be presumed that, in making its decision, the board
of directors acted in good faith, and in any proceeding brought
by or on behalf of any limited partner or the partnership, the
person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. Unless the resolution of
a conflict is specifically provided for in our partnership
agreement, our general partner or the conflicts committee may
consider any factors it determines in good faith to consider
when resolving a conflict. When our partnership agreement
provides that someone act in good faith, it requires that person
to reasonably believe he is acting in the best interests of the
partnership.
Conflicts of interest could arise in the situations described
below, among others.
Universal Compression Holdings may engage in competition
with us under certain circumstances and may conduct its own
businesses in a manner detrimental to our own.
Universal Compression Holdings will own and control our general
partner. Our partnership agreement provides that our general
partner will be restricted from engaging in any business
activities other than those incidental to its ownership of
interests in us. In addition, pursuant to the omnibus agreement,
we and Universal Compression Holdings will enter into certain
non-competition agreements with respect to domestic compression
services. Certain Relationships and Related Party
Transactions Omnibus Agreement
Non-competition. Similarly, under the omnibus agreement,
Universal Compres-
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sion Holdings will agree and will cause its affiliates to agree
until the earliest to occur of the third anniversary of the
completion of this offering, a change of control of Universal
Compression Holdings or our general partner or the removal or
withdrawal of our general partner, and subject to other
limitations, not to engage in the business described above under
the caption Certain Relationships and Related Party
Transactions Omnibus Agreement
Non-competition. Except as provided in our partnership
agreement and the omnibus agreement, affiliates of our general
partner are not prohibited from engaging in other businesses or
activities, including those that might be in direct competition
with us. In particular, Universal Compression Holdings will
continue to engage in the domestic and international compression
services business and the supply of fabricated compression
equipment and the provision of aftermarket services to customers
choosing to own their own compression equipment.
Neither our partnership agreement nor any other agreement
requires Universal Compression Holdings to pursue a business
strategy that favors us or utilizes our assets or dictates what
markets to pursue or grow. Universal Compression Holdings
directors have a fiduciary duty to make these decisions in the
best interests of the owners of Universal Compression Holdings,
which may be contrary to our interests.
Because certain of the directors of our general partner are also
directors and/or officers of Universal Compression Holdings,
such directors have fiduciary duties to Universal Compression
Holdings that may cause them to pursue business strategies that
disproportionately benefit Universal Compression Holdings or
which otherwise are not in our best interests.
Our general partner is allowed to take into account the
interests of parties other than us, such as Universal
Compression Holdings, in resolving conflicts of interest.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement permits our general partner to make a number of
decisions in its individual capacity, as opposed to in its
capacity as our general partner. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or any limited partner. Examples include the exercise
of its limited call right, the exercise of its rights to
transfer or vote the units it owns, the exercise of its
registration rights and its determination whether or not to
consent to any merger or consolidation of the partnership or
amendment to the partnership agreement.
We will not have any officers or employees and will rely
on officers and employees of our general partner and its
affiliates, including Universal Compression Holdings.
We will not have any officers or employees and will rely solely
on officers of our general partner and employees of Universal
Compression Holdings and its affiliates. Affiliates of our
general partner and Universal Compression Holdings will conduct
businesses and activities of their own in which we will have no
economic interest. If these separate activities are
significantly greater than our activities, there could be
material competition for the time and effort of these officers
and employees. The officers of our general partner will not be
required to work full time on our affairs. Each of the officers
is also an officer of Universal Compression Holdings. These
officers may devote significant time to the affairs of Universal
Compression Holdings or its affiliates and will be compensated
by these affiliates for the services rendered to them. In
addition, Universal Compression Holdings will allocate expenses
of operational personnel who perform services for our benefit to
us and we will reimburse Universal Compression Holdings for
those expenses.
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Our general partner has limited its liability and reduced
its fiduciary duties, and has also restricted the remedies
available to our unitholders for actions that, without the
limitations, might constitute breaches of fiduciary duty.
In addition to the provisions described above, our partnership
agreement contains provisions that restrict the remedies
available to our unitholders for actions that might otherwise
constitute breaches of fiduciary duty. For example, our
partnership agreement:
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provides that the general partner shall not have any liability
to us or our unitholders for decisions made in its capacity as a
general partner so long as it acted in good faith, meaning it
believed that the decision was in the best interests of our
partnership;
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner and not
involving a vote of unitholders must be on terms no less
favorable to us than those generally being provided to or
available from unrelated third parties or be fair and
reasonable to us, as determined by the general partner in
good faith, and that, in determining whether a transaction or
resolution is fair and 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;
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provides that our general partner and its officers and directors
will not be liable for monetary damages to us, our limited
partners or assignees for any acts or omissions unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that our general partner or
those other persons acted in bad faith or engaged in fraud or
willful misconduct or, in the case of a criminal matter, acted
with knowledge that the conduct was criminal; and
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generally provides that affiliated transactions and resolutions
of conflicts of interest not approved by the conflicts committee
of the board of directors of our general partner acting in good
faith and not involving a vote of unitholders must be on terms
no less favorable to us than those generally being provided to
or available from unrelated third parties or must be fair
and reasonable to us, as determined by our general partner
in good faith and that, in determining whether a transaction or
resolution is fair and reasonable, our general
partner may consider the totality of the relationships between
the parties involved, including other transactions that may be
particularly advantageous or beneficial to us.
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Except in limited circumstances, our general partner has
the power and authority to conduct our business without
unitholder approval.
Under our partnership agreement, our general partner has full
power and authority to do all things, other than those items
that require unitholder approval or with respect to which our
general partner has sought conflicts committee approval, on such
terms as it determines to be necessary or appropriate to conduct
our business including, but not limited to, the following:
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the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into
our securities, and the incurring of any other obligations;
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the purchase, sale or other acquisition or disposition of our
securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to our securities;
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the mortgage, pledge, encumbrance, hypothecation or exchange of
any or all of our assets;
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the negotiation, execution and performance of any contracts,
conveyances or other instruments;
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the distribution of our cash;
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the selection and dismissal of employees and agents, outside
attorneys, accountants, consultants and contractors and the
determination of their compensation and other terms of
employment or hiring;
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the maintenance of insurance for our benefit and the benefit of
our partners;
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the formation of, or acquisition of an interest in, the
contribution of property to, and the making of loans to, any
limited or general partnerships, joint ventures, corporations,
limited liability companies or other relationships;
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the control of any matters affecting our rights and obligations,
including the bringing and defending of actions at law or in
equity and otherwise engaging in the conduct of litigation,
arbitration or mediation and the incurring of legal expense and
the settlement of claims and litigation;
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the indemnification of any person against liabilities and
contingencies to the extent permitted by law;
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the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over our business or assets; and
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the entering into of agreements with any of its affiliates to
render services to us or to itself in the discharge of its
duties as our general partner.
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Our partnership agreement provides that our general partner must
act in good faith when making decisions on our
behalf, and our partnership agreement further provides that in
order for a determination by our general partner to be made in
good faith, our general partner must believe that
the determination is in our best interests. Please read
The Partnership Agreement Voting Rights
for information regarding matters that require unitholder
approval.
Our general partner determines the amount and timing of
asset purchases and sales, capital expenditures, borrowings,
issuance of additional partnership securities and the creation,
reduction or increase of reserves, each of which can affect the
amount of cash that is distributed to our unitholders.
The amount of cash that is available for distribution to
unitholders is affected by decisions of our general partner
regarding such matters as:
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the manner in which our business is operated, including our
access to compression equipment;
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the amount of our borrowings;
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the amount, nature and timing of our capital expenditures;
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our issuance of additional units;
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asset purchases, transfers and sales and other acquisitions and
dispositions; and
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the amount of cash reserves necessary or appropriate to satisfy
general, administrative and other expenses and debt service
requirements, and otherwise provide for the proper conduct of
our business.
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In addition, our general partner may use an amount, initially
equal to approximately $13.55 million, which would not
otherwise constitute available cash from operating surplus, in
order to permit the payment of cash distributions on its units
and incentive distribution rights. All of these actions may
affect the amount of cash distributed to our unitholders and the
general partner and may facilitate the conversion of
subordinated units into common units. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions.
103
In addition, borrowings by us and our affiliates do not
constitute a breach of any duty owned by the general partner to
our unitholders, including borrowings that have the purpose or
effect of:
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enabling our general partner or its affiliates to receive
distributions on any subordinated units held by them or the
incentive distribution rights; or
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hastening the expiration of the subordination period.
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For example, in the event we have not generated sufficient cash
from our operations to pay the minimum quarterly distribution on
our common units and our subordinated units, our partnership
agreement permit us to borrow funds, which would enable us to
make this distribution on all outstanding units. Please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions Subordination Period.
Our partnership agreement provides that we and our subsidiaries
may borrow funds from our general partner and its affiliates.
Our general partner and its affiliates may not borrow funds from
us, our operating company, or its operating subsidiaries.
Our general partner determines which costs incurred by
Universal Compression Holdings are reimbursable by us.
We will reimburse our general partner and its affiliates for all
direct and indirect costs incurred in managing and operating us.
The partnership agreement provides that our general partner will
determine the expenses that are allocable to us in good faith.
Our partnership agreement does not restrict our general
partner from causing us to pay it or its affiliates for any
services rendered to us or entering into additional contractual
arrangements with any of these entities on our behalf.
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither our partnership
agreement nor any of the other agreements, contracts or
arrangements between us, on the one hand, and our general
partner and its affiliates, on the other hand, that will be in
effect as of the closing of this offering will be the result of
arms-length negotiations. Similarly, agreements, contracts
or arrangements between us and our general partner and its
affiliates that are entered into following the closing of this
offering will not be required to be negotiated on an
arms-length basis, although, in some circumstances, our
general partner may determine that the conflicts committee of
our general partner may make a determination on our behalf with
respect to one or more of these types of situations.
Our general partner will determine, in good faith, the terms of
any of these transactions entered into after the sale of the
common units offered in this offering.
Our general partner and its affiliates will have no obligation
to permit us to use any facilities or assets of our general
partner or its affiliates, except as may be provided in
contracts entered into specifically dealing with that use. There
is no obligation of our general partner or its affiliates to
enter into any contracts of this kind.
Our general partner intends to limit its liability
regarding our obligations.
Our general partner intends to limit its liability under
contractual arrangements so that the other party has recourse
only to our assets, and not against our general partner or its
assets. The partnership agreement provides that any action taken
by our general partner to limit its liability is not a breach of
our general partners fiduciary duties, even if we could
have obtained more favorable terms without the limitation on
liability.
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Our general partner may exercise its right to call and
purchase common units if it and its affiliates own more than 80%
of the common units.
Our general partner may exercise its right to call and purchase
common units as provided in the partnership agreement or assign
this right to one of its affiliates or to us. Our general
partner is not bound by fiduciary duty restrictions in
determining whether to exercise this right. As a result, a
common unitholder may have his common units purchased from him
at an undesirable time or price. Please read The
Partnership Agreement Limited Call Right.
Common unitholders will have no right to enforce
obligations of our general partner and its affiliates under
agreements with us.
Any agreements between us on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
Our general partner decides whether to retain separate
counsel, accountants or others to perform services for
us.
The attorneys, independent accountants and others who have
performed services for us regarding this offering have been
retained by our general partner. Attorneys, independent
accountants and others who perform services for us are selected
by our general partner or the conflicts committee and may
perform services for our general partner and its affiliates. We
may retain separate counsel for ourselves or the holders of
common units in the event of a conflict of interest between our
general partner and its affiliates, on the one hand, and us or
the holders of common units, on the other, depending on the
nature of the conflict. We do not intend to do so in most cases.
Fiduciary Duties
Our general partner is accountable to us and our unitholders as
a fiduciary. Fiduciary duties owed to unitholders by our general
partner are prescribed by law and the partnership agreement. The
Delaware Revised Uniform Limited Partnership Act, which we refer
to in this prospectus as the Delaware Act, provides that
Delaware limited partnerships may, in their partnership
agreements, modify, restrict or expand the fiduciary duties
otherwise owed by a general partner to limited partners and the
partnership.
Our partnership agreement contains various provisions modifying
and restricting the fiduciary duties that might otherwise be
owed by our general partner. We have adopted these restrictions
to allow our general partner or its affiliates to engage in
transactions with us that would otherwise be prohibited by
state-law fiduciary duty standards and to take into account the
interests of other parties in addition to our interests when
resolving conflicts of interest. We believe this is appropriate
and necessary because our general partners board of
directors will have fiduciary duties to manage our general
partner in a manner beneficial to its owners, as well as to you.
Without these modifications, the general partners ability
to make decisions involving conflicts of interest would be
restricted. The modifications to the fiduciary standards enable
the general partner to take into consideration all parties
involved in the proposed action, so long as the resolution is
fair and reasonable to us. These modifications also enable our
general partner to attract and retain experienced and capable
directors. These modifications are detrimental to our common
unitholders because they restrict the remedies available to
unitholders for actions that, without those limitations, might
constitute breaches of fiduciary duty, as described below, and
permit our general partner to take into account the interests of
third parties in addition to our interests when resolving
conflicts of interest. The following is a summary of the
material restrictions of the fiduciary duties owed by our
general partner to the limited partners:
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State-law fiduciary duty standards
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to
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act for the partnership in the same manner as a prudent person
would act on his own behalf. The duty of loyalty, in the absence
of a provision in a partnership agreement providing otherwise,
would generally prohibit a general partner of a Delaware limited
partnership from taking any action or engaging in any
transaction where a conflict of interest is present.
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. In addition, the
statutory or case law of some jurisdictions may permit a limited
partner to institute legal action on behalf of himself and all
other similarly situated limited partners to recover damages
from a general partner for violations of its fiduciary duties to
the limited partners.
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Partnership agreement modified
standards
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues about compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner, as opposed to in its
individual capacity, it must act in good faith and
will not be subject to any other standard under applicable law.
In addition, when our general partner is acting in its
individual capacity, as opposed to in its capacity as our
general partner, it may act without any fiduciary obligation to
us or the unitholders whatsoever. These standards reduce the
obligations to which our general partner would otherwise be held.
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us, our
limited partners or assignees for errors of judgment or for any
acts or omissions unless there has been a final and
non-appealable judgment by a court of competent jurisdiction
determining that the general partner or its officers and
directors acted in bad faith or engaged in fraud or willful
misconduct.
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Special provisions regarding affiliated transactions. Our
partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not
involving a vote of unitholders and that are not approved by the
conflicts committee of the board of directors of our general
partner must be:
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on terms no less favorable to us than those generally being
provided to or available from unrelated third parties; or
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fair and reasonable to us, taking into account the
totality of the relationships between the parties involved
(including other transactions that may be particularly favorable
or advantageous to us).
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If our general partner does not seek approval from the conflicts
committee and its board of directors determines that the
resolution or course of action taken with respect to the
conflict of interest satisfies either of the standards set forth
in the bullet points above, then it will be presumed that, in
making its decision, the board of directors, which may include
board members affected by the conflict of interest, acted in
good faith and in any proceeding brought by or on behalf of any
limited partner or the partnership, the person bringing or
prosecuting such proceeding will have the burden of overcoming
such presumption. These standards reduce the obligations to
which our general partner would otherwise be held.
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By purchasing our common units, each common unitholder
automatically agrees to be bound by the provisions in the
partnership agreement, including the provisions discussed above.
This is in accordance with the policy of the Delaware Act
favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a
limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against that
person.
We must indemnify our general partner and its officers,
directors, managers and certain other specified persons, to the
fullest extent permitted by law, against liabilities, costs and
expenses incurred by our general partner or these other persons.
We must provide this indemnification unless there has been a
final and non-appealable judgment by a court of competent
jurisdiction determining that these persons acted in bad faith
or engaged in fraud or willful misconduct. We must also provide
this indemnification for criminal proceedings unless our general
partner or these other persons acted with knowledge that their
conduct was unlawful. Thus, our general partner could be
indemnified for its negligent acts if it meets the requirements
set forth above. To the extent these provisions purport to
include indemnification for liabilities arising under the
Securities Act, in the opinion of the SEC, such indemnification
is contrary to public policy and, therefore, unenforceable.
Please read The Partnership Agreement
Indemnification.
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DESCRIPTION OF THE COMMON UNITS
The Units
The common units and the subordinated units are separate classes
of limited partner interests in us. The holders of units are
entitled to participate in partnership distributions and
exercise the rights or privileges available to limited partners
under our partnership agreement. For a description of the
relative rights and preferences of holders of common units and
subordinated units in and to partnership distributions, please
read this section and Our Cash Distribution Policy and
Restrictions on Distributions. For a description of the
rights and privileges of limited partners under our partnership
agreement, including voting rights, please read The
Partnership Agreement.
Transfer Agent and Registrar
Duties.
Computershare Trust Company, N.A. will
serve as registrar and transfer agent for the common units. We
will pay all fees charged by the transfer agent for transfers of
common units except the following that must be paid by
unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
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special charges for services requested by a common
unitholder; and
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other similar fees or charges.
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There will be no charge to unitholders for disbursements of our
cash distributions. We will indemnify the transfer agent, its
agents and each of their stockholders, directors, officers and
employees against all claims and losses that may arise out of
acts performed or omitted for its activities in that capacity,
except for any liability due to any gross negligence or
intentional misconduct of the indemnified person or entity.
Resignation or Removal.
The transfer agent may
resign, by notice to us, or be removed by us. The resignation or
removal of the transfer agent will become effective upon our
appointment of a successor transfer agent and registrar and its
acceptance of the appointment. If no successor has been
appointed and has accepted the appointment within 30 days
after notice of the resignation or removal, our general partner
may act as the transfer agent and registrar until a successor is
appointed.
Transfer of Common Units
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the common units transferred
when such transfer and admission is reflected in our books and
records. Each transferee:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement, such as the approval of all transactions and
agreements that we are entering into in connection with our
formation and this offering.
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A transferee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records. Our
general partner will cause any transfers to be recorded on our
books and records no less frequently than quarterly.
We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities and are transferable according to
the laws governing transfers of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and
the transfer agent may treat the record holder of the unit as
the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
109
THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. The form of our partnership agreement is
included in this prospectus as Appendix A. We will provide
prospective investors with a copy of our partnership agreement
upon request at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read
Provisions of Our Partnership Agreement Relating to Cash
Distributions;
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with regard to the fiduciary duties of our general partner,
please read Conflicts of Interest and Fiduciary
Duties;
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with regard to the transfer of common units, please read
Description of the Common Units Transfer of
Common Units; and
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with regard to allocations of taxable income and taxable loss,
please read Material Tax Consequences.
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Organization and Duration
Our partnership was organized on June 14, 2006 and will
have a perpetual existence.
Purpose
Our purpose under the partnership agreement is to engage in any
business activities that are approved by our general partner.
Our general partner, however, may not cause us to engage in any
business activities that the general partner determines would
cause us to be treated as a corporation for federal income tax
purposes.
Although our general partner has the ability to cause us and our
subsidiaries to engage in activities other than the business of
providing contract compression services, our general partner has
no current plans to do so and may decline to do so free of any
fiduciary duty or obligation whatsoever to us or the limited
partners, including any duty to act in good faith or in the best
interests of us or the limited partners. Our general partner is
authorized in general to perform all acts it determines to be
necessary or appropriate to carry out our purposes and to
conduct our business.
Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the common unit, automatically grants
to our general partner and, if appointed, a liquidator, a power
of attorney to, among other things, execute and file documents
required for our qualification, continuance or dissolution. The
power of attorney also grants our general partner the authority
to amend, and to grant consents and waivers on behalf of the
limited partners under, our partnership agreement.
Cash Distributions
Our partnership agreement specifies the manner in which we will
make cash distributions to holders of our common units and other
partnership securities as well as to our general partner in
respect of its general partner interest and its incentive
distribution rights. For a description of these cash
distribution provisions, please read Provisions of Our
Partnership Agreement Relating to Cash Distributions.
Capital Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
110
Our general partner has the right, but not the obligation, to
contribute a proportionate amount of capital to us to maintain
its 2% general partner interest if we issue additional units.
Our general partners 2% interest, and the percentage of
our cash distributions to which it is entitled, will be
proportionately reduced if we issue additional units in the
future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner interest. Our general partner will be entitled to make a
capital contribution in order to maintain its 2% general partner
interest in the form of the contribution to us of common units
based on the current market value of the contributed common
units.
Voting Rights
The following is a summary of the unitholder vote required for
the matters specified below. Matters requiring the approval of a
unit majority require:
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during the subordination period, the approval of a majority of
the common units, excluding those common units held by our
general partner and its affiliates, and a majority of the
subordinated units, voting as separate classes; and
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after the subordination period, the approval of a majority of
the common units.
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In voting their common and subordinated units, our general
partner and its affiliates will have no fiduciary duty or
obligation whatsoever to us or the limited partners, including
any duty to act in good faith or in the best interests of us or
the limited partners.
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Issuance of additional units
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No approval right.
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Amendment of the partnership
agreement
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Certain amendments may be made by the general partner without
the approval of the unitholders. Other amendments generally
require the approval of a unit majority. Please read
Amendment of the Partnership Agreement.
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Merger of our partnership or the sale
of all or substantially all of
our
assets
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Unit majority in certain circumstances. Please read
Merger, Consolidation, Conversion, Sale or
Other Disposition of Assets.
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Dissolution of our partnership
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Unit majority. Please read Termination and
Dissolution.
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Continuation of our business upon
dissolution
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Unit majority. Please read Termination and
Dissolution.
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Withdrawal of the general partner
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Under most circumstances, the approval of a majority of the
common units, excluding common units held by our general partner
and its affiliates, is required for the withdrawal of our
general partner prior to September 30, 2016 in a manner
that would cause a dissolution of our partnership. Please read
Withdrawal or Removal of the General
Partner.
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Removal of the general partner
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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.
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Transfer of the general partner
interest
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Our general partner may transfer all, but not less than all, of
its general partner interest in us without a vote of our
unitholders to 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
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common units, excluding common units held by the general partner
and its affiliates, is required in other circumstances for a
transfer of the general partner interest to a third party prior
to September 30, 2016. See Transfer of
General Partner Units.
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Transfer of incentive distribution
rights
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Except for transfers to an affiliate or another person as part
of our general partners merger or consolidation, sale of
all or substantially all of its assets or the sale of all of the
ownership interests in such holder, the approval of a majority
of the common units, excluding common units held by the general
partner and its affiliates, is required in most circumstances
for a transfer of the incentive distribution rights to a third
party prior to September 30, 2016. Please read
Transfer of Incentive Distribution
Rights.
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Transfer of ownership interests in our
general partner
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No approval required at any time. Please read
Transfer of Ownership Interests in the
General Partner.
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Limited Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that he otherwise acts in conformity with the provisions of
the partnership agreement, his liability under the Delaware Act
will be limited, subject to possible exceptions, to the amount
of capital he is obligated to contribute to us for his common
units plus his share of any undistributed profits and assets. If
it were determined, however, that the right, or exercise of the
right, by the limited partners as a group:
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to remove or replace the general partner;
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to approve some amendments to the partnership agreement; or
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to take other action under the partnership agreement;
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constituted participation in the control of our
business for the purposes of the Delaware Act, then the limited
partners could be held personally liable for our obligations
under the laws of Delaware, to the same extent as the general
partner. This liability would extend to persons who transact
business with us who reasonably believe that the limited partner
is a general partner. Neither the partnership agreement nor the
Delaware Act specifically provides for legal recourse against
the general partner if a limited partner were to lose limited
liability through any fault of the general partner. While this
does not mean that a limited partner could not seek legal
recourse, we know of no precedent for this type of a claim in
Delaware case law.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair
value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a
limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except that
such person is not obligated for liabilities unknown to
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him at the time he became a limited partner and that could not
be ascertained from the partnership agreement.
Our subsidiaries conduct business in 16 states and we may
have subsidiaries that conduct business in other states in the
future. Maintenance of our limited liability as a limited
partner of the operating partnership may require compliance with
legal requirements in the jurisdictions in which the operating
partnership conducts business, including qualifying our
subsidiaries to do business there.
Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our
partnership interest in our operating partnership or otherwise,
it were determined that we were conducting business in any state
without compliance with the applicable limited partnership or
limited liability company statute, or that the right or exercise
of the right by the limited partners as a group to remove or
replace the general partner, to approve some amendments to the
partnership agreement, or to take other action under the
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional partnership securities for the
consideration and on the terms and conditions determined by our
general partner without the approval of the unitholders.
It is possible that we will fund acquisitions through the
issuance of additional common units, subordinated units or other
partnership securities. Holders of any additional common units
we issue will be entitled to share equally with the
then-existing holders of common units in our distributions of
available cash. In addition, the issuance of additional common
units or other partnership securities may dilute the value of
the interests of the then-existing holders of common units in
our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
securities that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance by our subsidiaries of equity securities,
which may effectively rank senior to the common units.
Upon issuance of additional partnership securities, our general
partner will be entitled, but not required, to make additional
capital contributions to the extent necessary to maintain its 2%
general partner interest in us. Our general partners 2%
interest in us will be reduced if we issue additional units in
the future and our general partner does not contribute a
proportionate amount of capital to us to maintain its 2% general
partner interest. Moreover, our general partner will have the
right, which it may from time to time assign in whole or in part
to any of its affiliates, to purchase common units, subordinated
units or other partnership securities whenever, and on the same
terms that, we issue those securities to persons other than our
general partner and its affiliates, to the extent necessary to
maintain the percentage interest of the general partner and its
affiliates, including such interest represented by common units
and subordinated units, that existed immediately prior to each
issuance. The holders of common units will not have preemptive
rights to acquire additional common units or other partnership
securities.
Amendment of the Partnership Agreement
General.
Amendments to our partnership agreement
may be proposed only by or with the consent of our general
partner. However, our general partner will have no duty or
obligation to propose any amendment and may decline to do so
free of any fiduciary duty or obligation whatsoever to us or the
limited partners, including any duty to act in good faith or in
the best interests of us or the limited
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partners. In order to adopt a proposed amendment, other than the
amendments discussed below, our general partner is required to
seek written approval of the holders of the number of units
required to approve the amendment or to call a meeting of the
limited partners to consider and vote upon the proposed
amendment. Except as described below, an amendment must be
approved by a unit majority.
Prohibited Amendments.
No amendment may be made
that would:
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enlarge the obligations of any limited partner without its
consent, unless approved by at least a majority of the type or
class of limited partner interests so affected; or
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enlarge the obligations of, restrict in any way any action by or
rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by us to our general partner
or any of its affiliates without the consent of our general
partner, which consent may be given or withheld at its option.
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The provision of our partnership agreement preventing the
amendments having the effects described in any of the clauses
above can be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single
class (including units owned by our general partner and its
affiliates). Upon completion of the offering, our general
partner and its affiliates will own approximately 56.5% of the
outstanding common and subordinated units.
No Unitholder Approval.
Our general partner may
generally make amendments to our partnership agreement without
the approval of any limited partner or assignee to reflect:
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a change in our name, the location of our principal place of our
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners
in accordance with our partnership agreement;
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a change that our general partner determines to be necessary or
appropriate to qualify or continue our qualification as a
limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or
to ensure that neither we nor the operating partnership nor any
of its subsidiaries will be treated as an association taxable as
a corporation or otherwise taxed as an entity for federal income
tax purposes;
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an amendment that is necessary, in the opinion of our counsel,
to prevent us or our general partner or its directors, officers,
agents or trustees from in any manner being subjected to the
provisions of the Investment Company Act of 1940, the Investment
Advisors Act of 1940, or plan asset regulations
adopted under the Employee Retirement Income Security Act of
1974, or ERISA, whether or not substantially similar to plan
asset regulations currently applied or proposed;
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an amendment that our general partner determines to be necessary
or appropriate for the authorization of additional partnership
securities or rights to acquire partnership securities;
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement that has been approved under the terms of our
partnership agreement;
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any amendment that our general partner determines to be
necessary or appropriate for the formation by us of, or our
investment in, any corporation, partnership or other entity, as
otherwise permitted by our partnership agreement;
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a change in our fiscal year or taxable year and related changes;
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an amendment necessary to require limited partners to provide a
statement, certification or other evidence to us regarding
whether such limited partner is subject to United States federal
income taxation on the income generated by us;
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conversions into, mergers with or conveyances to another limited
liability entity that is newly formed and has no assets,
liabilities or operations at the time of the conversion, merger
or conveyance other than those it receives by way of the
conversion, merger or conveyance; or
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any other amendments substantially similar to any of the matters
described in the clauses above.
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In addition, our general partner may make amendments to our
partnership agreement without the approval of any limited
partner if our general partner determines that those amendments:
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do not adversely affect the limited partners (or any particular
class of limited partners) in any material respect;
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are necessary or appropriate to satisfy any requirements,
conditions or guidelines contained in any opinion, directive,
order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute;
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are necessary or appropriate to facilitate the trading of
limited partner interests or to comply with any rule,
regulation, guideline or requirement of any securities exchange
on which the limited partner interests are or will be listed for
trading;
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are necessary or appropriate for any action taken by our general
partner relating to splits or combinations of units under the
provisions of our partnership agreement; or
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are required to effect the intent expressed in this prospectus
or the intent of the provisions of our partnership agreement or
are otherwise contemplated by our partnership agreement.
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Opinion of Counsel and Unitholder Approval.
Our
general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited
liability to the limited partners or result in our being treated
as an entity for federal income tax purposes in connection with
any of the amendments described under No Unitholders
Approval. No other amendments to our partnership agreement
will become effective without the approval of holders of at
least 90% of the outstanding units voting as a single class
unless we first obtain an opinion of counsel to the effect that
the amendment will not affect the limited liability under
applicable law of any of our limited partners.
In addition to the above restrictions, any amendment that would
have a material adverse effect on the rights or preferences of
any type or class of outstanding units in relation to other
classes of units will require the approval of at least a
majority of the type or class of units so affected. Any
amendment that reduces the voting percentage required to take
any action is required to be approved by the affirmative vote of
limited partners whose aggregate outstanding units constitute
not less than the voting requirement sought to be reduced.
Merger, Consolidation, Conversion, Sale or Other Disposition
of Assets
A merger, consolidation or conversion of us requires the prior
consent of our general partner. However, our general partner
will have no duty or obligation to consent to any merger,
consolidation or conversion and may decline to do so free of any
fiduciary duty or obligation whatsoever to us or the limited
partners, including any duty to act in good faith or in the best
interest of us or the limited partners.
In addition, the partnership agreement generally prohibits our
general partner without the prior approval of the holders of a
unit majority, from causing us to, among other things, sell,
exchange or otherwise dispose of all or substantially all of our
assets in a single transaction or a series of related
transactions, including by way of merger, consolidation or other
combination, or approving on our behalf the sale, exchange or
other disposition of all or substantially all of the assets of
our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
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substantially all of our assets without that approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without that approval. Finally, our general partner
may consummate any merger without the prior approval of our
unitholders if we are the surviving entity in the transaction,
our general partner has received an opinion of counsel regarding
limited liability and tax matters, the transaction would not
result in a material amendment to the partnership agreement,
each of our units will be an identical unit of our partnership
following the transaction, and the partnership securities to be
issued do not exceed 20% of our outstanding partnership
securities immediately prior to the transaction.
If the conditions specified in the partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that conversion,
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity, our general partner
has received an opinion of counsel regarding limited liability
and tax matters, and the governing instruments of the new entity
provide the limited partners and the general partner with the
same rights and obligations as contained in the partnership
agreement. The unitholders are not entitled to dissenters
rights of appraisal under the partnership agreement or
applicable Delaware law in the event of a conversion, merger or
consolidation, a sale of substantially all of our assets or any
other similar transaction or event.
Termination and Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
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the election of our general partner to dissolve us, if approved
by the holders of units representing a unit majority;
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there being no limited partners, unless we are continued without
dissolution in accordance with applicable Delaware law;
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the entry of a decree of judicial dissolution of our
partnership; or
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the withdrawal or removal of our general partner or any other
event that results in its ceasing to be our general partner
other than by reason of a transfer of its general partner
interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor.
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Upon a dissolution under the last clause above, the holders of a
unit majority may also elect, within specific time limitations,
to continue our business on the same terms and conditions
described in our partnership agreement by appointing as a
successor general partner an entity approved by the holders of
units representing a unit majority, subject to our receipt of an
opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership, our operating partnership nor any of
our other subsidiaries would be treated as an association
taxable as a corporation or otherwise be taxable as an entity
for federal income tax purposes upon the exercise of that right
to continue.
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Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited
partnership, the liquidator authorized to wind up our affairs
will, acting with all of the powers of our general partner that
are necessary or appropriate to liquidate our assets and apply
the proceeds of the liquidation as described in Provisions
of Our Partnership Agreement Relating to Cash
Distributions Distributions of Cash Upon
Liquidation. The liquidator may defer liquidation or
distribution of our assets for a reasonable period of time or
distribute assets to partners in kind if it determines that a
sale would be impractical or would cause undue loss to our
partners.
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Withdrawal or Removal of the General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
September 30, 2016 without obtaining the approval of the
holders of at least a majority of the outstanding common units,
excluding common units held by the general partner and its
affiliates, and furnishing an opinion of counsel regarding
limited liability and tax matters. On or after
September 30, 2016, our general partner may withdraw as
general partner without first obtaining approval of any
unitholder by giving 90 days written notice, and that
withdrawal will not constitute a violation of our partnership
agreement. Notwithstanding the information above, our general
partner may withdraw without unitholder approval upon
90 days notice to the limited partners if at least
50% of the outstanding common units are held or controlled by
one person and its affiliates other than the general partner and
its affiliates. In addition, the partnership agreement permits
our general partner in some instances to sell or otherwise
transfer all of its general partner interest in us without the
approval of the unitholders. Please read
Transfer of General Partner Units and
Transfer of Incentive Distribution
Rights.
Upon withdrawal of our general partner under any circumstances,
other than as a result of a transfer by our general partner of
all or a part of its general partner interest in us, the holders
of a unit majority, voting as separate classes, may select a
successor to that withdrawing general partner. If a successor is
not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, we will be
dissolved, wound up and liquidated, unless within a specified
period after that withdrawal, the holders of a unit majority
agree in writing to continue our business and to appoint a
successor general partner. Please read
Termination and Dissolution.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than
66
2
/
3
%
of the outstanding units, voting together as a single class,
including units held by our general partner and its affiliates,
and we receive an opinion of counsel regarding limited liability
and tax matters. Any removal of our general partner is also
subject to the approval of a successor general partner by the
vote of the holders of a majority of the outstanding common
units and subordinated units, voting as separate classes. The
ownership of more than
33
1
/
3
%
of the outstanding units by our general partner and its
affiliates would give them the practical ability to prevent our
general partners removal. At the closing of this offering,
our general partner and its affiliates will own 56.5% of the
outstanding common and subordinated units.
Our partnership agreement also provides that if our general
partner is removed as our general partner under circumstances
where cause does not exist and units held by the general partner
and its affiliates are not voted in favor of that removal:
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the subordination period will end, and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner interest and its incentive distribution rights into
common units or to receive cash in exchange for those interests
based on the fair market value of those interests at that time.
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In the event of removal of a general partner under circumstances
where cause exists or withdrawal of a general partner where that
withdrawal violates our partnership agreement, a successor
general partner will have the option to purchase the general
partner interest and incentive distribution rights of the
departing general partner for a cash payment equal to the fair
market value of those interests. Under all other circumstances
where a general partner withdraws or is removed by the limited
partners, the departing general partner will have the option to
require the successor general partner to purchase the general
partner interest of the departing general partner and its
incentive distribution rights for fair market value. In each
case, this fair market value will be determined by agreement
between the departing general partner and the successor general
partner. If no agreement is reached, an independent investment
banking firm or other independent expert selected by the
departing general partner and the successor general
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partner will determine the fair market value. Or, if the
departing general partner and the successor general partner
cannot agree upon an expert, then an expert chosen by agreement
of the experts selected by each of them will determine the fair
market value.
If the option described above is not exercised by either the
departing general partner or the successor general partner, the
departing general partners general partner interest and
its incentive distribution rights will automatically convert
into common units equal to the fair market value of those
interests as determined by an investment banking firm or other
independent expert selected in the manner described in the
preceding paragraph.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred for the
termination of any employees employed by the departing general
partner or its affiliates for our benefit.
Transfer of General Partner Units
Except for transfer by our general partner of all, but not less
than all, of its general partner units to:
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an affiliate of our general partner (other than an
individual); or
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another entity as part of the merger or consolidation of our
general partner with or into another entity or the transfer by
our general partner of all or substantially all of its assets to
another entity,
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our general partner may not transfer all or any of its general
partner units to another person prior to September 30, 2016
without the approval of the holders of at least a majority of
the outstanding common units, excluding common units held by our
general partner and its affiliates. As a condition of this
transfer, the transferee must assume, among other things, the
rights and duties of our general partner, agree to be bound by
the provisions of our partnership agreement, and furnish an
opinion of counsel regarding limited liability and tax matters.
Our general partner and its affiliates may at any time, transfer
common or subordinated units to one or more persons, without
unitholder approval, except that they may not transfer
subordinated units to us.
Transfer of Ownership Interests in the General
Partner
At any time, Universal Compression Holdings and its affiliates
may sell or transfer all or part of their partnership interests
in our general partner, or their membership interest in UCO GP,
LLC, the general partner of our general partner, to an affiliate
or third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
Our general partner or its affiliates or a subsequent holder may
transfer its incentive distribution rights to an affiliate of
the holder (other than an individual) or another entity as part
of the merger or consolidation of such holder with or into
another entity, the sale of all of the ownership interest in the
holder or the sale of all or substantially all of its assets to,
that entity without the prior approval of the unitholders. Prior
to September 30, 2016, other transfers of incentive
distribution rights will require the affirmative vote of holders
of a majority of the outstanding common units, excluding common
units held by our general partner and its affiliates. On or
after September 30, 2016, the incentive distribution rights
will be freely transferable.
Change of Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove our general partner or otherwise change our management.
If any person
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or group other than our general partner and its affiliates
acquires beneficial ownership of 20% or more of any class of
units, that person or group loses voting rights on all of its
units. This loss of voting rights does not apply to any person
or group that acquires the units from our general partner or its
affiliates and any transferees of that person or group approved
by our general partner or to any person or group who acquires
the units with the prior approval of our general partner.
Our partnership agreement also provides that if our general
partner is removed under circumstances where cause does not
exist and units held by our general partner and its affiliates
are not voted in favor of that removal:
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the subordination period will end and all outstanding
subordinated units will immediately convert into common units on
a one-for-one basis;
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any existing arrearages in payment of the minimum quarterly
distribution on the common units will be extinguished; and
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our general partner will have the right to convert its general
partner units and its incentive distribution rights into common
units or to receive cash in exchange for those interests based
on the fair market value of those interests at that time.
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Limited Call Right
If at any time our general partner and its affiliates own more
than 80% of the then-issued and outstanding limited partner
interests of any class, our general partner will have the right,
which it may assign in whole or in part to any of its affiliates
or to us, to acquire all, but not less than all, of the limited
partner interests of the class held by unaffiliated persons as
of a record date to be selected by our general partner, on at
least 10 but not more than 60 days notice. The
purchase price in the event of this purchase is the greater of:
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the highest cash price paid by either of our general partner or
any of its affiliates for any limited partner interests of the
class purchased within the 90 days preceding the date on
which our general partner first mails notice of its election to
purchase those limited partner interests; and
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the current market price as of the date three days before the
date the notice is mailed.
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As a result of our general partners right to purchase
outstanding limited partner interests, a holder of limited
partner interests may have his limited partner interests
purchased at a price that may be lower than market prices at
various times prior to such purchase or lower than a unitholder
may anticipate the market price to be in the future. The tax
consequences to a unitholder of the exercise of this call right
are the same as a sale by that unitholder of his common units in
the market. Please read Material Tax
Consequences Disposition of Common Units.
Meetings; Voting
Except as described below regarding a person or group owning 20%
or more of any class of units then outstanding, record holders
of units on the record date will be entitled to notice of, and
to vote at, meetings of our limited partners and to act upon
matters for which approvals may be solicited. In the case of
common units held by our general partner on behalf of
non-citizen assignees, our general partner will distribute the
votes on those common units in the same ratios as the votes of
limited partners on other units are cast.
Our general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by the unitholders may
be taken either at a meeting of the unitholders or without a
meeting if consents in writing describing the action so taken
are signed by holders of the number of units necessary to
authorize or take that action at a meeting. Meetings of the
unitholders may be called by our general partner or by
unitholders owning at least 20% of the outstanding units of the
class for which a meeting is proposed. Unitholders may vote
either in person
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or by proxy at meetings. The holders of a majority of the
outstanding units of the class or classes for which a meeting
has been called represented in person or by proxy will
constitute a quorum unless any action by the unitholders
requires approval by holders of a greater percentage of the
units, in which case the quorum will be the greater percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities.
However, if at any time any person or group, other than our
general partner and its affiliates, or a direct or subsequently
approved transferee of our general partner or its affiliates,
acquires, in the aggregate, beneficial ownership of 20% or more
of any class of units then outstanding, that person or group
will lose voting rights on all of its units and the units may
not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of unitholders,
calculating required votes, determining the presence of a quorum
or for other similar purposes. Common units held in nominee or
street name account will be voted by the broker or other nominee
in accordance with the instruction of the beneficial owner
unless the arrangement between the beneficial owner and his
nominee provides otherwise. Except as our partnership agreement
otherwise provides, subordinated units will vote together with
common units as a single class.
Any notice, demand, request, report or proxy material required
or permitted to be given or made to record holders of common
units under our partnership agreement will be delivered to the
record holder by us or by the transfer agent.
Status as Limited Partner
By the transfer of common units in accordance with our
partnership agreement, each transferee of common units shall be
admitted as a limited partner with respect to the common units
transferred when such transfer and admission is reflected in our
books and records. Except as described under
Limited Liability, the common units will
be fully paid, and unitholders will not be required to make
additional contributions.
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or
regulations that, in the reasonable determination of our general
partner, create a substantial risk of cancellation or forfeiture
of any property that we have an interest in because of the
nationality, citizenship or other related status of any limited
partner, we may redeem the units held by the limited partner at
their current market price. In order to avoid any cancellation
or forfeiture, our general partner may require each limited
partner to furnish information about his nationality,
citizenship or related status. If a limited partner fails to
furnish information about his nationality, citizenship or other
related status within 30 days after a request for the
information or our general partner determines after receipt of
the information that the limited partner is not an eligible
citizen, the limited partner may be treated as a non-citizen
assignee. A non-citizen assignee, is entitled to an interest
equivalent to that of a limited partner for the right to share
in allocations and distributions from us, including liquidating
distributions. A non-citizen assignee does not have the right to
direct the voting of his units and may not receive distributions
in-kind upon our liquidation.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by law, from and against all losses, claims, damages or similar
events:
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our general partner;
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any departing general partner;
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any person who is or was an affiliate of a general partner or
any departing general partner;
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any person who is or was a director, officer, member, partner,
fiduciary or trustee of any entity set forth in the preceding
three bullet points;
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any person who is or was serving as director, officer, member,
partner, fiduciary or trustee of another person at the request
of our general partner or any departing general partner; and
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any person designated by our general partner.
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Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or lend funds or assets to us to enable us to
effectuate, indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Reimbursement of Expenses
Our partnership agreement requires us to reimburse our general
partner for all direct and indirect expenses it incurs or
payments it makes on our behalf and all other expenses allocable
to us or otherwise incurred by our general partner in connection
with operating our business. These expenses include salary,
bonus, incentive compensation and other amounts paid to persons
who perform services for us or on our behalf and expenses
allocated to our general partner by its affiliates. The general
partner is entitled to determine in good faith the expenses that
are allocable to us.
Books and Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and financial reporting purposes, our fiscal year
is the calendar year.
We will furnish or make available to record holders of common
units, within 120 days after the close of each fiscal year,
an annual report containing audited financial statements and a
report on those financial statements by our independent public
accountants. Except for our fourth quarter, we will also furnish
or make available summary financial information within
90 days after the close of each quarter.
We will furnish each record holder of a unit with information
reasonably required for tax reporting purposes within
90 days after the close of each calendar year. This
information is expected to be furnished in summary form so that
some complex calculations normally required of partners can be
avoided. Our ability to furnish this summary information to
unitholders will depend on the cooperation of unitholders in
supplying us with specific information. Every unitholder will
receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax
returns, regardless of whether he supplies us with information.
Right to Inspect Our Books and Records
Our partnership agreement provides that a limited partner can,
for a purpose reasonably related to his interest as a limited
partner, upon reasonable written demand stating the purpose of
such demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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information as to the amount of cash, and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each partner became a partner;
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copies of our partnership agreement, our certificate of limited
partnership, related amendments and powers of attorney under
which they have been executed;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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Our general partner may, and intends to, keep confidential from
the limited partners trade secrets or other information the
disclosure of which our general partner believes in good faith
is not in our best interests or that we are required by law or
by agreements with third parties to keep confidential.
Registration Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units, subordinated units or other partnership
securities proposed to be sold by our general partner or any of
its affiliates or their assignees if an exemption from the
registration requirements is not otherwise available. These
registration rights continue for two years following any
withdrawal or removal of our general partner. We are obligated
to pay all expenses incidental to the registration, excluding
underwriting discounts, commissions and structuring fees. Please
read Units Eligible for Future Sale.
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered hereby, management of
the general partner of our general partner and Universal
Compression Holdings and its affiliates will hold an aggregate
of 825,000 common units and 6,325,000 subordinated
units. All of the subordinated units will convert into common
units at the end of the subordination period and some may
convert earlier. The sale of these units could have an adverse
impact on the price of the common units or on any trading market
that may develop.
The common units sold in the offering will generally be freely
transferable without restriction or further registration under
the Securities Act, except that any common units owned by an
affiliate of ours may not be resold publicly except
in compliance with the registration requirements of the
Securities Act or under an exemption under Rule 144 or
otherwise. Rule 144 permits securities acquired by an
affiliate of the issuer to be sold into the market in an amount
that does not exceed, during any three-month period, the greater
of:
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1% of the total number of the securities outstanding; or
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the average weekly reported trading volume of the common units
for the four calendar weeks prior to the sale.
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Sales under Rule 144 are also subject to specific manner of
sale provisions, holding period requirements, notice
requirements and the availability of current public information
about us. A person who is not deemed to have been an affiliate
of ours at any time during the three months preceding a sale,
and who has beneficially owned his common units for at least two
years, would be entitled to sell common units under
Rule 144 without regard to the public information
requirements, volume limitations, manner of sale provisions and
notice requirements of Rule 144.
The partnership agreement does not restrict our ability to issue
any partnership securities at any time. Any issuance of
additional common units or other equity securities would result
in a corresponding decrease in the proportionate ownership
interest in us represented by, and could adversely affect the
cash distributions to and market price of, common units then
outstanding. Please read The Partnership
Agreement Issuance of Additional Securities.
Under our partnership agreement, our general partner and its
affiliates have the right, subject to certain limitations, to
cause us to register under the Securities Act and state
securities laws the offer and sale of any common units,
subordinated units or other partnership securities that they
hold. Subject to the terms and conditions of our partnership
agreement, these registration rights allow our general partner
and its affiliates or their assignees holding any units or other
partnership securities to require registration of any of these
units or other partnership securities and to include them in a
registration by us of other units, including units offered by us
or by any unitholder. Our general partner will continue to have
these registration rights for two years following its withdrawal
or removal as our general partner. In connection with any
registration of this kind, we will indemnify each unitholder
participating in the registration and its officers, directors
and controlling persons from and against any liabilities under
the Securities Act or any state securities laws arising from the
registration statement or prospectus. We will bear all costs and
expenses incidental to any registration, excluding any
underwriting discounts and a structuring fee. Except as
described below, our general partner and its affiliates may sell
their units or other partnership interests in private
transactions at any time, subject to compliance with applicable
laws.
We, our subsidiaries, our general partner and its affiliates,
including the executive officers and directors of our general
partner, have agreed, with exceptions, not to sell or transfer
any of our common units for 180 days after the date of this
prospectus. For a description of these
lock-up
provisions,
please read Underwriting.
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MATERIAL TAX CONSEQUENCES
This section is a discussion of the material tax considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, is the
opinion of Vinson & Elkins L.L.P., counsel to the
general partner and us, as to all material tax matters and all
legal conclusions insofar as it relates to matters of United
States federal income tax law and legal conclusions with respect
to those matters. This section is based upon current provisions
of the Internal Revenue Code, existing and proposed regulations
and current administrative rulings and court decisions, all of
which are subject to change. Later changes in these authorities
may cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to Universal Compression Partners,
L.P. and our operating company.
The following discussion does not comment on all federal income
tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs) or mutual
funds. Accordingly, we urge each prospective unitholder to
consult, and depend on, his own tax advisor in analyzing the
federal, state, local and foreign tax consequences particular to
him of the ownership or disposition of common units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are, to the extent noted herein, based on the
accuracy of the representations made by us.
No ruling has been received from the IRS regarding any matter
affecting us or prospective unitholders. Instead, we will rely
on opinions of Vinson & Elkins L.L.P. Unlike a ruling,
an opinion of counsel represents only that counsels best
legal judgment and does not bind the IRS or the courts.
Accordingly, the opinions and statements made here may not be
sustained by a court if contested by the IRS. Any contest of
this sort with the IRS may materially and adversely impact the
market for the common units and the prices at which common units
trade. In addition, the costs of any contest with the IRS,
principally legal, accounting and related fees, will result in a
reduction in cash available for distribution to our unitholders
and our general partner and thus will be borne indirectly by our
unitholders and our general partner. Furthermore, the tax
treatment of us, or of an investment in us, may be significantly
modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be
retroactively applied.
In 2004,Vinson & Elkins L.L.P., counsel to Universal
Compression Holdings, had advised us that they were unable to
provide an unqualified opinion that income derived under
Universal Compression Holdings then existing agreements
for providing compression equipment and services would be
qualifying income to a publicly-traded partnership. Universal
Compression Holdings then requested a private letter ruling from
the IRS that income derived from our compression business would
be qualifying income to a publicly-traded partnership. Universal
Compression Holdings withdrew this private letter ruling request
upon being advised by Vinson & Elkins L.L.P. that the IRS
had informally indicated to Vinson & Elkins L.L.P. that the
IRS was unlikely to grant a favorable ruling. In an effort to
enable Vinson & Elkins L.L.P. to provide an unqualified
opinion that the business being contributed to us generates
sufficient qualifying income that we would be treated as a
partnership for federal income tax purposes, Universal
Compression Holdings has entered into new agreements with some
of its customers under which Vinson & Elkins L.L.P. believes
it is clear that Universal Compression Holdings provides
compression services to its customers rather than leasing
compression equipment to them. All of the domestic contract
compression business contributed to us in connection with the
closing of this offering will be under these new service
agreements. No ruling has been sought or received from the IRS
whether the new compression service agreements generate
qualifying income, and we can provide no assurance that the IRS
would provide a favorable ruling if we requested it.
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As discussed more fully below, Vinson & Elkins L.L.P. has
opined that all of the income derived by us under the new
compression services agreements will be qualifying income and,
provided at least 90% of our gross income is qualifying income,
we will be treated as a partnership for federal income tax
purposes and not required to pay federal corporate income tax on
our income. Vinson & Elkins L.L.P.s advice is based
upon, among other things, our entering into and generating
substantially all of our income under the new compression
services agreements described above. We can offer no assurance
that the IRS would concur with this advice and position or that
the IRS would not take a position different than that taken by
Vinson & Elkins L.L.P.
For the reasons described below, Vinson & Elkins L.L.P.
has not rendered an opinion with respect to the following
specific federal income tax issues: (1) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please read
Tax Consequences of Unit Ownership
Treatment of Short Sales); (2) whether our monthly
convention for allocating taxable income and losses is permitted
by existing Treasury Regulations (please read
Disposition of Common Units
Allocations Between Transferors and Transferees); and
(3) whether our method for depreciating Section 743
adjustments is sustainable in certain cases (please read
Tax Consequences of Unit Ownership
Section 754 Election).
Partnership Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists with respect to
publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of qualifying
income. Qualifying income includes income and gains
derived from the transportation, storage, processing and
marketing of crude oil, natural gas and products thereof. Other
types of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real
property and gains from the sale or other disposition of capital
assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 1% of
our current income is derived from sources other than the new
compression services agreement; however, this estimate could
change from time to time. Based upon and subject to this
estimate, the factual representations made by us and the general
partner and a review of the applicable legal authorities,
Vinson & Elkins L.L.P. is of the opinion that at least
90% of our current gross income constitutes qualifying income.
No ruling has been obtained or will be sought from the IRS and
the IRS has made no determination as to our status for federal
income tax purposes or whether our operations generate
qualifying income under Section 7704 of the
Internal Revenue Code. Instead, we will rely on the opinion of
Vinson & Elkins L.L.P. that, based upon the Internal
Revenue Code, its regulations, published revenue rulings and
court decisions and the representations described below, we will
be classified as a partnership and the operating company will be
disregarded as an entity separate from us for federal income tax
purposes.
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In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and the general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied are:
(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.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, we will be
treated as if we had transferred all of our assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in us. This contribution and liquidation should
be tax-free to unitholders and us so long as we, at that time,
do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for
federal income tax purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution
made to a unitholder would be treated as either taxable dividend
income, to the extent of our current or accumulated earnings and
profits, or, in the absence of earnings and profits, a
nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on Vinson & Elkins
L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of Universal
Compression Partners, L.P. will be treated as partners of
Universal Compression Partners, L.P. for federal income tax
purposes. Also, unitholders whose common units are held in
street name or by a nominee and who have the right to direct the
nominee in the exercise of all substantive rights attendant to
the ownership of their common units will be treated as partners
of Universal Compression Partners, L.P. for federal income tax
purposes.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership
Treatment of Short Sales.
Income, gain, deductions or losses would not be reportable by a
unitholder who is not a partner for federal income tax purposes,
and any cash distributions received by a unitholder who is not a
partner for federal income tax purposes would therefore appear
to be fully taxable as ordinary income. These holders are urged
to consult their own tax advisors with respect to their tax
consequences of holding common units in Universal Compression
Partners, L.P.
The references to unitholders in the discussion that
follows are to persons who are treated as partners in Universal
Compression Partners, L.P. for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income.
We will not pay
any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses and
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deductions without regard to whether corresponding cash
distributions are received by him. Consequently, we may allocate
income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in
income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions.
Distributions by us to
a unitholder generally will not be taxable to the unitholder for
federal income tax purposes, except to the extent the amount of
any such cash distribution exceeds his tax basis in his common
units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units. Any reduction in a unitholders share of our
liabilities for which no partner, including the general partner,
bears the economic risk of loss, known as nonrecourse
liabilities, will be treated as a distribution of cash to
that unitholder. To the extent our distributions cause a
unitholders at risk amount to be less than
zero at the end of any taxable year, he must recapture any
losses deducted in previous years. Please read
Limitations on Deductibility of Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture, and/or substantially appreciated
inventory items, both as defined in the Internal
Revenue Code, and collectively, Section 751
Assets. To that extent, he will be treated as having been
distributed his proportionate share of the Section 751
Assets and having exchanged those assets with us in return for
the non-pro rata portion of the actual distribution made to him.
This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholders tax basis for
the share of Section 751 Assets deemed relinquished in the
exchange.
Ratio of Taxable Income to Distributions.
We
estimate that a purchaser of common units in this offering who
owns those common units from the date of closing of this
offering through the record date for distributions for the
period ending December 31, 2009, will be allocated an
amount of federal taxable income for that period that will be
20% or less of the cash distributed with respect to that period.
We anticipate that after the taxable year ending
December 31, 2009, the ratio of allocable taxable income to
cash distributions to the unitholders will increase. These
estimates are based upon the assumption that gross income from
operations will approximate the amount required to make the
minimum quarterly distribution on all units and other
assumptions with respect to capital expenditures, cash flow, net
working capital and anticipated cash distributions. These
estimates and assumptions are subject to, among other things,
numerous business, economic, regulatory, competitive and
political uncertainties beyond our control. Further, the
estimates are based on current tax law and tax reporting
positions that we will adopt and with which the IRS could
disagree. Accordingly, we cannot assure you that these estimates
will prove to be correct. The actual percentage of distributions
that will constitute taxable income could be higher or lower
than our estimate of 20% or less, and any differences could be
material and could materially affect the value of the common
units. For example, the ratio of allocable taxable income to
cash distributions to a purchaser of common units in this
offering will be greater, and perhaps substantially greater,
than 20% with respect to the period described above if:
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gross income from operations exceeds the amount required to make
the minimum quarterly distribution on all units, yet we only
distribute the minimum quarterly distribution on all
units; or
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we make a future offering of common units and use the proceeds
of the offering in a manner that does not produce substantial
additional deductions during the period described above, such as
to repay indebtedness outstanding at the time of this offering
or to acquire property that is not eligible for depreciation or
amortization for federal income tax purposes
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or that is depreciable or amortizable at a rate significantly
slower than the rate applicable to our assets at the time of
this offering.
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Basis of Common Units.
A unitholders initial
tax basis for his common units will be the amount he paid for
the common units plus his share of our nonrecourse liabilities.
That basis will be increased by his share of our income and by
any increases in his share of our nonrecourse liabilities. That
basis will be decreased, but not below zero, by distributions
from us, by the unitholders share of our losses, by any
decreases in his share of our nonrecourse liabilities and by his
share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A
unitholder will have no share of our debt that is recourse to
the general partner, but will have a share, generally based on
his share of profits, of our nonrecourse liabilities. Please
read Disposition of Common Units
Recognition of Gain or Loss.
Limitations on Deductibility of Losses.
The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by five or fewer individuals or
some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that is less than his tax basis. A
unitholder must recapture losses deducted in previous years to
the extent that distributions cause his at risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable to the extent that his
tax basis or at risk amount, whichever is the limiting factor,
is subsequently increased. Upon the taxable disposition of a
unit, any gain recognized by a unitholder can be offset by
losses that were previously suspended by the at risk limitation
but may not be offset by losses suspended by the basis
limitation. Any excess loss above that gain previously suspended
by the at risk or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally corporate or partnership activities in which
the taxpayer does not materially participate, only to the extent
of the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly traded partnership. Consequently, any passive
losses we generate will only be available to offset our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other publicly
traded partnerships, or salary or active business income.
Passive losses that are not deductible because they exceed a
unitholders share of income we generate may be deducted in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive
activity loss rules are applied after other applicable
limitations on deductions, including the at risk rules and the
basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions.
The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly traded
partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections.
If we are required
or elect under applicable law to pay any federal, state, local
or foreign income tax on behalf of any unitholder or the general
partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as
a distribution of cash to the partner on whose behalf the
payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat
the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax
characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under
the partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual partner in
which event the partner would be required to file a claim in
order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction.
In
general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among the general partner
and the unitholders in accordance with their percentage
interests in us. At any time that distributions are made to the
common units in excess of distributions to the subordinated
units, or incentive distributions are made to the general
partner, gross income will be allocated to the recipients to the
extent of these distributions. If we have a net loss for the
entire year, that loss will be allocated first to the general
partner and the unitholders in accordance with their percentage
interests in us to the extent of their positive capital accounts
and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for the difference between the tax basis
and fair market value of property contributed to us by the
general partner and its affiliates, referred to in this
discussion as Contributed Property. The effect of
these allocations to a unitholder purchasing common units in
this offering will be essentially the same as if the tax basis
of our assets were equal to their fair market value at the time
of this offering. In addition, items of recapture income will be
allocated to the extent possible to the partner who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in such amount and manner as is needed to eliminate
the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect.
Vinson & Elkins L.L.P. is of the opinion that, with the
exception of the issues described in Tax
Consequences of Unit Ownership Section 754
Election and Disposition of Common
Units Allocations Between Transferors and
Transferees, allocations under our partnership agreement
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will be given effect for federal income tax purposes in
determining a partners share of an item of income, gain,
loss or deduction.
Treatment of Short Sales.
A unitholder whose units
are loaned to a short seller to cover a short sale
of units may be considered as having disposed of those units. If
so, he would no longer be treated for tax purposes as a partner
with respect to those units during the period of the loan and
may recognize gain or loss from the disposition. As a result,
during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from borrowing
their units. The IRS has announced that it is actively studying
issues relating to the tax treatment of short sales of
partnership interests. Please also read
Disposition of Common Units
Recognition of Gain or Loss.
Alternative Minimum Tax.
Each unitholder will be
required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates.
In general, the highest effective
United States federal income tax rate for individuals is
currently 35.0% and the maximum United States federal income tax
rate for net capital gains of an individual is currently 15.0%
if the asset disposed of was held for more than
twelve months at the time of disposition.
Section 754 Election.
We will make the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. The election will generally permit us to adjust a common
unit purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Treasury regulations under Section 743 of the Internal
Revenue Code require, if the remedial allocation method is
adopted (which we will adopt as to property other than certain
goodwill properties), a portion of the Section 743(b)
adjustment attributable to recovery property under
Section 168 of the Internal Revenue Code to be depreciated
over the remaining cost recovery period for the
Section 704(c) built-in gain. If we elect a method other
than the remedial method with respect to a goodwill property,
Treasury
Regulation Section
1.197-2(g)(3)
generally requires that the Section 743(b) adjustment
attributable to an amortizable Section 197 intangible,
which includes goodwill properties, should be treated as a
newly-acquired asset placed in service in the month when the
purchaser acquires the common unit. Under Treasury
Regulation Section
1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. If we elect a method other than the remedial method, the
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depreciation and amortization methods and useful lives
associated with the Section 743(b) adjustment, therefore,
may differ from the methods and useful lives generally used to
depreciate the inside basis in such properties. Under our
partnership agreement, the general partner is authorized to take
a position to preserve the uniformity of units even if that
position is not consistent with these and any other Treasury
Regulations. If we elect a method other than the remedial method
with respect to a goodwill property, the common basis of such
property is not amortizable. Please read
Uniformity of Units.
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach, we intend to depreciate the
portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to
the extent of any unamortized Book-Tax Disparity, using a rate
of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis
of the property, or treat that portion as non-amortizable to the
extent attributable to property the common basis of which is not
amortizable. This method is inconsistent with Treasury
Regulation Section
1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets and Treasury Regulation
Section
1.197-2(g)(3).
To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring units in the same month would receive
depreciation or amortization, whether attributable to common
basis or a Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in
our assets. This kind of aggregate approach may result in lower
annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units. A unitholders
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of Common
Units Recognition of Gain or Loss. The IRS may
challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of the units. If such a challenge were
sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
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Tax Treatment of Operations
Accounting Method and Taxable Year.
We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31
and who disposes of all of his units following the close of our
taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Initial Tax Basis, Depreciation and Amortization
Expense.
The tax basis of our assets will be used for
purposes of computing depreciation and cost recovery deductions
and, ultimately, gain or loss on the disposition of these
assets. The federal income tax burden associated with the
difference between the fair market value of our assets and their
tax basis immediately prior to this offering will be borne by
the general partner. Please read Tax
Consequences of Unit Ownership Allocation of Income,
Gain, Loss and Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. Because our general partner may determine not
to adopt the remedial method of allocation with respect to any
difference between the tax basis and the fair market value of
goodwill immediately prior to this or any future offering, we
may not be entitled to any amortization deductions with respect
to any goodwill properties conveyed to us on formation or held
by us at the time of any future offering. Please read
Uniformity of Units. Property we subsequently
acquire or construct may be depreciated using accelerated
methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction and
Disposition of Common Units
Recognition of Gain or Loss.
The costs we incur in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and a structuring fee we incur will be
treated as syndication expenses.
Valuation and Tax Basis of Our Properties.
The
federal income tax consequences of the ownership and disposition
of units will depend in part on our estimates of the relative
fair market values, and the initial tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or
deductions previously reported by unitholders might change, and
unitholders might be required to adjust their tax liability for
prior years and incur interest and penalties with respect to
those adjustments.
Disposition of Common Units
Recognition of Gain or Loss.
Gain or loss will be
recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders
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amount realized will be measured by the sum of the cash or the
fair market value of other property received by him plus his
share of our nonrecourse liabilities. Because the amount
realized includes a unitholders share of our nonrecourse
liabilities, the gain recognized on the sale of units could
result in a tax liability in excess of any cash received from
the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than
twelve months will generally be taxed at a maximum rate of
15%. However, a portion of this gain or loss will be separately
computed and taxed as ordinary income or loss under
Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or
other unrealized receivables or to inventory
items we own. The term unrealized receivables
includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized
receivables, inventory items and depreciation recapture may
exceed net taxable gain realized upon the sale of a unit and may
be recognized even if there is a net taxable loss realized on
the sale of a unit. Thus, a unitholder may recognize both
ordinary income and a capital loss upon a sale of units. Net
capital losses may offset capital gains and no more than $3,000
of ordinary income, in the case of individuals, and may only be
used to offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling, a common
unitholder will be unable to select high or low basis common
units to sell as would be the case with corporate stock, but,
according to the regulations, may designate specific common
units sold for purposes of determining the holding period of
units transferred. A unitholder electing to use the actual
holding period of common units transferred must consistently use
that identification method for all subsequent sales or exchanges
of common units. A unitholder considering the purchase of
additional units or a sale of common units purchased in separate
transactions is urged to consult his tax advisor as to the
possible consequences of this ruling and application of the
regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue
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regulations that treat a taxpayer that enters into transactions
or positions that have substantially the same effect as the
preceding transactions as having constructively sold the
financial position.
Allocations Between Transferors and Transferees.
In general, our taxable income and losses will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the unitholders in proportion to
the number of units owned by each of them as of the opening of
the applicable exchange on the first business day of the month,
which we refer to in this prospectus as the Allocation
Date. However, gain or loss realized on a sale or other
disposition of our assets other than in the ordinary course of
business will be allocated among the unitholders on the
Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring units may be
allocated income, gain, loss and deduction realized after the
date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations as there is no controlling authority on the
issue. Accordingly, Vinson & Elkins L.L.P. is unable to
opine on the validity of this method of allocating income and
deductions between unitholders although Vinson & Elkins
L.L.P. is of the opinion that this method is a reasonable
method. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of
the unitholders interest, our taxable income or losses
might be reallocated among the unitholders. We are authorized to
revise our method of allocation between unitholders, as well as
unitholders whose interests vary during a taxable year, to
conform to a method permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements.
A purchaser of units
who purchases units from another unitholder is required to
notify us in writing of that purchase within 30 days after
the purchase. We are required to notify the IRS of that
transaction and to furnish specified information to the
transferor and transferee. Failure to notify us of a purchase
may lead to the imposition of substantial penalties. However,
these reporting requirements do not apply to a sale by an
individual who is a citizen of the United States and who effects
the sale or exchange through a broker.
Constructive Termination.
We will be considered to
have been terminated for tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital
and profits within a twelve-month period. A constructive
termination results in the closing of our taxable year for all
unitholders. In the case of a unitholder reporting on a taxable
year other than a fiscal year ending December 31, the
closing of our taxable year may result in more than
twelve months of our taxable income or loss being
includable in his taxable income for the year of termination. We
would be required to make new tax elections after a termination,
including a new election under Section 754 of the Internal
Revenue Code, and a termination would result in a deferral of
our deductions for depreciation. A termination could also result
in penalties if we were unable to determine that the termination
had occurred. Moreover, a termination might either accelerate
the application of, or subject us to, any tax legislation
enacted before the termination.
Uniformity of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section
1.167(c)-1(a)(6)
and Treasury Regulation
Section
1.197-2(g)(3).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of
Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity,
134
using a rate of depreciation or amortization derived from the
depreciation or amortization method and useful life applied to
the common basis of that property, or treat that portion as
nonamortizable to the extent attributable to property the common
basis of which is not amortizable, even though that position may
be inconsistent with Treasury
Regulation Section
1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets and Treasury Regulation
Section
1.197-2(g)(3).
Please read Tax Consequences of Unit
Ownership Section 754 Election. To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and amortization expense position under which all purchasers
acquiring units in the same month would receive depreciation and
amortization expense deductions, whether attributable to a
common basis or Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest
in our property. If this position is adopted, it may result in
lower annual depreciation and amortization expense deductions
than would otherwise be allowable to some unitholders and risk
the loss of depreciation and amortization expense deductions not
taken in the year that these deductions are otherwise allowable.
This position will not be adopted if we determine that the loss
of depreciation and amortization expense deductions will have a
material adverse effect on the unitholders. If we choose not to
utilize this aggregate method, we may use any other reasonable
depreciation and amortization expense method to preserve the
uniformity of the intrinsic tax characteristics of any units
that would not have a material adverse effect on the
unitholders. The IRS may challenge any method of depreciating
the Section 743(b) adjustment described in this paragraph.
If this challenge were sustained, the uniformity of units might
be affected, and the gain from the sale of units might be
increased without the benefit of additional deductions. Please
read Disposition of Common Units
Recognition of Gain or Loss.
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, non-resident aliens, foreign corporations and
other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax
consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence, they will be required to file federal tax returns
to report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective tax rate from cash distributions made quarterly to
foreign unitholders. Each foreign unitholder must obtain a
taxpayer identification number from the IRS and submit that
number to our transfer agent on a
Form
W-8BEN
or
applicable substitute form in order to obtain credit for these
withholding taxes. A change in applicable law may require us to
change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
135
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Because a
foreign unitholder is considered to be engaged in business in
the United States by virtue of the ownership of units, under
this ruling a foreign unitholder who sells or otherwise disposes
of a unit generally will be subject to federal income tax on
gain realized on the sale or disposition of units. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative Matters
Information Returns and Audit Procedures.
We
intend to furnish to each unitholder, within 90 days after
the close of each calendar year, specific tax information,
including a
Schedule
K-1,
which describes his share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this
information, which will not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have
been mentioned earlier, to determine each unitholders
share of income, gain, loss and deduction. We cannot assure you
that those positions will in all cases yield a result that
conforms to the requirements of the Internal Revenue Code,
Treasury Regulations or administrative interpretations of the
IRS. Neither we nor Vinson & Elkins L.L.P. can assure
prospective unitholders that the IRS will not successfully
contend in court that those positions are impermissible. Any
challenge by the IRS could negatively affect the value of the
units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his return. Any audit of a
unitholders return could result in adjustments not related
to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names UCO GP, LLC as our Tax
Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that authority to the Tax Matters Partner. The Tax
Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee Reporting.
Persons who hold an interest in
us as a nominee for another person are required to furnish to us:
(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee;
136
(b) whether the beneficial owner is:
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1. a person that is not a United States person;
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2. a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing; or
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3. a tax-exempt entity;
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(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per
failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that
information to us. The nominee is required to supply the
beneficial owner of the units with the information furnished to
us.
Accuracy-Related Penalties.
An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith
regarding that portion.
A substantial understatement of income tax in any taxable year
exists if the amount of the understatement exceeds the greater
of 10% of the tax required to be shown on the return for the
taxable year or $5,000 ($10,000 for most corporations). The
amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on
the return:
(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.
If any item of income, gain, loss or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules would
apply to an understatement of tax resulting from an ownership of
units if we were classified as a tax shelter. We
believe we will not be classified as a tax shelter.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 200% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. No penalty is
imposed unless the portion of the underpayment attributable to a
substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400%
or more than the correct valuation, the penalty imposed
increases to 40%.
Reportable Transactions.
If we were to engage in a
reportable transaction, we (and possibly you and
others) would be required to make a detailed disclosure of the
transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses in excess of
$2 million. Our participation in a reportable transaction
could increase the likelihood that our federal income tax
information return (and possibly your tax return) would be
audited by the IRS. Please read Information Returns
and Audit Procedures.
137
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related Penalties,
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you likely will be subject
to other taxes, such as state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We will
initially own property or do business in the States of Alabama,
Arkansas, California, Colorado, Kansas, Louisiana, Michigan,
Mississippi, New Mexico, Oklahoma, Pennsylvania, Texas, Utah,
Virginia, West Virginia and Wyoming and, except for Texas and
Wyoming, each impose a personal income tax on individuals as
well as an income tax on corporations and other entities. We may
also own property or do business in other jurisdictions in the
future. Although you may not be required to file a return and
pay taxes in some jurisdictions because your income from that
jurisdiction falls below the filing and payment requirement, you
will be required to file income tax returns and to pay income
taxes in many of these jurisdictions in which we do business or
own property and may be subject to penalties for failure to
comply with those requirements. In some jurisdictions, tax
losses may not produce a tax benefit in the year incurred and
may not be available to offset income in subsequent taxable
years. Some of the jurisdictions may require us, or we may
elect, to withhold a percentage of income from amounts to be
distributed to a unitholder who is not a resident of the
jurisdiction. Withholding, the amount of which may be greater or
less than a particular unitholders income tax liability to
the jurisdiction, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld will be treated as if distributed to
unitholders for purposes of determining the amounts distributed
by us. Please read Tax Consequences of Unit
Ownership Entity-Level Collections. Based on
current law and our estimate of our future operations, the
general partner anticipates that any amounts required to be
withheld will not be material.
It is the responsibility of each unitholder to investigate the
legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local and foreign, as well as United States federal tax
returns, that may be required of him. Vinson & Elkins
L.L.P. has not rendered an opinion on the state, local or
foreign tax consequences of an investment in us.
138
SELLING UNITHOLDER
If the underwriters exercise all or any portion of their option
to purchase additional common units, we will issue up to
825,000 additional common units, the net proceeds of which
will be used to redeem an equal number of units from a
subsidiary of Universal Compression Holdings, which will be
deemed to be a selling unitholder and an underwriter in this
offering for the common units that would be issued upon the
exercise of the overallotment option. The redemption price per
common unit will be equal to the price per common unit (net of
underwriting discounts and a structuring fee) sold to the
underwriters upon exercise of their overallotment option.
The following table sets forth information concerning the
ownership of common and subordinated units by a subsidiary of
Universal Compression Holdings. The numbers in the table are
presented assuming:
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the underwriters overallotment option is not
exercised; and
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the underwriters exercise their overallotment option in full.
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Units Owned Immediately After
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Exercise of Underwriters
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Units Owned Immediately
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Overallotment Option
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After This Offering
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and Related Unit Redemption
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Assuming
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Assuming
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Underwriters
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Underwriters
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Overallotment
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Overallotment
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Option is Not
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Option is
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Name of Selling Unitholder
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Exercised
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Percent(1)
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Exercised in Full
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Percent(1)
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UCI MLP LP LLC
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Common units
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825,000
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6.4%
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%
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Subordinated units
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6,325,000
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49.0%
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6,325,000
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49.0%
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(1)
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Percentage of total units outstanding, including common units,
subordinated units and general partner units.
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139
INVESTMENT IN UNIVERSAL COMPRESSION PARTNERS, L.P.
BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and restrictions imposed by
Section 4975 of the Internal Revenue Code. For these
purposes the term employee benefit plan includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or
maintained by an employer or employee organization. Among other
things, consideration should be given to:
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whether the investment is prudent under
Section 404(a)(1)(B) of ERISA;
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whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA; and
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whether the investment will result in recognition of unrelated
business taxable income by the plan and, if so, the potential
after-tax investment return. Please read Material Tax
Consequences Tax-Exempt Organizations and Other
Investors.
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The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether an investment in us is authorized by the
appropriate governing instrument and is a proper investment for
the plan.
Section 406 of ERISA and Section 4975 of the Internal
Revenue Code prohibit employee benefit plans, and also IRAs that
are not considered part of an employee benefit plan, from
engaging in specified transactions involving plan
assets with parties that are parties in
interest under ERISA or disqualified persons
under the Internal Revenue Code with respect to the plan.
In addition to considering whether the purchase of common units
is a prohibited transaction, a fiduciary of an employee benefit
plan should consider whether the plan will, by investing in us,
be deemed to own an undivided interest in our assets, with the
result that our operations would be subject to the regulatory
restrictions of ERISA, including its prohibited transaction
rules, as well as the prohibited transaction rules of the
Internal Revenue Code.
The Department of Labor regulations provide guidance with
respect to whether the assets of an entity in which employee
benefit plans acquire equity interests would be deemed
plan assets under some circumstances. Under these
regulations, an entitys assets would not be considered to
be plan assets if, among other things:
(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, i.e., it is primarily engaged in the
production or sale of a product or service other than the
investment of capital either directly or through a
majority-owned subsidiary or subsidiaries; or
(c) there is no significant investment by benefit plan
investors, which is defined to mean that less than 25% of the
value of each class of equity interest is held by the employee
benefit plans referred to above, IRAs and other employee benefit
plans not subject to ERISA, including governmental plans.
Our assets should not be considered plan assets
under these regulations because it is expected that the
investment will satisfy the requirements in (a) above.
Plan fiduciaries contemplating a purchase of common units should
consult with their own counsel regarding the consequences under
ERISA and the Internal Revenue Code in light of the serious
penalties imposed on persons who engage in prohibited
transactions or other violations.
140
UNDERWRITING
We intend to offer the common units through the underwriters.
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Lehman Brothers Inc. are acting as representatives of the
underwriters named below. Subject to the terms and conditions
described in a purchase agreement among us and the underwriters,
we have agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us, the number of common
units listed opposite their names below.
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Number of
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Underwriter
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Common Units
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Lehman Brothers Inc.
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Wachovia Capital Markets, LLC
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A.G. Edwards & Sons, Inc.
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Deutsche Bank Securities Inc.
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Total
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5,500,000
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The underwriters have agreed to purchase all of the common units
sold under the purchase agreement if any of these common units
are purchased. If an underwriter defaults, the purchase
agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase
agreement may be terminated.
We, along with Universal Compression Holdings, Inc., have agreed
to indemnify the underwriters against certain liabilities
including liabilities under the Securities Act, or to contribute
to payments the underwriters may be required to make in respect
of those liabilities.
The underwriters are offering the common units, subject to prior
sale, when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the common units, and other conditions contained in
the purchase agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters
propose initially to offer the common units to the public at the
initial public offering price on the cover page of this
prospectus and to dealers at that price less a concession not in
excess of
$ per
common unit. The underwriters may allow, and the dealers may
reallow, a discount not in excess of
$ per
common unit to other dealers. After the initial public offering,
the public offering price, concession and discount may be
changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to Universal
Compression Partners. The information assumes either no exercise
or full exercise by the underwriters of the overallotment option.
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Per Common Unit
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Without Option
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With Option
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Public offering price
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$
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$
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$
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Underwriting discount
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$
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$
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$
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Proceeds, before expenses, to Universal Compression Partners,
L.P.
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$
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$
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$
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The expenses of the offering, not including the underwriting
discount, are estimated at
$ and
are payable by Universal Compression Partners.
We will pay an advisory fee to Merrill Lynch of
$ for
valuation analysis and structuring of our partnership.
141
Overallotment Option
We have granted an option to the underwriters to purchase up to
825,000 additional common units at the public offering
price less the underwriting discount. The underwriters may
exercise this option for 30 days from the date of this
prospectus solely to cover any overallotments. If the
underwriters exercise this option, each will be obligated,
subject to conditions contained in the purchase agreement, to
purchase a number of additional common units proportionate to
that underwriters initial amount reflected in the above
table.
Reserved Units
At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 316,250 common units
offered by this prospectus for sale to directors, officers,
employees of our general partner and to some distributors,
dealers, business associates and other persons associated with
us. If these persons purchase reserved units, this will reduce
the number of units available for sale to the general public.
Any reserved units that are not orally confirmed for purchase
within one day of the pricing of this offering will be offered
by the underwriters to the general public on the same terms as
the other units offered by this prospectus.
No Sale of Similar Securities
We, our subsidiaries, our general partner and its affiliates,
including the executive officers and directors of our general
partner, have agreed, with exceptions, not to sell or transfer
any of our common units and our general partner further has
agreed not to make any demand for or exercise any right or file
or cause to be filed a registration statement with respect to
the registration of any common units or securities convertible,
exercisable or exchangeable into common units or any other of
our securities or publicly disclose the intention to do any of
the foregoing for 180 days after the date of this
prospectus without first obtaining the written consent of
Merrill Lynch and Lehman Brothers on behalf of the underwriters.
Specifically, we and these other individuals have agreed not to
directly or indirectly
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offer, pledge, sell or contract to sell any common units,
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sell any option or contract to purchase any common units,
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|
purchase any option or contract to sell any common units,
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|
grant any option, right or warrant for the sale of any common
units,
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|
otherwise dispose of or transfer any common units, or
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|
|
enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of any common units whether
any such swap or transaction is to be settled by delivery of
common units or other securities, in cash or otherwise.
|
|
This
lock-up
provision
applies to common units and to securities convertible into or
exchangeable or exercisable for or repayable with common units.
It also applies to common units owned now or acquired later by
the person executing the agreement or for which the person
executing the agreement later acquires the power of disposition.
The foregoing will not apply to the offer for sale, sale or
other issuance of common units or other securities to Universal
Compression Holdings or any of its subsidiaries provided that
any such recipient of common units or other securities enters
into a
lock-up
arrangement for the remainder of the
180-day
restricted
period. The
180-day
restricted period will be automatically extended if
(1) during the last 17 days of the
180-day
restricted
period, we issue an earnings release or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
180-day
restricted
period, we announce that we will release earnings results or
become aware that material news or a material event will occur
during the
16-day
restricted period beginning on the last day of the
180-day
restricted
period, in which case the restrictions described above will
continue to apply until the expiration of the
18-day
period beginning
on the issuance of the earnings release or the occurrence of the
material news or material event.
142
Merrill Lynch and Lehman Brothers, in their sole discretion, may
release the common units subject to lock-up agreements, in whole
or in part, at any time with or without notice. When determining
whether or not to release common units from lock-up agreements,
Merrill Lynch and Lehman Brothers will consider, among other
factors, the unitholders reasons for requesting the
release, the number of common units for which the release is
being requested and market conditions at the time. However,
Merrill Lynch and Lehman Brothers have informed us that, as of
the date of this prospectus, there are no agreements between
them and any party that would allow such party to transfer any
common units, nor do they have any intention at this time of
releasing any of the common units subject to the lock-up
agreements, prior to the expiration of the lock-up.
Quotation on the Nasdaq Global Market
We have applied to list the common units for quotation on the
NASDAQ Global Market under the symbol UCLP.
Offering Price
Before this offering, there has been no public market for our
common units. The initial public offering price will be
determined through negotiations among us and the
representatives. In addition to prevailing market conditions,
the factors to be considered in determining the initial public
offering price are:
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|
|
the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
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our financial information;
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|
the history of, and the prospects for, our partnership and the
industry in which we compete;
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|
an assessment of our management, its past and present
operations, and the prospects for, and timing of, our future
revenue;
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the present state of our development; and
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|
the above factors in relation to market values and various other
valuation measures of other publicly traded partnerships.
|
An active trading market for the common units may not develop.
It is also possible that after the offering the common units
will not trade in the public market at or above the initial
public offering price.
The underwriters do not expect to sell more than 5% of the
common units in the aggregate to accounts over which they
exercise discretionary authority.
NASD Regulations
Because the National Association of Securities Dealers, Inc.
views the common units offered hereby as interests in a direct
participation program, the offering is being made in compliance
with Rule 2810 of the NASDs Conduct Rules. Investor
suitability with respect to the common units should be judged
similarly to the suitability with respect to other securities
that are listed for trading on a national securities exchange.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the common units is completed, SEC
rules may limit underwriters and selling group members from
bidding for and purchasing our common units. However, the
representatives may engage in transactions that stabilize the
price of the common units, such as bids or purchases to peg, fix
or maintain that price.
143
If the underwriters create a short position in the common units
in connection with the offering, i.e., if they sell more common
units than are listed on the cover of this prospectus, the
representatives may reduce that short position by purchasing
common units in the open market. The representatives may also
elect to reduce any short position by exercising all or part of
the overallotment option described above. Purchases of the
common units to stabilize its price or to reduce a short
position may cause the price of the common units to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on
underwriters and selling group members. This means that if the
representatives purchase common units in the open market to
reduce the underwriters short position or to stabilize the
price of such common units, they may reclaim the amount of the
selling concession from the underwriters and selling group
members who sold those common units. The imposition of a penalty
bid may also affect the price of the common units in that it
discourages resales of those common units.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the common units. In addition, neither we nor any of the
underwriters makes any representation that the representatives
will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
Internet Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters participating in this offering,
or by their affiliates. In those cases, prospective investors
may view offering terms online and, depending upon the
particular underwriter, prospective investors may be allowed to
place orders online. The underwriters may allocate a limited
number of common units for sale to their online brokerage
customers. Any such allocation for online distributions will be
made by the representatives on the same basis as other
allocations. Other than the prospectus in electronic format, the
information on any underwriters website and any
information contained in any other website maintained by an
underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter in its
capacity as underwriter and should not be relied upon by
investors.
United Kingdom
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) to investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (e) of the Order (all such persons
together being referred to as relevant persons). The
common units are only available to, and any invitation, offer or
agreement to subscribe, purchase or otherwise acquire such
common units will be engaged in only with, relevant persons. Any
person who is not a relevant person should not act or rely on
this document or any of its contents.
Each of the underwriters has represented and agreed that:
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(a)
|
it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the Financial Services and Markets Act
2000 or FSMA) received by it in connection with the issue or
sale of the common units in circumstances in which
Section 21(1) of the FSMA does not apply to us, and
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(b)
|
it has complied with, and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the common units in, from or otherwise involving the
United Kingdom.
|
144
European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) each underwriter represents
and warrants that it has not made and will not make an offer to
the public of any common units which are the subject of the
offering contemplated by this prospectus in that Relevant Member
State, except that it may make an offer to the public in that
Relevant Member State of any common units at any time under the
following exemptions under the Prospectus Directive, if they
have been implemented in that Relevant Member State:
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|
|
|
(a)
|
to legal entities which are authorised or regulated to operate
in the financial markets or, if not so authorised or regulated,
whose corporate purpose is solely to invest in securities;
|
|
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(b)
|
to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than
43,000,000 and
(3) an annual net turnover of more than
50,000,000, as
shown in its last annual or consolidated accounts;
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|
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(c)
|
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of Merrill Lynch and Lehman Brothers
for any such offer; or
|
|
|
(d)
|
in any other circumstances falling within Article 3(2) of
the Prospectus Directive,
|
provided that no such offer of common units shall result in a
requirement for the publication by Universal Compression
Partners or any underwriter of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer to the public in relation to any common units
in any Relevant Member State means the communication in any form
and by any means of sufficient information on the terms of the
offer and any common units to be offered so as to enable an
investor to decide to purchase any common units, as the same may
be varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/ EC and
includes any relevant implementing measure in each Relevant
Member State.
Other Relationships
Some of the underwriters and their affiliates have engaged in,
and may in the future engage in, investment banking and other
commercial dealings in the ordinary course of business with
Universal Compression Holdings and its subsidiaries or with us.
They have received or are expected to receive customary fees and
commissions for these transactions. In particular, Merrill Lynch
is serving as Universal Compression, Inc.s financial
advisor in connection with its contribution of assets to us in
connection with this offering and affiliates of Deutsche Bank
Securities Inc. and Wachovia Capital Markets, LLC will be
lenders under our anticipated credit facility.
145
VALIDITY OF THE COMMON UNITS
The validity of the common units will be passed upon for us by
Vinson & Elkins L.L.P., Houston, Texas. The validity of
the common units offered hereby will be passed upon for the
underwriters by Baker Botts L.L.P., Houston, Texas.
EXPERTS
The financial statements of Universal Compression Partners
Predecessor as of March 31, 2005 and December 31, 2005
and for each of the two years ended March 31, 2004 and 2005
and the nine months ended December 31, 2005 included in
this prospectus and the related financial statement schedule
included elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report
appearing herein (which report expresses an unqualified opinion
on the combined financial statements and financial statement
schedule and includes an explanatory paragraph relating to the
preparation of the combined financial statements of Universal
Compression Partners Predecessor from the separate records
maintained by Universal Compression Holdings, Inc.) and have
been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The balance sheet of Universal Compression Partners, L.P. as of
June 22, 2006 and the balance sheet of UCO General Partner,
LP as of June 22, 2006 included in this prospectus have
been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports
appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or
the SEC, a registration statement on
Form
S-l
regarding
the common units. This prospectus does not contain all of the
information found in the registration statement. For further
information regarding us and the common units offered by this
prospectus, you may desire to review the full registration
statement, including its exhibits and schedules, filed under the
Securities Act. The registration statement of which this
prospectus forms a part, including its exhibits and schedules,
may be inspected and copied at the public reference room
maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Copies of the materials may also be
obtained from the SEC at prescribed rates by writing to the
public reference room maintained by the SEC at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You may
obtain information on the operation of the public reference room
by calling the SEC at
1-800-SEC-0330.
The SEC
maintains a web site on the Internet at http://www.sec.gov. Our
registration statement, of which this prospectus constitutes a
part, can be downloaded from the SECs web site.
We intend to furnish our unitholders annual reports containing
our audited financial statements and furnish or make available
quarterly reports containing our unaudited interim financial
information for the first three fiscal quarters of each of our
fiscal years.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain
forward-looking statements. These statements can be identified
by the use of forward-looking terminology including
may, believe, expect,
anticipate, estimate,
continue, or other similar words. These statements
discuss future expectations, contain projections of results of
operations or of financial condition, or state other
forward-looking information. These forward-looking
statements involve risks and uncertainties. When considering
these forward-looking statements, you should keep in mind the
risk factors and other cautionary statements in this prospectus.
The risk factors and other factors noted throughout this
prospectus could cause our actual results to differ materially
from those contained in any forward-looking statement.
146
INDEX TO FINANCIAL STATEMENTS
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|
|
UNIVERSAL COMPRESSION PARTNERS, L.P. UNAUDITED PRO FORMA
FINANCIAL STATEMENTS:
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|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR COMBINED FINANCIAL
STATEMENTS:
|
|
|
|
|
|
|
|
|
F-9
|
|
|
|
|
|
F-10
|
|
|
|
|
|
F-11
|
|
|
|
|
|
F-12
|
|
|
|
|
|
F-13
|
|
UNIVERSAL COMPRESSION PARTNERS, L.P. FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
|
F-20
|
|
|
|
|
|
F-21
|
|
|
|
|
|
F-22
|
|
UCO GENERAL PARTNER, LP FINANCIAL STATEMENTS:
|
|
|
|
|
|
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|
|
F-23
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|
|
|
|
|
F-24
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|
|
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|
|
F-25
|
|
F-1
UNIVERSAL COMPRESSION PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction
The unaudited pro forma financial statements of Universal
Compression Partners, L.P. (the Partnership) as of
June 30, 2006 and the six months ended June 30, 2006
and the nine months ended December 31, 2005 are based on
the historical combined balance sheet and results of operations
of Universal Compression Partners Predecessor (the
Predecessor). Upon the closing of the initial public
offering of the Partnership, a portion of the Predecessors
customer contracts and compressor fleet will be owned by the
Partnership. The customer contracts and compressor fleet owned
by the Partnership initially will include service agreements
with nine customers and an approximately 336,000-horsepower
compressor fleet, comprised of approximately 830 individual
compressor units which will serve those customers. The
contribution of these assets to the Partnership will be recorded
at historical cost. The unaudited pro forma financial statements
of the Partnership have been derived from the historical
combined financial statements of the Predecessor included
elsewhere in the Prospectus and are qualified in their entirety
by reference to such historical combined financial statements
and related notes contained herein. The pro forma financial
statements have been prepared on the basis that the Partnership
will be treated as a partnership for federal income tax
purposes. The unaudited pro forma financial statements should be
read in conjunction with the accompanying notes and with the
historical combined financial statements and related notes of
the Predecessor.
The pro forma financial statements reflect the following
transactions:
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|
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|
|
the contribution of certain contract compression service
agreements and related compressor fleet from Universal
Compression Holdings, Inc. and its subsidiaries (Universal
Compression Holdings) to the Partnership;
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|
|
the Partnerships assumption of $223.2 million of
Universal Compression Holdings term loan debt;
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|
|
the issuance by the Partnership of common units to the public,
payment of estimated underwriting commissions and other expenses
of the offering and use of those net proceeds to repay a portion
of the debt assumed from Universal Compression Holdings; and
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|
|
|
borrowings of $125.0 million under a new revolving credit
facility entered into at the closing of the offering and related
debt issuance costs and use of those net proceeds to retire the
remaining debt assumed from Universal Compression Holdings and
not repaid with the proceeds from the offering.
|
The unaudited pro forma balance sheet and results of operations
were derived by adjusting the historical combined financial
statements of the Predecessor. The adjustments are based on
currently available information and certain estimates and
assumptions; therefore, actual adjustments will differ from pro
forma adjustments. However, management believes that the
assumptions provide a reasonable basis for presenting the
significant effects of the transaction as contemplated and the
pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the pro forma financial
information.
The unaudited pro forma financial statements are not necessarily
indicative of the results that actually would have occurred if
the Partnership had assumed the customer service agreements and
compressor fleet that will be owned by the Partnership as of the
closing of the initial public offering on the dates indicated or
which would be obtained in the future.
F-2
UNIVERSAL COMPRESSION PARTNERS, L.P.
UNAUDITED PRO FORMA BALANCE SHEET
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal
|
|
|
|
|
|
|
|
Compression
|
|
|
|
|
|
|
|
Partners
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Partnership
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
ASSETS
|
Cash
|
|
$
|
|
|
|
$
|
110,000
|
(a)
|
|
$
|
|
|
|
|
|
|
|
|
|
(10,650
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)(d)
|
|
|
|
|
|
|
|
|
|
|
|
(223,225
|
)(e)
|
|
|
|
|
Accounts receivable, net of allowance for bad debts
|
|
|
57,021
|
|
|
|
(57,021
|
)(f)
|
|
|
|
|
Contract compression equipment
|
|
|
1,256,203
|
|
|
|
(1,061,965
|
)(f)
|
|
|
194,238
|
|
Other property
|
|
|
25,111
|
|
|
|
(25,111
|
)(f)
|
|
|
|
|
Accumulated depreciation
|
|
|
(279,101
|
)
|
|
|
240,711
|
(f)
|
|
|
(38,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,002,213
|
|
|
|
(846,365
|
)
|
|
|
155,848
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
261,752
|
|
|
|
(222,072
|
)(g)
|
|
|
39,680
|
|
Deferred financing cost
|
|
|
|
|
|
|
1,125
|
(d)
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,320,986
|
|
|
$
|
(1,124,333
|
)
|
|
$
|
196,653
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS CAPITAL/ NET PARENT EQUITY
|
Accrued liabilities
|
|
$
|
7,727
|
|
|
$
|
(7,727
|
)(f)
|
|
$
|
|
|
Long-term debt
|
|
|
|
|
|
|
125,000
|
(c)
|
|
|
125,000
|
|
|
|
|
|
|
|
|
223,225
|
(h)
|
|
|
|
|
|
|
|
|
|
|
|
(223,225
|
)(e)
|
|
|
|
|
Net parent equity
|
|
|
1,313,259
|
|
|
|
(223,225
|
)(h)
|
|
|
|
|
|
|
|
|
|
|
|
(895,659
|
)(f)
|
|
|
|
|
|
|
|
|
|
|
|
(222,072
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
27,697
|
(i)
|
|
|
|
|
Common unitholders public
|
|
|
|
|
|
|
110,000
|
(a)
|
|
|
99,350
|
|
|
|
|
|
|
|
|
(10,650
|
)(b)
|
|
|
|
|
Common unitholder sponsor
|
|
|
|
|
|
|
(3,084
|
)(i)
|
|
|
(3,084
|
)
|
Subordinated unitholder sponsor
|
|
|
|
|
|
|
(23,648
|
)(i)
|
|
|
(23,648
|
)
|
General partner interest
|
|
|
|
|
|
|
(965
|
)(i)
|
|
|
(965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net parent equity
|
|
$
|
1,320,986
|
|
|
$
|
(1,124,333
|
)
|
|
$
|
196,653
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma financial
statements.
F-3
UNIVERSAL COMPRESSION PARTNERS, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Nine Months Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal
|
|
|
|
|
|
|
|
Compression
|
|
|
|
|
|
|
|
Partners
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Partnership
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars and units in thousands,
|
|
|
|
except per unit data)
|
|
Revenue
|
|
$
|
248,414
|
|
|
$
|
(211,598
|
)(j)
|
|
$
|
36,816
|
|
Cost of sales (excluding depreciation expense)
|
|
|
88,158
|
|
|
|
(76,315
|
)(j)
|
|
|
11,843
|
|
Selling, general and administrative expenses
|
|
|
22,437
|
|
|
|
(19,000
|
)(k)
|
|
|
3,437
|
|
Depreciation
|
|
|
52,595
|
|
|
|
(45,808
|
)(l)
|
|
|
6,787
|
|
Interest expense, net
|
|
|
|
|
|
|
6,473
|
(m)
|
|
|
6,473
|
|
Other (income) loss, net
|
|
|
1,220
|
|
|
|
(1,220
|
)(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
84,004
|
|
|
$
|
(75,728
|
)
|
|
$
|
8,276
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
|
|
|
|
|
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
Limited partner interest in net income
|
|
|
|
|
|
|
|
|
|
$
|
8,110
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
|
|
|
|
|
|
|
|
|
|
|
12,650
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma financial
statements.
F-4
UNIVERSAL COMPRESSION PARTNERS, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
Six Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal
|
|
|
|
|
|
|
|
Compression
|
|
|
|
|
|
|
|
Partners
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
Partnership
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars and units in thousands,
|
|
|
|
except per unit data)
|
|
Revenue
|
|
$
|
195,505
|
|
|
$
|
(163,748
|
)(j)
|
|
$
|
31,757
|
|
Cost of sales (excluding depreciation expense)
|
|
|
68,706
|
|
|
|
(58,820
|
)(j)
|
|
|
9,886
|
|
Selling, general and administrative expenses
|
|
|
22,479
|
|
|
|
(18,749
|
)(k)
|
|
|
3,730
|
|
Depreciation
|
|
|
38,001
|
|
|
|
(32,933
|
)(l)
|
|
|
5,068
|
|
Interest expense, net
|
|
|
|
|
|
|
4,316
|
(m)
|
|
|
4,316
|
|
Other (income) loss, net
|
|
|
(577
|
)
|
|
|
577
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66,896
|
|
|
$
|
(58,139
|
)
|
|
$
|
8,757
|
|
|
|
|
|
|
|
|
|
|
|
General partner interest in net income
|
|
|
|
|
|
|
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
Limited partner interest in net income
|
|
|
|
|
|
|
|
|
|
$
|
8,582
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding
|
|
|
|
|
|
|
|
|
|
|
12,650
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partner unit
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma financial
statements.
F-5
UNIVERSAL COMPRESSION PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
|
|
1.
|
Basis of Presentation, the Offering and Other Transactions
|
The historical financial information is derived from the
historical combined financial statements of Universal
Compression Partners Predecessor (the Predecessor).
The pro forma adjustments have been prepared as if the
transactions to be effected at the closing of this offering had
taken place on June 30, 2006, in the case of the pro forma
balance sheet, or as of April 1, 2005, in the case of the
pro forma statements of operations for the nine months ended
December 31, 2005 and the six months ended June 30,
2006.
The pro forma financial statements reflect the following
transactions:
|
|
|
|
|
the contribution of certain contract compression service
agreements and related compressor fleet from Universal
Compression Holdings, Inc. and its subsidiaries (Universal
Compression Holdings) to Universal Compression Partners,
L.P. (the Partnership);
|
|
|
|
the Partnerships assumption of $223.2 million of
Universal Compression Holdings term loan debt;
|
|
|
|
the issuance by the Partnership of common units to the public,
payment of estimated underwriting commissions and other expenses
of the offering and use of those net proceeds to repay a portion
of the debt assumed from Universal Compression Holdings; and
|
|
|
|
borrowings of $125.0 million under the new revolving credit
facility entered into at the closing of the offering and related
debt issuance costs and use of those net proceeds to retire the
remaining debt assumed from Universal Compression Holdings and
not repaid with the proceeds from the offering.
|
Upon completion of this offering, the Partnership anticipates
incurring incremental general and administrative expenses of
approximately $2.5 million per year, some of which will be
allocated to the Partnership by Universal Compression Holdings,
as a result of being a publicly traded limited partnership,
including costs associated with annual and quarterly reports to
unitholders, financial statement audit, tax return and
Schedule K-1 preparation and distribution, investor
relations activities, registrar and transfer agent fees,
incremental director and officer liability insurance costs and
director compensation. The unaudited pro forma financial
statements do not reflect this anticipated incremental general
and administrative expense.
|
|
2.
|
Pro Forma Adjustments and Assumptions
|
(a) Reflects the gross proceeds to the Partnership of
$110.0 million from the issuance and sale of
5.5 million common units at an assumed initial public
offering price of $20.00 per unit.
(b) Reflects the payment of estimated underwriting
commissions and other expenses of the offering of
$10.7 million, which will be allocated to the public common
units.
(c) Reflects $125.0 million of borrowings under the
new revolving credit facility.
(d) Reflects estimated deferred issuance costs associated
with the new revolving credit facility.
(e) Reflects the repayment of debt assumed from Universal
Compression Holdings using the net proceeds from the offering
and borrowings under the new revolving credit facility.
(f) Reflects assets and liabilities of the Predecessor that
are not being contributed to the Partnership by Universal
Compression Holdings.
(g) Reflects goodwill of the Predecessor related to that
portion of the Predecessors business that is not being
contributed to the Partnership by Universal Compression
Holdings. Pro forma Partnership
F-6
UNIVERSAL COMPRESSION PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(Continued)
goodwill has been determined based on the percentage of fair
value of net assets contributed to the Partnership to total fair
value of the Predecessors net assets other than goodwill.
(h) Reflects the assumption of debt from Universal
Compression Holdings.
(i) Reflects the conversion of the adjusted net parent
equity of $(27.7) million from net parent equity to
subordinated limited partner equity of the Partnership and the
general partners interest in the Partnership. The
conversion is allocated as follows:
|
|
|
|
|
$(3.1) million for 825,000 common units
|
|
|
|
$(23.6) million for 6,325,000 subordinated units
|
|
|
|
$(1.0) million for 258,163 general partner units
|
After the conversion, the equity amounts of the common and
subordinated unitholders are 49% and 49%, respectively, of total
equity, with the remaining 2% equity representing the general
partner interest.
(j) Reflects revenue and cost of sales (excluding
depreciation expense) of the Predecessor that relate to contract
compression service agreements that are not being contributed to
the Partnership by Universal Compression Holdings.
(k) Reflects selling, general, and administrative
(SG&A) expenses of the Predecessor that relate
to assets and contract compression service agreements that are
not being contributed by Universal Compression Holdings. The
Predecessor SG&A expenses have been allocated to the
Partnership based on the percentage of total Predecessor
horsepower of compressor units contributed to the Partnership to
total horsepower of the Predecessors compressor units.
(l) Reflects depreciation expense of the Predecessor that
relates to assets that are not being contributed to the
Partnership by Universal Compression Holdings.
(m) Reflects interest expense related to the borrowings
under the new revolving credit facility, related amortization of
deferred issuance costs described in (c) and
(d) above, the commitment fee on the new $225 million
revolving credit facility and the impact of interest rate swaps
that are designated as cash flow hedges. The interest expense is
based on an average interest rate of LIBOR plus 1.25% for the
borrowings under the new revolving credit facility and a
5-year
amortization
period for the deferred issuance costs. The amount drawn under
the revolving credit facility as of June 30, 2006 is
$125.0 million and the commitment fee is 0.25%. The
Partnership has entered into floating-to-fixed swaps covering a
notional amount of $125 million of borrowings under the new
revolving credit facility that fix the LIBOR rate at 5.275%,
resulting in an assumed interest rate of 6.525%. The interest
rate and commitment fee rate represent rates currently available
since the Partnership has not entered into the revolving credit
facility at this date. A change in the average LIBOR rate would
not impact pro forma Partnership interest expense because the
terms of the interest rate swaps and the assumed terms of the
related debt substantially coincide resulting in no
ineffectiveness.
(n) Reflects other (income) loss, net of the Predecessor
that is not being contributed to the Partnership by Universal
Compression Holdings.
F-7
UNIVERSAL COMPRESSION PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(Continued)
|
|
3.
|
Pro Forma Net Income Per Limited Partner Unit
|
Pro forma net income per limited partner unit is determined by
dividing the pro forma net income that would have been allocated
to the common and subordinated unitholders, which is 98% of the
pro forma net income, by the number of common and subordinated
units expected to be outstanding at the closing of the offering.
For purposes of this calculation, the number of common and
subordinated units assumed to be outstanding was 12,650,000. All
units were assumed to have been outstanding since April 1,
2005. Basic and diluted pro forma net income per unit are
equivalent as there are no dilutive units at the date of closing
of the initial public offering of the common units of the
Partnership. Pursuant to the partnership agreement, to the
extent that the quarterly distributions exceed certain targets,
the general partner is entitled to receive certain incentive
distributions that will result in more net income
proportionately being allocated to the general partner than to
the holders of common and subordinated units. The pro forma net
income per unit calculations assume that no incentive
distributions were made to the general partner because no such
distribution would have been paid based upon the pro forma
available cash from operating surplus for the periods.
|
|
4.
|
Pro Forma Taxable Income Per Limited Partner Unit
|
The unaudited pro forma financial information does not reflect
federal or state income taxes, as income taxes will be the
responsibility of unitholders and not the Partnership. The
historical taxable income of the Predecessor bears no material
relationship to the amount of federal taxable income that the
Partnership will allocate to unitholders. Among other
considerations, depreciation allocable to the unitholders will
significantly exceed the historical depreciation on the assets
because the unitholders effectively will have a stepped-up basis
in their share of at least a large part of the assets of the
Partnership. Please read Material Tax
Consequences Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction. The Partnership estimates that through the year
ended December 31, 2009, purchasers of units in this
offering will be allocated, on a cumulative basis, an amount of
federal taxable income that will be 20% or less of the cash
distributed to them. For example, if the Partnership pays an
annual distribution of $1.40 per unit, the Partnership estimates
that a unitholder would be allocated no more than $0.28 per
unit of federal taxable income for that annual period. Please
read Material Tax Consequences Tax
Consequences of Unit Ownership Allocation of Income,
Gain, Loss and Deduction.
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Universal Compression Holdings, Inc.
Houston, Texas
We have audited the accompanying combined balance sheets of
Universal Compression Partners Predecessor (the
Company) as of March 31, 2005 and
December 31, 2005, and the related combined statements of
operations, comprehensive income and changes in net parent
equity and cash flows for each of the two years ended
March 31, 2004 and 2005 and the nine months ended
December 31, 2005. Our audits also included the combined
financial statement schedule included in Part II,
Item 16(b). These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present
fairly, in all material respects, the financial position of
Universal Compression Partners Predecessor as of March 31,
2005 and December 31, 2005, and the results of its
operations and its cash flows for each of the two years ended
March 31, 2004 and 2005 and the nine months ended
December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such combined financial statement schedule, when
considered in relation to the basic combined financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
The accompanying combined financial statements have been
prepared from the separate records maintained by Universal
Compression Holdings, Inc. and may not necessarily be indicative
of the conditions that would have existed or the results of
operations if the Company had been operated as an unaffiliated
company. Portions of certain expenses represent allocations made
from and are applicable to Universal Compression Holdings, Inc.
as a whole.
/s/ Deloitte & Touche LLP
Houston, Texas
June 23, 2006
F-9
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
COMBINED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands)
|
|
ASSETS
|
Accounts receivable, net of allowance for bad debts of $401,
$767 and $958 as of March 31, 2005, December 31, 2005
and June 30, 2006, respectively
|
|
$
|
20,067
|
|
|
$
|
23,042
|
|
|
$
|
57,021
|
|
Contract compression equipment
|
|
|
1,198,591
|
|
|
|
1,214,025
|
|
|
|
1,256,203
|
|
Other property
|
|
|
13,233
|
|
|
|
20,741
|
|
|
|
25,111
|
|
Accumulated depreciation
|
|
|
(197,325
|
)
|
|
|
(243,638
|
)
|
|
|
(279,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,014,499
|
|
|
|
991,128
|
|
|
|
1,002,213
|
|
Goodwill
|
|
|
261,752
|
|
|
|
261,752
|
|
|
|
261,752
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,296,318
|
|
|
$
|
1,275,922
|
|
|
$
|
1,320,986
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET PARENT EQUITY
|
Accrued liabilities
|
|
$
|
6,029
|
|
|
$
|
6,984
|
|
|
$
|
7,727
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net parent equity
|
|
|
1,290,289
|
|
|
|
1,268,938
|
|
|
|
1,313,259
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net parent equity
|
|
$
|
1,296,318
|
|
|
$
|
1,275,922
|
|
|
$
|
1,320,986
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-10
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME
AND
CHANGES IN NET PARENT EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands)
|
|
Revenue
|
|
$
|
280,951
|
|
|
$
|
296,239
|
|
|
$
|
219,321
|
|
|
$
|
248,414
|
|
|
$
|
156,590
|
|
|
$
|
195,505
|
|
Cost of sales (excluding depreciation expense)
|
|
|
102,408
|
|
|
|
109,374
|
|
|
|
80,134
|
|
|
|
88,158
|
|
|
|
57,016
|
|
|
|
68,706
|
|
Selling, general and administrative expenses
|
|
|
26,076
|
|
|
|
26,319
|
|
|
|
19,158
|
|
|
|
22,437
|
|
|
|
14,128
|
|
|
|
22,479
|
|
Depreciation
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
33,488
|
|
|
|
38,001
|
|
Other (income) loss, net
|
|
|
600
|
|
|
|
(344
|
)
|
|
|
208
|
|
|
|
1,220
|
|
|
|
(166
|
)
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and comprehensive income
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined changes in net parent equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
1,341,041
|
|
|
$
|
1,286,174
|
|
|
$
|
1,286,174
|
|
|
$
|
1,290,289
|
|
|
$
|
1,299,063
|
|
|
$
|
1,268,938
|
|
Net income
|
|
|
92,847
|
|
|
|
97,970
|
|
|
|
73,430
|
|
|
|
84,004
|
|
|
|
52,124
|
|
|
|
66,896
|
|
Net distributions to parent
|
|
|
(147,714
|
)
|
|
|
(93,855
|
)
|
|
|
(60,541
|
)
|
|
|
(105,355
|
)
|
|
|
(69,138
|
)
|
|
|
(22,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,286,174
|
|
|
$
|
1,290,289
|
|
|
$
|
1,299,063
|
|
|
$
|
1,268,938
|
|
|
$
|
1,282,049
|
|
|
$
|
1,313,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-11
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Nine Months Ended
|
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
92,847
|
|
|
$
|
97,970
|
|
|
$
|
73,430
|
|
|
$
|
84,004
|
|
|
$
|
52,124
|
|
|
$
|
66,896
|
|
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
59,020
|
|
|
|
62,920
|
|
|
|
46,391
|
|
|
|
52,595
|
|
|
|
33,488
|
|
|
|
38,001
|
|
|
(Gain) loss on asset sales
|
|
|
(53
|
)
|
|
|
(560
|
)
|
|
|
(553
|
)
|
|
|
628
|
|
|
|
355
|
|
|
|
(575
|
)
|
|
(Increase) decrease in receivables
|
|
|
3,130
|
|
|
|
(4,058
|
)
|
|
|
(2,610
|
)
|
|
|
(2,975
|
)
|
|
|
2,142
|
|
|
|
(33,979
|
)
|
|
Increase (decrease) in accrued liabilities
|
|
|
141
|
|
|
|
2,192
|
|
|
|
1,050
|
|
|
|
955
|
|
|
|
(2,244
|
)
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
155,085
|
|
|
|
158,464
|
|
|
|
117,708
|
|
|
|
135,207
|
|
|
|
85,865
|
|
|
|
71,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(48,659
|
)
|
|
|
(82,382
|
)
|
|
|
(61,075
|
)
|
|
|
(61,607
|
)
|
|
|
(39,835
|
)
|
|
|
(51,905
|
)
|
|
Proceeds from sale of property and equipment
|
|
|
30,801
|
|
|
|
13,800
|
|
|
|
11,378
|
|
|
|
7,778
|
|
|
|
6,065
|
|
|
|
4,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,858
|
)
|
|
|
(68,582
|
)
|
|
|
(49,697
|
)
|
|
|
(53,829
|
)
|
|
|
(33,770
|
)
|
|
|
(47,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distributions to parent
|
|
|
(137,227
|
)
|
|
|
(89,882
|
)
|
|
|
(68,011
|
)
|
|
|
(81,378
|
)
|
|
|
(52,095
|
)
|
|
|
(23,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(137,227
|
)
|
|
|
(89,882
|
)
|
|
|
(68,011
|
)
|
|
|
(81,378
|
)
|
|
|
(52,095
|
)
|
|
|
(23,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to combined financial statements.
F-12
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
|
|
1.
|
Basis of Presentation and Summary of Significant Accounting
Policies
|
Organization
These notes apply to the combined financial statements of the
natural gas contract compression business that is provided in
the United States of America (United States) by
Universal Compression Holdings, Inc. (along with its
subsidiaries, Universal Compression Holdings) and
its subsidiaries (the Predecessor). These combined
financial statements are prepared in connection with the
proposed initial public offering of limited partner units in
Universal Compression Partners, L.P. (the
Partnership), which was formed in June 2006 and that
will initially own a portion of the business conducted by the
Predecessor. Upon the closing of the initial public offering,
Universal Compression Holdings will contribute to the
Partnership contract compression service agreements with nine
customers across the United States and an approximately
336,000-horsepower compressor fleet, comprised of approximately
830 individual compressor units which will serve those
customers.
Nature of Operations
Natural gas compression is a mechanical process whereby a volume
of natural gas at an existing pressure is increased to a desired
higher pressure for transportation from one point to another,
and is essential to the transportation and production of natural
gas. Compression is typically required several times during the
natural gas production and transportation cycle, including:
(1) at the wellhead; (2) throughout gathering and
distribution systems; (3) into and out of processing and
storage facilities; and (4) along intrastate and interstate
pipelines.
Basis of Presentation
The combined financial statements include the accounts of the
Predecessor and have been prepared in accordance with accounting
principles generally accepted in the Unites States. The combined
statements of operations include all revenue and costs directly
attributable to the Predecessor. In addition, cost of sales
(excluding depreciation expense) and selling, general and
administrative expenses include costs incurred by Universal
Compression Holdings and allocated to us based on allocation
factors that the Predecessor believes are reasonable. These
costs include, among other things, indirect field labor, vehicle
fuel cost, vehicle and field operations facilities repair and
maintenance costs, miscellaneous supplies cost and centralized
corporate functions such as legal, accounting, treasury,
insurance administration and claims processing and risk
management, health, safety and environmental, information
technology, human resources, credit, payroll, taxes and other
corporate services and the use of facilities that support these
functions. These allocations may not be necessarily indicative
of the costs and expense that would result if the Partnership
was an independent entity.
The accompanying unaudited financial statements as of
June 30, 2006 and for the nine months ended
December 31, 2004 and the six months ended June 30,
2005 and 2006 contain all appropriate adjustments, all of which
are normal recurring adjustments unless otherwise noted,
considered necessary to present fairly the financial position of
the Partnership and its results of operations, changes in net
parent equity and cash flows for the respective periods.
Operating results for the six-month period ended June 30,
2006 are not necessarily indicative of the results that may be
expected for the twelve months ending December 31, 2006.
Fiscal Year
In December 2005, Universal Compression Holdings board of
directors approved a change to its fiscal year end from
March 31 to December 31, effective in 2005. As a
result of this change, the Predecessor is reporting a nine-month
transition period ended December 31, 2005.
F-13
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
Use of Estimates
In preparing the Predecessors financial statements in
conformity with accounting principles acceptable in the United
States, management makes estimates and assumptions that affect
the amounts reported in the financial statements and related
disclosures. Actual results may differ from these estimates.
Revenue Recognition
Revenue is recognized by the Predecessor using the following
criteria: (a) persuasive evidence of an exchange
arrangement exists; (b) delivery has occurred or services
have been rendered; (c) the buyers price is fixed or
determinable and (d) collectibility is reasonably assured.
Revenue from contract compression service is recorded when
earned, which generally occurs monthly at the time the monthly
compression service is provided to customers in accordance with
contracts.
Concentration of Credit Risk
Trade accounts receivable are due from companies of varying size
engaged in oil and gas activities in the United States. The
Predecessor reviews the financial condition of customers prior
to extending credit and periodically updates customer credit
information. Payment terms are on a short-term basis. No single
customer accounted for 10% or more of the Predecessors
revenue for the twelve months ended March 31, 2004 and
2005, the nine months ended December 31, 2004 (unaudited)
and 2005 and the six months ended June 30, 2005 (unaudited)
and 2006 (unaudited). For the twelve months ended March 31,
2004 and 2005 and the nine months ended December 31, 2005,
the Predecessor wrote off bad debts, net of recoveries totaling
$1.4 million, $0.5 million, and $(0.1) million,
respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation for
financial reporting purposes is computed on the straight-line
basis using estimated useful lives. For compression equipment,
depreciation begins with the first compression service. The
estimated useful lives as of December 31, 2005 were as
follows:
|
|
|
Compression equipment
|
|
15-30 years
|
Other property and equipment
|
|
5 years
|
Maintenance and repairs are charged to expense as incurred.
Overhauls and major improvements that increase the value or
extend the life of compressor units are capitalized and
depreciated over the estimated useful life of up to
6.5 years.
Depreciation expense for the twelve months ended March 31,
2004 and 2005 and the nine months ended December 31, 2004
(unaudited) and 2005 was $59.0 million, $62.9 million,
$46.4 million and $52.6 million, respectively.
Depreciation expense for the six months ended June 30, 2005
(unaudited) and 2006 (unaudited) was $33.5 million and
$38.0 million, respectively.
Property and equipment are reviewed for impairment whenever
events or circumstances indicate that the carrying amount of an
asset may not be recoverable based upon undiscounted cash flows.
Any impairment losses are measured based upon the excess of the
carrying value over the fair value.
Goodwill
Goodwill and intangible assets acquired in connection with
business combinations represent the excess of consideration over
the fair value of tangible net assets acquired. Certain
assumptions and
F-14
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
estimates are employed in determining the fair value of assets
acquired and liabilities assumed, as well as in determining the
allocation of goodwill to the appropriate reporting unit.
The Predecessor performs an impairment test for goodwill assets
annually or earlier if indicators of potential impairment exist.
The Predecessors goodwill impairment test involves a
comparison of the fair value of its reporting unit with its
carrying value. The fair value is determined using discounted
cash flows and other market-related valuation models. Certain
estimates and judgments are required in the application of the
fair value models. In February 2005 and 2006, the Predecessor
performed an impairment analysis in accordance with Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, and determined
that no impairment had occurred. During the nine months ended
December 31, 2005, no event occurred or circumstances
changed that would more likely than not reduce the fair value of
its reporting unit below its carrying value. As a result, an
interim test for goodwill impairment between the
Predecessors annual test dates was not performed. If for
any reason the fair value of the Predecessors goodwill
declines below the carrying value in the future, the Predecessor
may incur charges for the impairment.
Income Taxes
The Predecessors operations are currently included in
Universal Compression Holdings consolidated federal tax return.
Following the initial public offering of the Partnership, its
operations will be treated as a partnership for federal tax
purposes with each partner being separately taxed on its share
of taxable income. As a result, income taxes have been excluded
from these combined financial statements.
Comprehensive Income
The Predecessor had no items of other comprehensive income for
any period presented in the Combined Statements of Operations,
Comprehensive Income and Changes in Net Parent Equity. As a
result, net income and comprehensive income are the same for all
periods presented.
Segment Reporting
SFAS No. 131, Disclosures about Segments Of an
Enterprise and Related Information, established standards
for entities to report information about the operating segments
and geographic areas in which they operate. The Predecessor only
operates in one segment and all of its operations are located in
the United States.
Fair Value of Financial Instruments
The Predecessors financial instruments consist of trade
receivables (which have carrying values that approximate fair
value due to their short-term nature).
Environmental Liabilities
The costs to remediate and monitor environmental matters are
accrued when such liabilities are considered probable and a
reasonable estimate of such costs is determinable.
Non-cash
Financing and Investing Activities
Net distributions to parent on the Combined Statements of Cash
Flows for the twelve months ended March 31, 2004 and 2005,
the nine months ended December 31, 2004 (unaudited) and
2005 and the six months ended June 30, 2005 (unaudited) and
2006 (unaudited), exclude certain
non-cash
transactions
related to net transfers of contract compression equipment
(from)/to the Predecessor and
F-15
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
from/(to) other subsidiaries of Universal Compression Holdings
of ($10.5 million), ($4.0 million), $7.5 million,
($24.0 million), ($17.0 million) and
$1.3 million, respectively.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29, to address the measurement of
exchanges of nonmonetary assets. SFAS No. 153
eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. This statement was
adopted by the Predecessor beginning July 1, 2005. The
adoption of this statement did not have a material impact on the
Predecessors financial statements.
In March 2005, the FASB issued FASB Interpretation
(FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations, an interpretation of FASB
Statement No. 143. This statement clarifies that an
entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation when incurred, if
the liabilitys fair value can be reasonably estimated. The
provisions of FIN 47 were effective December 31, 2005.
The adoption of this interpretation did not have a material
impact on the Predecessors financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 requires retrospective
application to prior periods financial statements for
changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative
effect of the change. SFAS No. 154 also requires that
a change in depreciation, amortization or depletion method for
long-lived, non-financial assets be accounted for as a change in
accounting estimate affected by a change in accounting
principle. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The adoption of
SFAS No. 154 did not have a material impact on the
Predecessors financial statements.
The Predecessors acquisitions were accounted for as
purchases. Goodwill has been recognized for the amount of the
excess of the purchase price over the fair value of the net
assets acquired and is accounted for in accordance with
SFAS No. 142.
During February 2005 and 2006, the Predecessor performed an
impairment analysis on our goodwill in accordance with
SFAS No. 142 and determined that no impairment had
occurred.
|
|
3.
|
Related Party Transactions
|
The Predecessor has no employees. The employees supporting the
Predecessor are employees of Universal Compression Holdings.
Services provided by Universal Compression Holdings to the
Predecessor include support of the contract compression services
provided by the Predecessor to its customers utilizing equipment
owned by the Predecessor, such as designing, sourcing,
installing, operating, servicing, repairing and maintaining the
equipment. Additionally, Universal Compression Holdings provides
to the Predecessor centralized corporate functions such as
legal, accounting, treasury, insurance administration and claims
processing and risk management, health, safety and
environmental, information technology, human resources, credit,
payroll, taxes and other corporate services and the use of
facilities that support these functions. Cost incurred by
Universal Compression Holdings on behalf of the Predecessor and
that can be directly identified to the Predecessor are included
in the Predecessors results of operations. Cost incurred
by Universal Compression Holdings that are indirectly
attributable to the Predecessor and Universal Compression
Holdings other operations are allocated among the
Predecessor and Universal Compression
F-16
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
Holdings other operations. For the twelve months ended
March 31, 2004 and 2005, the nine months ended
December 31, 2004 (unaudited) and 2005 and the six
months ended June 30, 2005 (unaudited) and 2006
(unaudited), Universal Compression Holdings defined
contribution 401(k) plan and employees supplemental
savings plan expense allocated to the Predecessor was
$0.6 million, $0.5 million, $0.4 million,
$0.4 million, $0.3 million and $0.7 million,
respectively. The allocation methodologies vary based on the
nature of the charge and include, among other things, revenue,
employee headcount and net assets. Management believes that the
allocation methodologies used to allocate indirect cost to it
are reasonable.
The Predecessor purchases new natural gas compression equipment
from Universal Compression Holdings and other services related
to existing equipment that are capitalized such as overhauls and
repackaging. In addition, the Predecessor has transferred used
and idle natural gas compression equipment to subsidiaries of
Universal Compression Holdings. Such transfers were recorded at
historical cost and treated as a decrease in net parent equity.
The Predecessors Balance Sheets contain no cash. All
payments made on behalf of the Predecessor, such as direct
costs, indirect costs and capital expenditures discussed above,
are paid by Universal Compression Holdings and have been
recorded as increases in net parent equity. All payments
received on behalf of the Predecessor, such as receipts for
revenue earned or sales of assets, are received by Universal
Compression Holdings and have been recorded as decreases in net
parent equity.
|
|
4.
|
Collateralization of Parent Debt
|
Universal Compression Holdings has entered into certain debt
agreements which utilize the assets of the Predecessor as
collateral. Compression equipment of the Predecessor with a
carrying value of $262.0 million as of December 31,
2005 has been pledged as collateral for Universal Compression
Holdings asset-backed securitization operating facility
(ABS Facility). In addition, Universal Compression
Holdings senior secured credit facility is secured by
substantially all of the assets of the Predecessor (except for
the assets pledged to the ABS facility) along with other assets
of Universal Compression Holdings.
|
|
5.
|
Universal Compression Holdings Stock-Based Compensation
|
Universal Compression Holdings grants stock options and
restricted stock to designated employees. Effective
January 1, 2006, Universal Compression Holdings adopted
SFAS No. 123R, Share-Based Payment, which
requires that compensation cost relating to share-based payment
transactions be recognized in the financial statements. That
cost will be measured based on the fair value of the equity or
liability instruments issued. Prior to 2006, Universal
Compression Holdings accounted for stock options in accordance
with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25). Under APB 25, stock option
expense was not recognized in net income as the exercise price
of stock options granted was equal to the market value of the
stock on the date of grant.
A portion of the stock-based compensation expense incurred by
Universal Compression Holdings is an indirect cost allocated to
the Predecessor based on factors discussed in Note 3.
Universal Compression Holdings adopted SFAS No. 123R
utilizing the modified prospective transition method. As a
result, prior periods for Universal Compression Holdings
results of operations have not been restated to reflect the
impact of SFAS No. 123R and the Predecessors
results of operations for periods prior to January 1, 2006
do not reflect the incremental expense that would have been
incurred if Universal Compression Holdings had followed the
provisions of SFAS No. 123R during those periods. In
the six months ended June 30, 2006 (unaudited), the
adoption of SFAS No. 123R by Universal Compression
Holdings impacted the Predecessors results of operation by
increasing selling, general and administrative expenses by
$1.1 million as compared to the expense that would have
been recognized under APB 25.
F-17
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
The Predecessors net income for the twelve months ended
March 31, 2004 and 2005, the nine months ended
December 31, 2004 (unaudited) and 2005 and the six months
ended June 30, 2005 (unaudited) was $92.8 million,
$98.0 million, $73.4 million, $84.0 million, and
$52.1 million, respectively. If Universal Compression
Holdings had adopted SFAS No. 123R for these periods
net income would have been $90.5 million,
$96.5 million, $72.4 million, $82.6 million and
$51.2 million, respectively, due to revised allocations of
cost to the Predecessor. Stock-based compensation expense
incurred by Universal Compression Holdings and allocated to the
Predecessor for the twelve months ended March 31, 2004 and
2005, the nine months ended December 31, 2004
(unaudited) and 2005 and the six months ended June 30,
2005 (unaudited) and 2006 (unaudited), was $0.2 million,
$0.4 million, $0.3 million, $0.5 million,
$0.3 million and $1.5 million, respectively.
|
|
6.
|
Commitments and Contingencies
|
In the ordinary course of business, the Predecessor is involved
in various pending or threatened legal actions. In the opinion
of management, the amount of ultimate liability, if any, with
respect to these actions will not have a material adverse effect
on the Predecessors financial position, results of
operations or cash flows.
In the quarter ended September 30, 2005, the
Predecessors operations were impacted by two major
hurricanes that entered the Gulf of Mexico (Hurricanes Katrina
and Rita). Of the Predecessors 2.0 million horsepower
contract compression fleet, 394 units totaling 212,000
horsepower were located in the paths taken by these hurricanes.
The Predecessor had eight units totaling approximately 3,700
horsepower that were lost due to the hurricanes.
During 2005, the Predecessor maintained insurance coverage of up
to $50 million for windstorm, property and flood damage.
The deductible for windstorm damage under the Predecessors
insurance coverage is $1 million per named storm. In
addition, most of the Predecessors contract compression
contracts with customers provide that the customer is
responsible for loss of or damage to equipment caused by
windstorms and floods and require the customer to maintain
physical loss insurance for the replacement cost of the
equipment. Of the eight units that were lost, the customers are
responsible for maintaining the physical loss insurance. There
were a total of nine units, of the 394 units in the
hurricanes path, on which the Predecessor is responsible for
carrying the physical loss insurance that incurred some damage
but were not lost. The cost of repairing these units was
primarily incurred in the quarter ended December 31, 2005
and was approximately $0.3 million. The Predecessor
believes that the impact of these hurricanes will not have a
material adverse impact on its results of operations, financial
condition or cash flows.
The Predecessor has no other commitments or contingent
liabilities, which, in the judgment of management, would result
in losses that would have a material adverse affect on the
Predecessors consolidated financial position, results of
operations or cash flows.
F-18
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
|
|
7.
|
Selected Quarterly Financial Data (Unaudited)
|
Summarized quarterly financial data is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2005
|
|
2005
|
|
2005
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Nine Months Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
79,672
|
|
|
$
|
81,964
|
|
|
$
|
86,778
|
|
|
Gross profit(1)
|
|
|
34,937
|
|
|
|
34,722
|
|
|
|
38,002
|
|
|
Net income
|
|
|
27,584
|
|
|
|
27,202
|
|
|
|
29,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
|
|
2004
|
|
2004
|
|
2004
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
Twelve Months Ended March 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
70,973
|
|
|
$
|
73,178
|
|
|
$
|
75,170
|
|
|
$
|
76,918
|
|
|
Gross profit(1)
|
|
|
29,716
|
|
|
|
30,867
|
|
|
|
32,213
|
|
|
|
31,149
|
|
|
Net income
|
|
|
23,514
|
|
|
|
24,425
|
|
|
|
25,491
|
|
|
|
24,540
|
|
|
|
(1)
|
Gross profit is defined as revenue less cost of sales and
depreciation expense.
|
F-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Universal Compression Partners, L.P.:
Houston, Texas
We have audited the accompanying balance sheet of Universal
Compression Partners, L.P. (the Partnership), as of
June 22, 2006. This financial statement is the
responsibility of the Partnerships management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of
material misstatement. The Partnership is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of Universal
Compression Partners, L.P. at June 22, 2006 in conformity
with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Houston, Texas
June 23, 2006
F-20
UNIVERSAL COMPRESSION PARTNERS, L.P.
BALANCE SHEET
June 22, 2006
|
|
|
|
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
Cash
|
|
$
|
1,000
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY
|
Limited partners interest
|
|
$
|
980
|
|
General partners interest
|
|
|
20
|
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
$
|
1,000
|
|
|
|
|
|
See accompanying note to balance sheet.
F-21
UNIVERSAL COMPRESSION PARTNERS, L.P.
NOTE TO BALANCE SHEET
Universal Compression Partners, L.P. (the
Partnership) is a Delaware limited partnership
formed in June 2006, to acquire certain contract compression
customer service agreements and related compressor fleet used to
service those customers from Universal Compression Partners
Predecessor. In order to simplify the Partnerships
obligations under the laws of selected jurisdictions in which
the Partnership will conduct business, the Partnerships
activities will be conducted through a wholly-owned operating
partnership.
The Partnership intends to offer 5,500,000 common units,
representing limited partner interests, pursuant to a public
offering and to concurrently issue 825,000 common units and
6,325,000 subordinated units, representing additional
limited partner interests, to Universal Compression, Inc., a
direct wholly-owned subsidiary of Universal Compression
Holdings, Inc., as well as an aggregate 2% general partner
interest in the Partnership and its operating partnership on a
consolidated basis to UCO General Partner, LP.
UCO General Partner, LP, as general partner, contributed
$20 and Universal Compression, Inc., as the organizational
limited partner, contributed $980 to the Partnership on
June 22, 2006. There have been no other transactions
involving the Partnership as of June 22, 2006.
F-22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partner of UCO General Partner, LP:
Houston, Texas
We have audited the accompanying balance sheet of UCO General
Partner, LP (the Partnership), as of June 22,
2006. This financial statement is the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of
material misstatement. The Partnership is not required to have,
nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Partnerships internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of UCO General
Partner, LP at June 22, 2006 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Houston, Texas
June 23, 2006
F-23
UCO GENERAL PARTNER, LP
BALANCE SHEET
June 22, 2006
|
|
|
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
Cash
|
|
$
|
980.00
|
|
Investment in Universal Compression Partners, L.P.
|
|
|
20.00
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000.00
|
|
|
|
|
|
|
LIABILITIES AND PARTNERS EQUITY
|
Limited partners interest
|
|
$
|
999.99
|
|
General partners interest
|
|
|
0.01
|
|
|
|
|
|
|
Total liabilities and partners equity
|
|
$
|
1,000.00
|
|
|
|
|
|
See accompanying note to balance sheet.
F-24
UCO GENERAL PARTNER, LP
NOTE TO BALANCE SHEET
UCO General Partner, LP (the General Partner) is a
Delaware partnership formed in June 2006, to become the
general partner of Universal Compression Partners, L.P. (the
Partnership). The General Partner is an indirect
wholly-owned subsidiary of Universal Compression Holdings, Inc.
The General Partner owns a 2% general partner interest in the
Partnership.
On June 22, 2006, Universal Compression Holdings, Inc. and
its subsidiaries contributed $1,000 to UCO General Partner, LP
in exchange for a 100% ownership interest.
The General Partner has invested $20 in the Partnership. There
have been no other transactions involving the General Partner as
of June 22, 2006.
F-25
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
UNIVERSAL COMPRESSION PARTNERS, L.P.
TABLE OF CONTENTS
|
|
|
|
|
|
|
ARTICLE I
DEFINITIONS
|
SECTION
1.1.
|
|
Definitions
|
|
|
A-1
|
|
SECTION
1.2.
|
|
Construction
|
|
|
A-16
|
|
|
ARTICLE II
ORGANIZATION
|
SECTION
2.1.
|
|
Formation
|
|
|
A-16
|
|
SECTION
2.2.
|
|
Name
|
|
|
A-16
|
|
SECTION
2.3.
|
|
Registered Office; Registered Agent; Principal Office; Other
Offices
|
|
|
A-16
|
|
SECTION
2.4.
|
|
Purpose and Business
|
|
|
A-16
|
|
SECTION
2.5.
|
|
Powers
|
|
|
A-17
|
|
SECTION
2.6.
|
|
Power of Attorney
|
|
|
A-17
|
|
SECTION
2.7.
|
|
Term
|
|
|
A-18
|
|
SECTION
2.8.
|
|
Title to Partnership Assets
|
|
|
A-18
|
|
|
ARTICLE III
RIGHTS OF LIMITED PARTNERS
|
SECTION
3.1.
|
|
Limitation of Liability
|
|
|
A-18
|
|
SECTION
3.2.
|
|
Management of Business
|
|
|
A-18
|
|
SECTION
3.3.
|
|
Outside Activities of the Limited Partners
|
|
|
A-19
|
|
SECTION
3.4.
|
|
Rights of Limited Partners
|
|
|
A-19
|
|
|
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
|
SECTION
4.1.
|
|
Certificates
|
|
|
A-19
|
|
SECTION
4.2.
|
|
Mutilated, Destroyed, Lost or Stolen Certificates
|
|
|
A-20
|
|
SECTION
4.3.
|
|
Record Holders
|
|
|
A-20
|
|
SECTION
4.4.
|
|
Transfer Generally
|
|
|
A-21
|
|
SECTION
4.5.
|
|
Registration and Transfer of Limited Partner Interests
|
|
|
A-21
|
|
SECTION
4.6.
|
|
Transfer of the General Partners General Partner Interest
|
|
|
A-22
|
|
SECTION
4.7.
|
|
Transfer of Incentive Distribution Rights
|
|
|
A-22
|
|
SECTION
4.8.
|
|
Restrictions on Transfers
|
|
|
A-22
|
|
SECTION
4.9.
|
|
Citizenship Certificates; Non-citizen Assignees
|
|
|
A-23
|
|
SECTION
4.10.
|
|
Redemption of Partnership Interests of Non-citizen Assignees
|
|
|
A-24
|
|
|
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
|
SECTION
5.1.
|
|
Organizational Contributions
|
|
|
A-25
|
|
SECTION
5.2.
|
|
Contributions by the General Partner and its Affiliates
|
|
|
A-25
|
|
SECTION
5.3.
|
|
Contributions by Initial Limited Partners and Distributions to
the General Partner and its Affiliates
|
|
|
A-26
|
|
SECTION
5.4.
|
|
Interest and Withdrawal
|
|
|
A-26
|
|
SECTION
5.5.
|
|
Capital Accounts
|
|
|
A-26
|
|
SECTION
5.6.
|
|
Issuances of Additional Partnership Securities
|
|
|
A-29
|
|
A-i
|
|
|
|
|
|
|
SECTION
5.7.
|
|
Conversion of Subordinated Units
|
|
|
A-29
|
|
SECTION
5.8.
|
|
Limited Preemptive Right
|
|
|
A-31
|
|
SECTION
5.9.
|
|
Splits and Combinations
|
|
|
A-31
|
|
SECTION
5.10.
|
|
Fully Paid and Non-Assessable Nature of Limited Partner Interests
|
|
|
A-31
|
|
|
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
|
SECTION
6.1.
|
|
Allocations for Capital Account Purposes
|
|
|
A-32
|
|
SECTION
6.2.
|
|
Allocations for Tax Purposes
|
|
|
A-38
|
|
SECTION
6.3.
|
|
Requirement and Characterization of Distributions; Distributions
to Record Holders
|
|
|
A-39
|
|
SECTION
6.4.
|
|
Distributions of Available Cash from Operating Surplus
|
|
|
A-40
|
|
SECTION
6.5.
|
|
Distributions of Available Cash from Capital Surplus
|
|
|
A-41
|
|
SECTION
6.6.
|
|
Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels
|
|
|
A-42
|
|
SECTION
6.7.
|
|
Special Provisions Relating to the Holders of Subordinated Units
|
|
|
A-42
|
|
SECTION
6.8.
|
|
Special Provisions Relating to the Holders of Incentive
Distribution Rights
|
|
|
A-42
|
|
SECTION
6.9.
|
|
Entity-Level Taxation
|
|
|
A-43
|
|
|
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
|
SECTION
7.1.
|
|
Management
|
|
|
A-43
|
|
SECTION
7.2.
|
|
Certificate of Limited Partnership
|
|
|
A-45
|
|
SECTION
7.3.
|
|
Restrictions on the General Partners Authority
|
|
|
A-45
|
|
SECTION
7.4.
|
|
Reimbursement of the General Partner
|
|
|
A-45
|
|
SECTION
7.5.
|
|
Outside Activities
|
|
|
A-46
|
|
SECTION
7.6.
|
|
Loans from the General Partner; Loans or Contributions from the
Partnership or Group Members
|
|
|
A-47
|
|
SECTION
7.7.
|
|
Indemnification
|
|
|
A-47
|
|
SECTION
7.8.
|
|
Liability of Indemnitees
|
|
|
A-49
|
|
SECTION
7.9.
|
|
Resolution of Conflicts of Interest; Standards of Conduct and
Modification of Duties
|
|
|
A-49
|
|
SECTION
7.10.
|
|
Other Matters Concerning the General Partner
|
|
|
A-51
|
|
SECTION
7.11.
|
|
Purchase or Sale of Partnership Securities
|
|
|
A-51
|
|
SECTION
7.12.
|
|
Registration Rights of the General Partner and its Affiliates
|
|
|
A-51
|
|
SECTION
7.13.
|
|
Reliance by Third Parties
|
|
|
A-54
|
|
|
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
|
SECTION
8.1.
|
|
Records and Accounting
|
|
|
A-54
|
|
SECTION
8.2.
|
|
Fiscal Year
|
|
|
A-54
|
|
SECTION
8.3.
|
|
Reports
|
|
|
A-55
|
|
|
ARTICLE IX
TAX MATTERS
|
SECTION
9.1.
|
|
Tax Returns and Information
|
|
|
A-55
|
|
SECTION
9.2.
|
|
Tax Elections
|
|
|
A-55
|
|
SECTION
9.3.
|
|
Tax Controversies
|
|
|
A-55
|
|
SECTION
9.4.
|
|
Withholding
|
|
|
A-56
|
|
A-ii
|
|
|
|
|
|
|
|
ARTICLE X
ADMISSION OF PARTNERS
|
SECTION
10.1.
|
|
Admission of Initial Limited Partners
|
|
|
A-56
|
|
SECTION
10.2.
|
|
Admission of Limited Partners
|
|
|
A-56
|
|
SECTION
10.3.
|
|
Admission of Successor General Partner
|
|
|
A-56
|
|
SECTION
10.4.
|
|
Amendment of Agreement and Certificate of Limited Partnership
|
|
|
A-57
|
|
|
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
|
SECTION
11.1.
|
|
Withdrawal of the General Partner
|
|
|
A-57
|
|
SECTION
11.2.
|
|
Removal of the General Partner
|
|
|
A-58
|
|
SECTION
11.3.
|
|
Interest of Departing General Partner and Successor General
Partner
|
|
|
A-59
|
|
SECTION
11.4.
|
|
Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages
|
|
|
A-60
|
|
SECTION
11.5.
|
|
Withdrawal of Limited Partners
|
|
|
A-60
|
|
|
ARTICLE XII
DISSOLUTION AND LIQUIDATION
|
SECTION
12.1.
|
|
Dissolution
|
|
|
A-60
|
|
SECTION
12.2.
|
|
Continuation of the Business of the Partnership After Dissolution
|
|
|
A-60
|
|
SECTION
12.3.
|
|
Liquidator
|
|
|
A-61
|
|
SECTION
12.4.
|
|
Liquidation
|
|
|
A-61
|
|
SECTION
12.5.
|
|
Cancellation of Certificate of Limited Partnership
|
|
|
A-62
|
|
SECTION
12.6.
|
|
Return of Contributions
|
|
|
A-62
|
|
SECTION
12.7.
|
|
Waiver of Partition
|
|
|
A-62
|
|
SECTION
12.8.
|
|
Capital Account Restoration
|
|
|
A-62
|
|
|
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
|
SECTION
13.1.
|
|
Amendments to be Adopted Solely by the General Partner
|
|
|
A-62
|
|
SECTION
13.2.
|
|
Amendment Procedures
|
|
|
A-64
|
|
SECTION
13.3.
|
|
Amendment Requirements
|
|
|
A-64
|
|
SECTION
13.4.
|
|
Special Meetings
|
|
|
A-64
|
|
SECTION
13.5.
|
|
Notice of a Meeting
|
|
|
A-65
|
|
SECTION
13.6.
|
|
Record Date
|
|
|
A-65
|
|
SECTION
13.7.
|
|
Adjournment
|
|
|
A-65
|
|
SECTION
13.8.
|
|
Waiver of Notice; Approval of Meeting; Approval of Minutes
|
|
|
A-65
|
|
SECTION
13.9.
|
|
Quorum and Voting
|
|
|
A-65
|
|
SECTION
13.10.
|
|
Conduct of a Meeting
|
|
|
A-66
|
|
SECTION
13.11.
|
|
Action Without a Meeting
|
|
|
A-66
|
|
SECTION
13.12.
|
|
Right to Vote and Related Matters
|
|
|
A-67
|
|
|
ARTICLE XIV
MERGER, CONSOLIDATION OR CONVERSION
|
SECTION
14.1.
|
|
Authority
|
|
|
A-67
|
|
SECTION
14.2.
|
|
Procedure for Merger, Consolidation or Conversion
|
|
|
A-67
|
|
SECTION
14.3.
|
|
Approval by Limited Partners
|
|
|
A-69
|
|
SECTION
14.4.
|
|
Certificate of Merger
|
|
|
A-69
|
|
A-iii
|
|
|
|
|
|
|
SECTION
14.5.
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Effect of Merger, Consolidation or Conversion
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ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
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SECTION
15.1.
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Right to Acquire Limited Partner Interests
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ARTICLE XVI
GENERAL PROVISIONS
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SECTION
16.1.
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Addresses and Notices
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SECTION
16.2.
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Further Action
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SECTION
16.3.
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Binding Effect
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SECTION
16.4.
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Integration
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SECTION
16.5.
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Creditors
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SECTION
16.6.
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Waiver
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SECTION
16.7.
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Third-Party Beneficiaries
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SECTION
16.8.
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Counterparts
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SECTION
16.9.
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Applicable Law
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SECTION
16.10.
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Invalidity of Provisions
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SECTION
16.11.
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Consent of Partners
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SECTION
16.12.
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Facsimile Signatures
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A-iv
FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF UNIVERSAL COMPRESSION PARTNERS,
L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF UNIVERSAL COMPRESSION PARTNERS, L.P. dated as of
[ ],
2006, is entered into by and between UCO General Partner, LP, a
Delaware limited partnership, as the General Partner, and
Universal Compression, Inc., a Texas limited partnership, as the
Organizational Limited Partner, together with any other Persons
who become Partners in the Partnership or parties hereto as
provided herein. In consideration of the covenants, conditions
and agreements contained herein, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section
1.1.
Definitions
.
The following terms shall be defined for all purposes of this
Agreement as follows, unless otherwise clearly indicated to the
contrary.
Acquisition
means any transaction in which
any Group Member acquires (through an asset acquisition, merger,
stock acquisition or other form of investment) control over all
or a portion of the assets, properties or business of another
Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or
revenues of the Partnership Group existing immediately prior to
such transaction.
Additional Book Basis
means the portion of
any remaining Carrying Value of an Adjusted Property that is
attributable to positive adjustments made to such Carrying Value
as a result of Book-Up Events. For purposes of determining the
extent that Carrying Value constitutes Additional Book Basis:
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(i) Any negative adjustment made to the Carrying Value of
an Adjusted Property as a result of either a Book-Down Event or
a Book-Up Event shall first be deemed to offset or decrease that
portion of the Carrying Value of such Adjusted Property that is
attributable to any prior positive adjustments made thereto
pursuant to a Book-Up Event or Book-Down Event.
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(ii) 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 (ii) to such Book-Down Event).
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Additional Book Basis Derivative Items
means
any Book Basis Derivative Items that are computed with reference
to Additional Book Basis. To the extent that the Additional Book
Basis attributable to all of the Partnerships Adjusted
Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning
of such period (the
Excess Additional Book
Basis
), the Additional Book Basis Derivative Items for
such period shall be reduced by the amount that bears the same
ratio to the amount of Additional Book Basis Derivative Items
determined without regard to this sentence as the Excess
Additional Book Basis bears to the Additional Book Basis as of
the beginning of such period.
Adjusted Capital Account
means the Capital
Account maintained for each Partner as of the end of each fiscal
year of the Partnership, (a) increased by any amounts that
such Partner is obligated to restore under the standards set by
Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or
is deemed obligated to restore under Treasury Regulation
Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and
deductions that, as of the end of such fiscal year, are
reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the
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Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and
(ii) the amount of all distributions that, as of the end of
such fiscal year, are reasonably expected to be made to such
Partner in subsequent years in accordance with the terms of this
Agreement or otherwise to the extent they exceed offsetting
increases to such Partners Capital Account that are
reasonably expected to occur during (or prior to) the year in
which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback
pursuant to Section 6.1(d)(i) or Section 6.1(d)(ii)).
The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation
Section
1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith. The
Adjusted Capital Account
of a Partner in
respect of a General Partner Unit, a Common Unit, a Subordinated
Unit or an Incentive Distribution Right or any other Partnership
Interest shall be the amount that such Adjusted Capital Account
would be if such General Partner Unit, Common Unit, Subordinated
Unit, Incentive Distribution Right or other Partnership Interest
were the only interest in the Partnership held by such Partner
from and after the date on which such General Partner Unit,
Common Unit, Subordinated Unit, Incentive Distribution Right or
other Partnership Interest was first issued.
Adjusted Operating Surplus
means, with
respect to any period, Operating Surplus generated with respect
to such period (a) less any net decrease in cash reserves
for Operating Expenditures with respect to such period not
relating to an Operating Expenditure made with respect to such
period, and (b) plus (i) any net decrease made in
subsequent periods in cash reserves for Operating Expenditures
initially established with respect to such period, and
(ii) any net increase in cash reserves for Operating
Expenditures with respect to such period to the extent such
reserve is required by any debt instrument for the repayment of
principal, interest or premium. Adjusted Operating Surplus does
not include that portion of Operating Surplus included in
clauses (a)(i) and (a)(ii) of the definition of
Operating Surplus.
Adjusted Property
means any property the
Carrying Value of which has been adjusted pursuant to
Section 5.5(d)(i) or Section 5.5(d)(ii).
Affiliate
means, with respect to any Person,
any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common
control with, the Person in question. As used herein, the term
control
means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
Aggregate Remaining Net Positive Adjustments
means, as of the end of any taxable period, the sum of the
Remaining Net Positive Adjustments of all the Partners.
Agreed Allocation
means any allocation, other
than a Required Allocation, of an item of income, gain, loss or
deduction pursuant to the provisions of Section 6.1,
including, without limitation, a Curative Allocation (if
appropriate to the context in which the term
Agreed
Allocation
is used).
Agreed Value
of any Contributed Property
means the fair market value of such property or other
consideration at the time of contribution as determined by the
General Partner. The General Partner shall use such method as it
determines to be appropriate to allocate the aggregate Agreed
Value of Contributed Properties contributed to the Partnership
in a single or integrated transaction among each separate
property on a basis proportional to the fair market value of
each Contributed Property.
Agreement
means this First Amended and
Restated Agreement of Limited Partnership of Universal
Compression Partners, L.P., as it may be amended, supplemented
or restated from time to time.
Associate
means, when used to indicate a
relationship with any Person, (a) any corporation or
organization of which such Person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more
of any class of voting stock or other voting interest;
(b) any trust or other estate in which such Person has at
least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and
(c) any relative or spouse of such Person, or any relative
of such spouse, who has the same principal residence as such
Person.
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Available Cash
means, with respect to any
Quarter ending prior to the Liquidation Date:
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(a) the sum of (i) all cash and cash equivalents of
the Partnership Group on hand at the end of such Quarter, and
(ii) if the General Partner so determines, all or any
portion of any additional cash and cash equivalents of the
Partnership Group on hand on the date of determination of
Available Cash with respect to such Quarter, less
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(b) the amount of any cash reserves established by the
General Partner (i) to 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) to 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) to provide
funds for distributions under Section 6.4 or
Section 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.
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Notwithstanding the foregoing,
Available Cash
with respect to the Quarter in which the Liquidation Date occurs
and any subsequent Quarter shall equal zero.
Board of Directors
means, with respect to the
Board of Directors of the General Partner, its board of
directors or managers, as applicable, if a corporation or
limited liability company, or if a limited partnership, the
board of directors or board of managers of the general partner
of the General Partner.
Book Basis Derivative Item
means any item of
income, deduction, gain or loss included in the determination of
Net Income or Net Loss that is computed with reference to the
Carrying Value of an Adjusted Property (
e.g.
,
depreciation, depletion, or gain or loss with respect to an
Adjusted Property).
Book-Down Event
means an event that triggers
a negative adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Book-Tax Disparity
means with respect to any
item of Contributed Property or Adjusted Property, as of the
date of any determination, the difference between the Carrying
Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of
such date. A Partners share of the Partnerships
Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between
such Partners Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of
such Partners Capital Account computed as if it had been
maintained strictly in accordance with federal income tax
accounting principles.
Book-Up Event
means an event that triggers a
positive adjustment to the Capital Accounts of the Partners
pursuant to Section 5.5(d).
Business Day
means Monday through Friday of
each week, except that a legal holiday recognized as such by the
government of the United States of America or the State of New
York or Texas shall not be regarded as a Business Day.
Capital Account
means the capital account
maintained for a Partner pursuant to Section 5.5. The
Capital Account
of a Partner in respect of a
General Partner Unit, a Common Unit, a Subordinated Unit, an
Incentive Distribution Right or any other
Partnership Interest shall be the amount that such Capital
Account would be if such General Partner Unit, Common Unit,
Subordinated Unit, Incentive
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Distribution Right or other Partnership Interest were the
only interest in the Partnership held by such Partner from and
after the date on which such General Partner Unit, Common Unit,
Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
Capital Contribution
means any cash, cash
equivalents or the Net Agreed Value of Contributed Property that
a Partner contributes to the Partnership.
Capital Improvement
means any
(a) addition or improvement to the capital assets owned by
any Group Member (including, without limitation, overhauls of
existing capital assets owned by any Group Member), or
(b) acquisition of existing, or the construction of new,
capital assets (including, without limitation, any natural gas
compression equipment and any related or similar assets), or
(c) capital contributions by a Group Member to a Person in
which a Group Member has an equity interest to fund such Group
Members pro rata share of the cost of the acquisition of
existing, or the construction of new, capital assets (including,
without limitation, any natural gas compression equipment and
any related or similar assets) by such Persons in each case if
such addition, improvement, acquisition or construction is made
to increase the operating capacity or revenues of the
Partnership Group, in the case of clauses (a) and (b), or
such Person, in the case of clause (c), from the operating
capacity or revenues of the Partnership Group or such Person, as
the case may be, existing immediately prior to such addition,
improvement, acquisition or construction.
Capital Surplus
has the meaning assigned to
such term in Section 6.3(a).
Carrying Value
means (a) with respect to
a Contributed Property, the Agreed Value of such property
reduced (but not below zero) by all depreciation, amortization
and cost recovery deductions charged to the Partners
Capital Accounts in respect of such Contributed Property, and
(b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes,
all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with
Section 5.5(d)(i) and Section 5.5(d)(ii) and to
reflect changes, additions or other adjustments to the Carrying
Value for dispositions and acquisitions of Partnership
properties, as deemed appropriate by the General Partner.
Cause
means a court of competent jurisdiction
has entered a final, non-appealable judgment finding the General
Partner liable for actual fraud or willful misconduct in its
capacity as a general partner of the Partnership.
Certificate
means (a) a certificate
(i) substantially in the form of
Exhibit A
to
this Agreement, (ii) issued in global form in accordance
with the rules and regulations of the Depositary or
(iii) in such other form as may be adopted by the General
Partner, issued by the Partnership evidencing ownership of one
or more Common Units or (b) a certificate, in such form as
may be adopted by the General Partner, issued by the Partnership
evidencing ownership of one or more other Partnership Securities.
Certificate of Limited Partnership
means the
Certificate of Limited Partnership of the Partnership filed with
the Secretary of State of the State of Delaware as referenced in
Section 7.2, as such Certificate of Limited Partnership may
be amended, supplemented or restated from time to time.
Citizenship Certification
means a properly
completed certificate in such form as may be specified by the
General Partner by which a Limited Partner certifies that he
(and if he is a nominee holding for the account of another
Person, that to the best of his knowledge such other Person) is
an Eligible Citizen.
Claim
(as used in Section 7.12(d)) has
the meaning assigned to such term in Section 7.12(d).
Closing Date
means the first date on which
Common Units are sold by the Partnership to the Underwriters
pursuant to the provisions of the Purchase Agreement.
Closing Price
has the meaning assigned to
such term in Section 15.1(a).
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Code
means the Internal Revenue Code of 1986,
as amended and in effect from time to time. Any reference herein
to a specific section or sections of the Code shall be deemed to
include a reference to any corresponding provision of any
successor law.
Combined Interest
has the meaning assigned to
such term in Section 11.3(a).
Commission
means the United States Securities
and Exchange Commission.
Common Unit
means a Partnership Security
representing a fractional part of the Partnership Interests
of all Limited Partners, and having the rights and obligations
specified with respect to Common Units in this Agreement. The
term Common Unit does not include a Subordinated
Unit prior to its conversion into a Common Unit pursuant to the
terms hereof.
Common Unit Arrearage
means, with respect to
any Common Unit, whenever issued, as to any Quarter within the
Subordination Period, the excess, if any, of (a) the
Minimum Quarterly Distribution with respect to a Common Unit in
respect of such Quarter over (b) the sum of all Available
Cash distributed with respect to a Common Unit in respect of
such Quarter pursuant to Section 6.4(a)(i).
Conflicts Committee
means a committee of the
Board of Directors composed entirely of two or more directors
who are not (a) security holders, officers or employees of
the General Partner, (b) officers, directors or employees
of any Affiliate of the General Partner or (c) holders of
any ownership interest in the Partnership Group other than
Common Units and who also meet the independence standards
required of directors who serve on an audit committee of a board
of directors established by the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission
thereunder and by the National Securities Exchange on which the
Common Units are listed or admitted to trading.
Contributed Property
means each property or
other asset, in such form as may be permitted by the Delaware
Act, but excluding cash, contributed to the Partnership. Once
the Carrying Value of a Contributed Property is adjusted
pursuant to Section 5.5(d), such property shall no longer
constitute a Contributed Property, but shall be deemed an
Adjusted Property.
Contribution Agreement
means that certain
Contribution, Conveyance and Assumption Agreement, dated as of
the Closing Date, among UCO GP, LLC, the General Partner, the
Partnership, the Operating Partnership, OLP GP, UCI, UCO
Compression 2005 and the other parties named therein, together
with the additional conveyance documents and instruments
contemplated or referenced thereunder, as such may be amended,
supplemented or restated from time to time.
Cumulative Common Unit Arrearage
means, with
respect to any Common Unit, whenever issued, and as of the end
of any Quarter, the excess, if any, of (a) the sum
resulting from adding together the Common Unit Arrearage as to
an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such
Quarter over (b) the sum of any distributions theretofore
made pursuant to Section 6.4(a)(ii) and the second sentence
of Section 6.5 with respect to an Initial Common Unit
(including any distributions to be made in respect of the last
of such Quarters).
Curative Allocation
means any allocation of
an item of income, gain, deduction, loss or credit pursuant to
the provisions of Section 6.1(d)(xi).
Current Market Price
has the meaning assigned
to such term in Section 15.1(a).
Delaware Act
means the Delaware Revised
Uniform Limited Partnership Act, 6 Del C.
Section
17-101,
et
seq., as amended, supplemented or restated from time to time,
and any successor to such statute.
Departing General Partner
means a former
General Partner from and after the effective date of any
withdrawal or removal of such former General Partner pursuant to
Section 11.1 or Section 11.2.
Depositary
means, with respect to any Units
issued in global form, The Depository Trust Company and its
successors and permitted assigns.
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Economic Risk of Loss
has the meaning set
forth in Treasury
Regulation Section
1.752-2(a).
Eligible Citizen
means a Person qualified to
own interests in real property in jurisdictions in which any
Group Member does business or proposes to do business from time
to time, and whose status as a Limited Partner the General
Partner determines does not or would not subject such Group
Member to a significant risk of cancellation or forfeiture of
any of its properties or any interest therein.
Estimated Incremental Quarterly Tax Amount
has the meaning assigned to such term in Section 6.9.
Event of Withdrawal
has the meaning assigned
to such term in Section 11.1(a).
Expansion Capital Expenditures
means cash
expenditures for Acquisitions or Capital Improvements, and shall
not include Maintenance Capital Expenditures.
Final Subordinated Units
has the meaning
assigned to such term in Section 6.1(d)(x).
First Liquidation Target Amount
has the
meaning assigned to such term in Section 6.1(c)(i)(D).
First Target Distribution
means
$0.4025 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
December 31, 2006, it means the product of $0.4025
multiplied by a fraction of which the numerator is the number of
days in such period, and of which the denominator is 92),
subject to adjustment in accordance with Section 6.6 and
Section 6.9.
Fully Diluted Basis
means, when calculating
the number of Outstanding Units for any period, a basis that
includes, in addition to the Outstanding Units, all Partnership
Securities and options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership (a) that
are convertible into or exercisable or exchangeable for Units
that are senior to or pari passu with the Subordinated Units,
(b) whose conversion, exercise or exchange price is less
than the Current Market Price on the date of such calculation,
(c) that may be converted into or exercised or exchanged
for such Units prior to or during the Quarter immediately
following the end of the period for which the calculation is
being made without the satisfaction of any contingency beyond
the control of the holder other than the payment of
consideration and the compliance with administrative mechanics
applicable to such conversion, exercise or exchange and
(d) that were not converted into or exercised or exchanged
for such Units during the period for which the calculation is
being made;
provided, however,
that for purposes of
determining the number of Outstanding Units on a Fully Diluted
Basis when calculating whether the Subordination Period has
ended or the Subordinated Units are entitled to convert into
Common Units pursuant to Section 5.7, such Partnership
Securities, options, rights, warrants and appreciation rights
shall be deemed to have been Outstanding Units only for the four
Quarters that comprise the last four Quarters of the measurement
period;
provided, further,
that if consideration will be
paid to any Group Member in connection with such conversion,
exercise or exchange, the number of Units to be included in such
calculation shall be that number equal to the difference between
(i) the number of Units issuable upon such conversion,
exercise or exchange and (ii) the number of Units that such
consideration would purchase at the Current Market Price.
General Partner
means UCO General Partner,
LP, a Delaware limited partnership and its successors and
permitted assigns that are admitted to the Partnership as
general partner of the Partnership, in its capacity as general
partner of the Partnership (except as the context otherwise
requires).
General Partner Interest
means the ownership
interest of the General Partner in the Partnership (in its
capacity as a general partner without reference to any Limited
Partner Interest held by it), which is evidenced by General
Partner Units, and includes any and all benefits to which the
General Partner is entitled as provided in this Agreement,
together with all obligations of the General Partner to comply
with the terms and provisions of this Agreement.
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General Partner Unit
means a fractional part
of the General Partner Interest having the rights and
obligations specified with respect to the General Partner
Interest. A General Partner Unit is not a Unit.
Group
means a Person that with or through any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
(except voting pursuant to a revocable proxy or consent given to
such Person in response to a proxy or consent solicitation made
to 10 or more Persons), exercising investment power or disposing
of any Partnership Interests with any other Person that
beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly,
Partnership Interests.
Group Member
means a member of the
Partnership Group.
Group Member Agreement
means the partnership
agreement of any Group Member, other than the Partnership, that
is a limited or general partnership, the limited liability
company agreement of any Group Member that is a limited
liability company, the certificate of incorporation and bylaws
or similar organizational documents of any Group Member that is
a corporation, the joint venture agreement or similar governing
document of any Group Member that is a joint venture and the
governing or organizational or similar documents of any other
Group Member that is a Person other than a limited or general
partnership, limited liability company, corporation or joint
venture, as such may be amended, supplemented or restated from
time to time.
Holder
as used in Section 7.12, has the
meaning assigned to such term in Section 7.12(a).
Incentive Distribution Right
means a
non-voting Limited Partner Interest issued to the General
Partner in connection with the transactions contemplated
pursuant to the Contribution Agreement, which Limited Partner
Interest will confer upon the holder thereof only the rights and
obligations specifically provided in this Agreement with respect
to Incentive Distribution Rights (and no other rights otherwise
available to or other obligations of a holder of a Partnership
Interest). Notwithstanding anything in this Agreement to the
contrary, the holder of an Incentive Distribution Right shall
not be entitled to vote such Incentive Distribution Right on any
Partnership matter except as may otherwise be required by law.
Incentive Distributions
means any amount of
cash distributed to the holders of the Incentive Distribution
Rights pursuant to Section 6.4(a)(v), (vi) and
(vii) and Section 6.4(b)(iii), (iv) and (v).
Incremental Income Taxes
has the meaning
assigned to such term in Section 6.9.
Indemnified Persons
has the meaning assigned
to such term in Section 7.12(d).
Indemnitee
means (a) the General
Partner, (b) any Departing General Partner, (c) any
Person who is or was an Affiliate of the General Partner or any
Departing General Partner, (d) any Person who is or was a
member, partner, director, officer, fiduciary or trustee of any
Group Member, the General Partner or any Departing General
Partner or any Affiliate of any Group Member, the General
Partner or any Departing General Partner, (e) any Person
who is or was serving at the request of the General Partner or
any Departing General Partner or any Affiliate of the General
Partner or any Departing General Partner as an officer,
director, member, partner, fiduciary or trustee of another
Person, provided that that Person shall not be an Indemnitee by
reason of providing, on a fee-for-services basis, trustee,
fiduciary or custodial services, and (f) any Person the
General Partner designates as an Indemnitee for
purposes of this Agreement.
Initial Common Units
means the Common Units
sold in the Initial Offering.
Initial Limited Partners
means UCI and the
General Partner (with respect to the Incentive Distribution
Rights received by it pursuant to Section 5.2), and the
Underwriters, in each case upon being admitted to the
Partnership in accordance with Section 10.1.
Initial Offering
means the initial offering
and sale of Common Units to the public, as described in the
Registration Statement.
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Initial Unit Price
means (a) with
respect to the Common Units and the Subordinated Units, the
initial public offering price per Common Unit at which the
Underwriters offered the Common Units to the public for sale as
set forth on the cover page of the prospectus included as part
of the Registration Statement and first issued at or after the
time the Registration Statement first became effective or
(b) with respect to any other class or series of Units, the
price per Unit at which such class or series of Units is
initially sold by the Partnership, as determined by the General
Partner, in each case adjusted as the General Partner determines
to be appropriate to give effect to any distribution,
subdivision or combination of Units.
Interim Capital Transactions
means the
following transactions if they occur prior to the Liquidation
Date: (a) borrowings, refinancings or refundings of
indebtedness (other than for items purchased on open account in
the ordinary course of business) by any Group Member and sales
of debt securities of any Group Member; (b) sales of equity
interests of any Group Member (including the Common Units sold
to the Underwriters pursuant to the exercise of the
Over-Allotment Option); (c) sales or other voluntary or
involuntary dispositions of any assets of any Group Member other
than (i) sales or other dispositions of inventory, accounts
receivable and other assets in the ordinary course of business,
and (ii) sales or other dispositions of assets as part of
normal retirements or replacements; or (d) capital
contributions received.
Issue Price
means the price at which a Unit
is purchased from the Partnership, net of any sales commission
or underwriting discount charged to the Partnership.
Limited Partner
means, unless the context
otherwise requires, the Organizational Limited Partner prior to
its withdrawal from the Partnership, each Initial Limited
Partner, each additional Person that becomes a Limited Partner
pursuant to the terms of this Agreement and any Departing
General Partner upon the change of its status from General
Partner to Limited Partner pursuant to Section 11.3, in
each case, in such Persons capacity as a limited partner
of the Partnership;
provided, however,
that when the term
Limited Partner is used herein in the context of any
vote or other approval, including Article XIII and
Article XIV, such term shall not, solely for such purpose,
include any holder of an Incentive Distribution Right (solely
with respect to its Incentive Distribution Rights and not with
respect to any other Limited Partner Interest held by such
Person) except as may otherwise be required by law.
Limited Partner Interest
means the ownership
interest of a Limited Partner in the Partnership, which may be
evidenced by Common Units, Subordinated Units, Incentive
Distribution Rights or other Partnership Securities or a
combination thereof or interest therein, and includes any and
all benefits to which such Limited Partner is entitled as
provided in this Agreement, together with all obligations of
such Limited Partner to comply with the terms and provisions of
this Agreement;
provided, however,
that when the term
Limited Partner Interest is used herein in the
context of any vote or other approval, including
Article XIII and Article XIV, such term shall not,
solely for such purpose, include any Incentive Distribution
Right except as may otherwise be required by law.
Liquidation Date
means (a) in the case
of an event giving rise to the dissolution of the Partnership of
the type described in clauses (a) and (b) of the first
sentence of Section 12.2, the date on which the applicable
time period during which the holders of Outstanding Units have
the right to elect to continue the business of the Partnership
has expired without such an election being made, and (b) in
the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
Liquidator
means one or more Persons selected
by the General Partner to perform the functions described in
Section 12.4 as liquidating trustee of the Partnership
within the meaning of the Delaware Act.
Maintenance Capital Expenditures
means any
cash expenditures (including expenditures for the addition or
improvement to the capital assets owned by any Group Member or
for the acquisition of existing, or the construction of new,
capital assets) if such expenditures are made to maintain,
including over the long term, the operating capacity or revenues
of the Partnership Group.
Merger Agreement
has the meaning assigned to
such term in Section 14.1.
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Minimum Quarterly Distribution
means
$0.35 per Unit per Quarter (or with respect to the period
commencing on the Closing Date and ending on December 31,
2006, it means the product of $0.35 multiplied by a fraction of
which the numerator is the number of days in such period and of
which the denominator is 92), subject to adjustment in
accordance with Section 6.6 and Section 6.9.
National Securities Exchange
means an
exchange registered with the Commission under Section 6(a)
of the Securities Exchange Act of 1934, as amended, supplemented
or restated from time to time, and any successor to such
statute, or The Nasdaq Global Market or any successor thereto.
Net Agreed Value
means, (a) in the case
of any Contributed Property, the Agreed Value of such property
reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed, (b) in the case of any property distributed to
a Partner by the Partnership, the Partnerships Carrying
Value of such property (as adjusted pursuant to
Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such
Partner upon such distribution or to which such property is
subject at the time of distribution, in either case, as
determined under Section 752 of the Code, and (c) in
the case of a contribution of Common Units by the General
Partner to the Partnership as a Capital Contribution pursuant to
Section 5.2(b), an amount per Common Unit contributed equal
to the Current Market Price per Common Unit as of the date of
the contribution.
Net Income
means, for any taxable year, the
excess, if any, of the Partnerships items of income and
gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnerships items of loss and
deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially
allocated under Section 6.1(d);
provided,
that the
determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if
Section 6.1(d)(xii) were not in this Agreement.
Net Loss
means, for any taxable year, the
excess, if any, of the Partnerships items of loss and
deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnerships items of income
and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for
such taxable year. The items included in the calculation of Net
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under
Section 6.1(d);
provided,
that the determination of
the items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii)
were not in this Agreement.
Net Positive Adjustments
means, with respect
to any Partner, the excess, if any, of the total positive
adjustments over the total negative adjustments made to the
Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.
Net Termination Gain
means, for any taxable
year, the sum, if positive, of all items of income, gain, loss
or deduction recognized by the Partnership after the Liquidation
Date. The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 5.5(b)
and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
Net Termination Loss
means, for any taxable
year, the sum, if negative, of all items of income, gain, loss
or deduction recognized by the Partnership after the Liquidation
Date. The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
Non-citizen Assignee
means a Person whom the
General Partner has determined does not constitute an Eligible
Citizen and as to whose Partnership Interest the General
Partner has become the Limited Partner, pursuant to
Section 4.9.
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Nonrecourse Built-in Gain
means with respect
to any Contributed Properties or Adjusted Properties that are
subject to a mortgage or pledge securing a Nonrecourse
Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Section 6.2(b)(i)(A),
Section 6.2(b)(ii)(A) and Section 6.2(b)(iii) if such
properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
Nonrecourse Deductions
means any and all
items of loss, deduction or expenditure (including, without
limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with
the principles of Treasury
Regulation Section 1.704-2(b), are attributable to a
Nonrecourse Liability.
Nonrecourse Liability
has the meaning set
forth in Treasury Regulation Section 1.752-1(a)(2).
Notice of Election to Purchase
has the
meaning assigned to such term in Section 15.1(b).
OLP GP
mean UCLP OLP GP LLC, a Delaware
limited liability company and the general partner of the
Operating Partnership, and any successors thereto.
Omnibus Agreement
means that certain Omnibus
Agreement, dated as of the Closing Date, by and among the
General Partner, the Partnership, the Operating Partnership and
certain other parties thereto, as such may be amended,
supplemented or restated from time to time.
Operating Expenditures
means all Partnership
Group cash expenditures, including, but not limited to, taxes,
reimbursements of the General Partner in accordance with this
Agreement, interest payments, Maintenance Capital Expenditures
and non-Pro Rata repurchases of Units (other than those made
with the proceeds of an Interim Capital Transaction), but
excluding, subject to the following:
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(a) payments (including prepayments and prepayment
penalties) of principal of and premium on indebtedness shall not
constitute Operating Expenditures; and
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(b) Operating Expenditures shall not include
(i) Expansion Capital Expenditures, (ii) payment of
transaction expenses (including taxes) relating to Interim
Capital Transactions or (iii) distributions to Partners.
Where capital expenditures consist of both Maintenance Capital
Expenditures and Expansion Capital Expenditures, the General
Partner, with the concurrence of the Conflicts Committee, shall
determine the allocation between the portion consisting of
Maintenance Capital Expenditures and the portion consisting of
Expansion Capital Expenditures and, with respect to the part of
such capital expenditures consisting of Maintenance Capital
Expenditures, the period over which the capital expenditures
made for other purposes will be deducted as an Operating
Expenditure in calculating Operating Surplus.
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Operating Partnership
means UC Operating
Partnership, L.P., a Delaware limited partnership, and any
successors thereto.
Operating Partnership Agreement
means the
Agreement of the Limited Partnership of the Operating
Partnership, as it may be amended, supplemented or restated from
time to time.
Operating Surplus
means, with respect to any
period ending prior to the Liquidation Date, on a cumulative
basis and without duplication,
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(a) the sum of (i) an amount equal to three times the
amount needed for any one Quarter for the Partnership to pay a
distribution on all Units, the General Partner Units and the
Incentive Distribution Rights at the same per Unit amount as was
distributed immediately preceding the date of determination (or
with respect to the period commencing on the Closing Date and
ending on December 31, 2006, it means the product of
(i) $0.35 multiplied by (ii) a fraction of which the
numerator is the number of days in such period and the
denominator is 92 multiplied by (iii) the number of Units
and General Partner Units Outstanding on the Record Date with
respect to such period) and (ii) all cash receipts of the
Partnership Group for the period beginning on the Closing Date
and ending on the last day of such period, but excluding cash
receipts from Interim Capital Transactions (except to the extent
specified in Section 6.5) less,
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(b) the sum of (i) Operating Expenditures for the
period beginning on the Closing Date and ending on the last day
of such period and (ii) the amount of cash reserves
established by the General Partner to provide funds for future
Operating Expenditures;
provided, however,
that
disbursements made (including contributions to a Group Member or
disbursements on behalf of a Group Member) or cash reserves
established, increased or reduced after the end of such period
but on or before the date of determination of Available Cash
with respect to such period shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Operating Surplus, within such period if the General Partner so
determines.
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Notwithstanding the foregoing,
Operating
Surplus
with respect to the Quarter in which the
Liquidation Date occurs and any subsequent Quarter shall equal
zero.
Opinion of Counsel
means a written opinion of
counsel (who may be regular counsel to the Partnership or the
General Partner or any of its Affiliates) acceptable to the
General Partner.
Option Closing Date
means the date or dates
on which any Common Units are sold by the Partnership to the
Underwriters upon exercise of the Over-Allotment Option.
Organizational Limited Partner
means UCI in
its capacity as the organizational limited partner of the
Partnership pursuant to this Agreement.
Outstanding
means, with respect to
Partnership Securities, all Partnership Securities that are
issued by the Partnership and reflected as outstanding on the
Partnerships books and records as of the date of
determination;
provided, however,
that if at any time any
Person or Group (other than the General Partner or its
Affiliates) beneficially owns 20% or more of any Outstanding
Partnership Securities of any class then Outstanding, none of
the Partnership Securities owned by such Person or Group shall
be voted on any matter and shall not be considered to be
Outstanding when sending notices of a meeting of Limited
Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a
quorum or for other similar purposes under this Agreement,
except that Common Units so owned shall be considered to be
Outstanding for purposes of Section 11.1(b)(iv) (such
Common Units shall not, however, be treated as a separate class
of Partnership Securities for purposes of this Agreement);
provided, further,
that the foregoing limitation shall
not apply (i) to any Person or Group who acquired 20% or
more of any Outstanding Partnership Securities of any class then
Outstanding directly from the General Partner or its Affiliates,
(ii) to any Person or Group who acquired 20% or more of any
Outstanding Partnership Securities of any class then Outstanding
directly or indirectly from a Person or Group described in
clause (i) provided that the General Partner shall have
notified such Person or Group in writing that such limitation
shall not apply, or (iii) to any Person or Group who
acquired 20% or more of any Partnership Securities issued by the
Partnership with the prior approval of the Board of Directors of
the General Partner.
Over-Allotment Option
means the
over-allotment option granted to the Underwriters by the
Partnership pursuant to the Purchase Agreement.
Partner Nonrecourse Debt
has the meaning set
forth in Treasury
Regulation Section
1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain
has the
meaning set forth in Treasury
Regulation Section 1.704-2(i)(2).
Partner Nonrecourse Deductions
means any and
all items of loss, deduction or expenditure (including, without
limitation, any expenditure described in
Section 705(a)(2)(B) of the Code) that, in accordance with
the principles of Treasury
Regulation Section
1.704-2(i),
are attributable to a Partner Nonrecourse Debt.
Partners
means the General Partner and the
Limited Partners.
Partnership
means Universal Compression
Partners, L.P., a Delaware limited partnership, and any
successors thereto.
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Partnership Group
means the Partnership and
its Subsidiaries treated as a single consolidated entity.
Partnership Interest
means an interest in the
Partnership, which shall include the General Partner Interest
and Limited Partner Interests.
Partnership Minimum Gain
means that amount
determined in accordance with the principles of Treasury
Regulation Section 1.704-2(d).
Partnership Security
means any class or
series of equity interest in the Partnership (but excluding any
options, rights, warrants and appreciation rights relating to an
equity interest in the Partnership), including without
limitation, Common Units, Subordinated Units, General Partner
Units and Incentive Distribution Rights.
Per Unit Capital Amount
means, as of any date
of determination, the Capital Account, stated on a per Unit
basis, underlying any Unit held by a Person other than the
General Partner or any Affiliate of the General Partner who
holds Units.
Percentage Interest
means as of any date of
determination (a) as to the General Partner with respect to
General Partner Units and as to any Unitholder with respect to
Units, the product obtained by multiplying (i) 100% less
the percentage applicable to clause (b) below by
(ii) the quotient obtained by dividing (A) the number
of General Partner Units held by the General Partner or the
number of Units held by such Unitholder, as the case may be, by
(B) the total number of all Outstanding Units and all
General Partner Units, and (b) as to the holders of other
Partnership Securities issued by the Partnership in accordance
with Section 5.6, the percentage established as a part of
such issuance. The Percentage Interest with respect to an
Incentive Distribution Right shall at all times be zero.
Person
means an individual or a corporation,
firm, limited liability company, partnership, joint venture,
trust, unincorporated organization, association, governmental
agency or political subdivision thereof or other entity.
Pro Rata
means (a) when used with
respect to Units or any class thereof, apportioned equally among
all designated Units in accordance with their relative
Percentage Interests, (b) when used with respect to
Partners or Record Holders, apportioned among all Partners or
Record Holders, in accordance with their relative Percentage
Interests and (c) when used with respect to holders of
Incentive Distribution Rights, apportioned equally among all
holders of Incentive Distribution Rights in accordance with the
relative number or percentage of Incentive Distribution Rights
held by each such holder.
Purchase Agreement
means that certain
Purchase Agreement dated as of
October , 2006 among the
Underwriters, the Partnership, the General Partner, the
Operating Partnership and other parties thereto, providing for
the purchase of Common Units by the Underwriters.
Purchase Date
means the date determined by
the General Partner as the date for purchase of all Outstanding
Limited Partner Interests of a certain class (other than Limited
Partner Interests owned by the General Partner and its
Affiliates) pursuant to Article XV.
Quarter
means, unless the context requires
otherwise, a fiscal quarter of the Partnership or, with respect
to the first fiscal quarter of the Partnership after the Closing
Date, the portion of such fiscal quarter after the Closing Date.
Recapture Income
means any gain recognized by
the Partnership (computed without regard to any adjustment
required by Section 734 or Section 743 of the Code)
upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income
because it represents the recapture of deductions previously
taken with respect to such property or asset.
Record Date
means the date established by the
General Partner or otherwise in accordance with this Agreement
for determining (a) the identity of the Record Holders
entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of
Partnership action in writing
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without a meeting or entitled to exercise rights in respect of
any lawful action of Limited Partners or (b) the identity
of Record Holders entitled to receive any report or distribution
or to participate in any offer.
Record Holder
means the Person in whose name
a Common Unit is registered on the books of the Transfer Agent
as of the opening of business on a particular Business Day or,
with respect to other Partnership Interests, the Person in whose
name any such other Partnership Interest is registered on the
books that the General Partner has caused to be kept as of the
opening of business on such Business Day.
Redeemable Interests
means any Partnership
Interests for which a redemption notice has been given, and has
not been withdrawn, pursuant to Section 4.10.
Registration Statement
means the Registration
Statement on
Form
S-1
(Registration
No.
333-135351)
as
it has been and may be amended or supplemented from time to
time, filed by the Partnership with the Commission under the
Securities Act to register the offering, sale and delivery of
the Common Units in the Initial Offering.
Remaining Net Positive Adjustments
means as
of the end of any taxable period, (i) with respect to the
Unitholders holding Common Units or Subordinated Units, the
excess of (a) the Net Positive Adjustments of the
Unitholders holding Common Units or Subordinated Units as of the
end of such period over (b) the sum of those Partners
Share of Additional Book Basis Derivative Items for each prior
taxable period, (ii) with respect to the General Partner
(as holder of the General Partner Units), the excess of
(a) the Net Positive Adjustments of the General Partner as
of the end of such period over (b) the sum of the General
Partners Share of Additional Book Basis Derivative Items
with respect to the General Partner Units for each prior taxable
period, and (iii) with respect to the holders of Incentive
Distribution Rights, the excess of (a) the Net Positive
Adjustments of the holders of Incentive Distribution Rights as
of the end of such period over (b) the sum of the Share of
Additional Book Basis Derivative Items of the holders of the
Incentive Distribution Rights for each prior taxable period.
Required Allocations
means (a) any
limitation imposed on any allocation of Net Losses or Net
Termination Losses under Section 6.1(b) or
Section 6.1(c)(ii) and (b) any allocation of an item
of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), Section 6.1(d)(ii),
Section 6.1(d)(iv), Section 6.1(d)(v),
Section 6.1(d)(vi), Section 6.1(d)(vii) or
Section 6.1(d)(ix).
Residual Gain
or
Residual
Loss
means any item of gain or loss, as the case may
be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of
a Contributed Property or Adjusted Property, to the extent such
item of gain or loss is not allocated pursuant to
Section 6.2(b)(i)(A) or Section 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
Retained Converted Subordinated Unit
has the
meaning assigned to such term in Section 5.5(c)(ii).
Second Liquidation Target Amount
has the
meaning assigned to such term in Section 6.1(c)(i)(E).
Second Target Distribution
means
$0.4375 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
December 31, 2006, it means the product of $0.4375
multiplied by a fraction of which the numerator is equal to the
number of days in such period and of which the denominator
is 92), subject to adjustment in accordance with
Section 6.6 and Section 6.9.
Securities Act
means the Securities Act of
1933, as amended, supplemented or restated from time to time and
any successor to such statute.
Securities Exchange Act
means the Securities
Exchange Act of 1934, as amended, supplemented or restated from
time to time and any successor to such statute.
Share of Additional Book Basis Derivative
Items
means in connection with any allocation of
Additional Book Basis Derivative Items for any taxable period,
(i) with respect to the Unitholders holding Common Units or
Subordinated Units, the amount that bears the same ratio to such
Additional Book Basis Derivative Items as the Unitholders
Remaining Net Positive Adjustments as of the end of such
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period bears to the Aggregate Remaining Net Positive Adjustments
as of that time, (ii) with respect to the General Partner
(as holder of the General Partner Units), the amount that bears
the same ratio to such Additional Book Basis Derivative Items as
the General Partners Remaining Net Positive Adjustments as
of the end of such period bears to the Aggregate Remaining Net
Positive Adjustment as of that time, and (iii) with respect
to the Partners holding Incentive Distribution Rights, the
amount that bears the same ratio to such Additional Book Basis
Derivative Items as the Remaining Net Positive Adjustments of
the Partners holding the Incentive Distribution Rights as of the
end of such period bears to the Aggregate Remaining Net Positive
Adjustments as of that time.
Special Approval
means approval by a majority
of the members of the Conflicts Committee acting in good faith.
Subordinated Unit
means a Partnership
Security representing a fractional part of the
Partnership Interests of all Limited Partners and having
the rights and obligations specified with respect to
Subordinated Units in this Agreement. The term
Subordinated Unit
does not include a Common
Unit. A Subordinated Unit that is convertible into a Common Unit
shall not constitute a Common Unit until such conversion occurs.
Subordination Period
means the period
commencing on the Closing Date and ending on the first to occur
of the following dates:
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(a) the first day of any Quarter beginning after
September 30, 2011 in respect of which
(i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units, Subordinated
Units and General Partner Units and any other Outstanding Units
that are senior or equal in right of distribution to the
Subordinated Units and the General Partner Units with respect to
each of the three consecutive, non-overlapping four-Quarter
periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all Outstanding
Common Units, Subordinated Units and General Partner Units and
any other Outstanding Units that are senior or equal in right of
distribution to the Subordinated 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 (ii) there
are no Cumulative Common Unit Arrearages;
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(b) the first date on which there are no longer outstanding
any Subordinated Units due to the conversion of Subordinated
Units into Common Units pursuant to Section 5.7; and
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(c) the date on which the General Partner is removed as
general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause
does not exist and Units held by the General Partner and its
Affiliates are not voted in favor of such removal.
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Subsidiary
means, with respect to any Person,
(a) a corporation of which more than 50% of the voting
power of shares entitled (without regard to the occurrence of
any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one
or more Subsidiaries of such Person or a combination thereof,
(b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership,
but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly,
at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or
(c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of
such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the
election of a majority of the directors or other governing body
of such Person.
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Surviving Business Entity
has the meaning
assigned to such term in Section 14.2(b).
Target Distribution
means, collectively, the
First Target Distribution, Second Target Distribution and Third
Target Distribution.
Third Liquidation Target Amount
has the
meaning assigned to such term in Section 6.1(c)(i)(F).
Third Target Distribution
means
$0.5250 per Unit per Quarter (or, with respect to the
period commencing on the Closing Date and ending on
December 31, 2006, it means the product of $0.5250
multiplied by a fraction of which the numerator is equal to the
number of days in such period and of which the denominator is
92), subject to adjustment in accordance with Section 6.6
and Section 6.9.
Trading Day
has the meaning assigned to such
term in Section 15.1(a).
transfer
has the meaning assigned to such
term in Section 4.4(a).
Transfer Agent
means such bank, trust company
or other Person (including the General Partner or one of its
Affiliates) as shall be appointed from time to time by the
General Partner to act as registrar and transfer agent for the
Common Units;
provided,
that if no Transfer Agent is
specifically designated for any other Partnership Securities,
the General Partner shall act in such capacity.
UCI
means Universal Compression, Inc., a
Texas corporation.
UCO Compression 2005
means UCO Compression
2005 LLC, a Delaware limited liability company.
Underwriter
means each Person named as an
underwriter in Schedule A to the Purchase Agreement who
purchases Common Units pursuant thereto.
Unit
means a Partnership Security that is
designated as a
Unit
and shall include Common
Units and Subordinated Units but shall not include
(i) General Partner Units (or the General Partner Interest
represented thereby) or (ii) Incentive Distribution Rights.
Unit Majority
means (i) during the
Subordination Period, at least a majority of the Outstanding
Common Units (excluding Common Units owned by the General
Partner and its Affiliates), voting as a class and at least a
majority of the Outstanding Subordinated Units voting as a
class, and (ii) after the end of the Subordination Period,
at least a majority of the Outstanding Common Units voting as a
class.
Unitholders
means the holders of Units.
Unpaid MQD
has the meaning assigned to such
term in Section 6.1(c)(i)(B).
Unrealized Gain
attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the fair market value of such
property as of such date (as determined under
Section 5.5(d)) over (b) the Carrying Value of such
property as of such date (prior to any adjustment to be made
pursuant to Section 5.5(d) as of such date).
Unrealized Loss
attributable to any item of
Partnership property means, as of any date of determination, the
excess, if any, of (a) the Carrying Value of such property
as of such date (prior to any adjustment to be made pursuant to
Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined
under Section 5.5(d)).
Unrecovered Capital
means at any time, with
respect to a Unit, the Initial Unit Price less the sum of all
distributions constituting Capital Surplus theretofore made in
respect of an Initial Common Unit and any distributions of cash
(or the Net Agreed Value of any distributions in kind) in
connection with the dissolution and liquidation of the
Partnership theretofore made in respect of an Initial Common
Unit, adjusted as the General Partner determines to be
appropriate to give effect to any distribution, subdivision or
combination of such Units.
U.S. GAAP
means United States generally
accepted accounting principles consistently applied.
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Withdrawal Opinion of Counsel
has the meaning
assigned to such term in Section 11.1(b).
Section
1.2.
Construction
.
Unless the context requires otherwise: (a) any pronoun used
in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa;
(b) references to Articles and Sections refer to Articles
and Sections of this Agreement; (c) the term
include
or
includes
means
includes, without limitation, and
including
means including, without limitation; (d) the conjunctives
and and or shall include both the
conjunctive and the disjunctive; and (e) the terms
hereof, herein or hereunder
refer to this Agreement as a whole and not to any particular
provision of this Agreement. The table of contents and headings
contained in this Agreement are for reference purposes only, and
shall not affect in any way the meaning or interpretation of
this Agreement.
ARTICLE II
ORGANIZATION
Section
2.1.
Formation
.
The General Partner and the Organizational Limited Partner have
previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act and hereby amend
and restate the original Agreement of Limited Partnership of
Universal Compression Partners, L.P. in its entirety. This
amendment and restatement shall become effective on the date of
this Agreement. Except as expressly provided to the contrary in
this Agreement, the rights, duties (including fiduciary duties),
liabilities and obligations of the Partners and the
administration, dissolution and termination of the Partnership
shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of
the owner thereof for all purposes.
Section
2.2.
Name
.
The name of the Partnership shall be Universal Compression
Partners, L.P. The Partnerships business may be
conducted under any other name or names as determined by the
General Partner, including the name of the General Partner. The
words Limited Partnership, L.P.,
Ltd. or similar words or letters shall be included
in the Partnerships name where necessary for the purpose
of complying with the laws of any jurisdiction that so requires.
The General Partner may change the name of the Partnership at
any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the
Limited Partners.
Section
2.3.
Registered
Office; Registered Agent; Principal Office; Other
Offices
.
Unless and until changed by the General
Partner, the registered office of the Partnership in the State
of Delaware shall be located at 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware
at such registered office shall be Corporation
Trust Center. The principal office of the Partnership shall
be located at 4444 Brittmoore Road, Houston, Texas 77041 or such
other place as the General Partner may from time to time
designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside
the State of Delaware as the General Partner determines to be
necessary or appropriate. The address of the General Partner
shall be 4444 Brittmoore Road, Houston, Texas 77041 or such
other place as the General Partner may from time to time
designate by notice to the Limited Partners.
Section
2.4.
Purpose
and Business
.
The purpose and nature of the business to
be conducted by the Partnership shall be to (a) engage
directly in, or enter into or form, hold or dispose of any
corporation, partnership, joint venture, limited liability
company or other arrangement to engage indirectly in, any
business activity that is approved by the General Partner and
that lawfully may be conducted by a limited partnership
organized pursuant to the Delaware Act and, in connection
therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such
business activity, and (b) do anything necessary or
appropriate to the foregoing, including the making of capital
contributions or loans to a Group Member;
provided,
however,
that the General Partner shall not cause the
Partnership to engage, directly or indirectly, in any business
activity that the General Partner determines would cause the
Partnership to be treated as an association taxable as a
corporation or otherwise taxable as
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an entity for federal income tax purposes. To the fullest extent
permitted by law, the General Partner shall have no duty or
obligation to propose or approve, and may decline to propose or
approve, the conduct by the Partnership of any business free of
any fiduciary duty or obligation whatsoever to the Partnership
or any Limited Partner and, in declining to so propose or
approve, shall not be required to act in good faith or pursuant
to any other standard imposed by this Agreement, any Group
Member Agreement, any other agreement contemplated hereby or
under the Delaware Act or any other law, rule or regulation or
at equity.
Section
2.5.
Powers
.
The Partnership shall be empowered to do any and all acts and
things necessary and appropriate for the furtherance and
accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the
Partnership.
Section
2.6.
Power
of Attorney
.
(a) Each Limited Partner hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been
selected pursuant to Section 12.3, the Liquidator (and any
successor to the Liquidator by merger, transfer, assignment,
election or otherwise) and each of their authorized officers and
attorneys-in
-fact, as
the case may be, with full power of substitution, as his true
and lawful agent and
attorney-in
-fact, with
full power and authority in his name, place and stead:
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(i) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (A) all
certificates, documents and other instruments (including this
Agreement and the Certificate of Limited Partnership and all
amendments or restatements hereof or thereof) that the General
Partner or the Liquidator determines to be necessary or
appropriate to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited
liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may conduct business or
own property; (B) all certificates, documents and other
instruments that the General Partner or the Liquidator
determines to be necessary or appropriate to reflect, in
accordance with its terms, any amendment, change, modification
or restatement of this Agreement; (C) all certificates,
documents and other instruments (including conveyances and a
certificate of cancellation) that the General Partner or the
Liquidator determines to be necessary or appropriate to reflect
the dissolution and liquidation of the Partnership pursuant to
the terms of this Agreement; (D) all certificates,
documents and other instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, Article X,
Article XI or Article XII; (E) all certificates,
documents and other instruments relating to the determination of
the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and
(F) all certificates, documents and other instruments
(including agreements and a certificate of merger) relating to a
merger, consolidation or conversion of the Partnership pursuant
to Article XIV; and
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(ii) to 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.
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Nothing contained in this Section 2.6(a) shall be construed
as authorizing the General Partner to amend this Agreement
except in accordance with Article XIII or as may be
otherwise expressly provided for in this Agreement.
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(b) The foregoing power of attorney is hereby declared to
be irrevocable and a power coupled with an interest, and it
shall survive and, to the maximum extent permitted by law, not
be affected by the subsequent death, incompetency, disability,
incapacity, dissolution, bankruptcy or termination of any
Limited Partner, the transfer of all or any portion of such
Limited Partners Limited Partner Interest and shall extend
to such Limited Partners heirs, successors, assigns and
personal representatives. Each such Limited Partner hereby
agrees to be bound by any representation made by the General
Partner or the Liquidator acting in good faith pursuant to such
power of attorney; and each such Limited Partner, to the maximum
extent permitted by law, hereby waives any and all defenses that
may be available to contest, negate or disaffirm the action of
the General Partner or the Liquidator taken in good faith under
such power of attorney. Each Limited Partner shall execute and
deliver to the General Partner or the Liquidator, within
15 days after receipt of the request therefor, such further
designation, powers of attorney and other instruments as the
General Partner or the Liquidator may request in order to
effectuate this Agreement and the purposes of the Partnership.
Section
2.7.
Term
.
The term of the Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the
Delaware Act and shall continue in existence until the
dissolution of the Partnership in accordance with the provisions
of Article XII. The existence of the Partnership as a
separate legal entity shall continue until the cancellation of
the Certificate of Limited Partnership as provided in the
Delaware Act.
Section
2.8.
Title
to Partnership Assets
.
Title to Partnership assets,
whether real, personal or mixed and whether tangible or
intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have
any ownership interest in such Partnership assets or any portion
thereof. Title to any or all of the Partnership assets may be
held in the name of the Partnership, the General Partner, one or
more of its Affiliates or one or more nominees, as the General
Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is
held in the name of the General Partner or one or more of its
Affiliates or one or more nominees shall be held by the General
Partner or such Affiliate or nominee for the use and benefit of
the Partnership in accordance with the provisions of this
Agreement;
provided, however,
that the General Partner
shall use reasonable efforts to cause record title to such
assets (other than those assets in respect of which the General
Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership
impracticable) to be vested in the Partnership as soon as
reasonably practicable;
provided, further,
that, prior to
the withdrawal or removal of the General Partner or as soon
thereafter as practicable, the General Partner shall use
reasonable efforts to effect the transfer of record title to the
Partnership and, prior to any such transfer, will provide for
the use of such assets in a manner satisfactory to the General
Partner. All Partnership assets shall be recorded as the
property of the Partnership in its books and records,
irrespective of the name in which record title to such
Partnership assets is held.
ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section
3.1.
Limitation
of Liability
.
The Limited Partners shall have no
liability under this Agreement except as expressly provided in
this Agreement or the Delaware Act.
Section
3.2.
Management
of Business
.
No Limited Partner, in its capacity as
such, shall participate in the operation, management or control
(within the meaning of the Delaware Act) of the
Partnerships business, transact any business in the
Partnerships name or have the power to sign documents for
or otherwise bind the Partnership. Any action taken by any
Affiliate of the General Partner or any officer, director,
employee, manager, member, general partner, agent or trustee of
the General Partner or any of its Affiliates, or any officer,
director, employee, manager, member, general partner, agent or
trustee of a Group Member, in its capacity as such, shall not be
deemed to be participation in the control of the business of the
Partnership by a limited partner of the Partnership (within the
meaning of
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Section 17-303(a) of the Delaware Act) and shall not
affect, impair or eliminate the limitations on the liability of
the Limited Partners under this Agreement.
Section
3.3.
Outside
Activities of the Limited Partners
.
Subject to the
provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of
whether such Persons shall also be Limited Partners, any Limited
Partner shall be entitled to and may have business interests and
engage in business activities in addition to those relating to
the Partnership, including business interests and activities in
direct competition with the Partnership Group. Neither the
Partnership nor any of the other Partners shall have any rights
by virtue of this Agreement in any business ventures of any
Limited Partner.
Section
3.4.
Rights
of Limited Partners
.
(a) In addition to other rights provided by this Agreement
or by applicable law, and except as limited by
Section 3.4(b), each Limited Partner shall have the right,
for a purpose reasonably related to such Limited Partners
interest as a Limited Partner in the Partnership, upon
reasonable written demand stating the purpose of such demand and
at such Limited Partners own expense:
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(i) promptly after its becoming available, to obtain a copy
of the Partnerships federal, state and local income tax
returns for each year;
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(ii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
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(iii) 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 which each other Partner
has made or agreed to contribute in the future, and the date on
which each other Partner became a Partner;
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(iv) to obtain a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with
a copy of each power of attorney pursuant to which this
Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
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(v) to obtain true and full information regarding the
status of the business and financial condition of the
Partnership Group; and
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(vi) to obtain such other information regarding the affairs
of the Partnership as is just and reasonable.
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(b) The General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner
deems reasonable, (i) any information that the General
Partner reasonably believes to be in the nature of trade secrets
or (ii) other information the disclosure of which the
General Partner in good faith believes (A) is not in the
best interests of the Partnership Group, (B) could damage
the Partnership Group or its business or (C) that any Group
Member is required by law or by agreement with any third party
to keep confidential (other than agreements with Affiliates of
the Partnership the primary purpose of which is to circumvent
the obligations set forth in this Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
Section
4.1.
Certificates
.
Upon the Partnerships issuance of Common Units or
Subordinated Units to any Person, the Partnership shall issue,
upon the request of such Person, one or more Certificates in the
name of such Person evidencing the number of such Units being so
issued. In addition, (a) upon the General Partners
request, the Partnership shall issue to it one or more
Certificates in the name of the General Partner evidencing its
General Partner Units and (b) upon the request of any
Person owning
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Incentive Distribution Rights or any other Partnership
Securities other than Common Units or Subordinated Units, the
Partnership shall issue to such Person one or more certificates
evidencing such Incentive Distribution Rights or other
Partnership Securities other than Common Units or Subordinated
Units. Certificates shall be executed on behalf of the
Partnership by the Chairman of the Board, President, or any
Executive Vice President, Senior Vice President or Vice
President and the Secretary or any Assistant Secretary of the
General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer
Agent;
provided, however,
that if the General Partner
elects to issue Common Units in global form, the Common Unit
Certificates shall be valid upon receipt of a certificate from
the Transfer Agent certifying that the Common Units have been
duly registered in accordance with the directions of the
Partnership. Subject to the requirements of Section 6.7(c),
the Partners holding Certificates evidencing Subordinated Units
may exchange such Certificates for Certificates evidencing
Common Units on or after the date on which such Subordinated
Units are converted into Common Units pursuant to the terms of
Section 5.7.
Section
4.2.
Mutilated,
Destroyed, Lost or Stolen Certificates
.
(a) If any mutilated Certificate is surrendered to the
Transfer Agent (for Common Units) or the General Partner (for
Partnership Securities other than Common Units), the appropriate
officers of the General Partner on behalf of the Partnership
shall execute, and the Transfer Agent (for Common Units) or the
General Partner (for Partnership Securities other than Common
Units) shall countersign and deliver in exchange therefor, a new
Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.
(b) The appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver, and the
Transfer Agent (for Common Units) shall countersign, a new
Certificate in place of any Certificate previously issued if the
Record Holder of the Certificate:
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(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued
Certificate has been lost, destroyed or stolen;
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(ii) requests the issuance of a new Certificate before the
General Partner has notice that the Certificate has been
acquired by a purchaser for value in good faith and without
notice of an adverse claim;
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(iii) upon request by the General Partner, delivers to the
General Partner a bond, in form and substance satisfactory to
the General Partner, with surety or sureties and with fixed or
open penalty as the General Partner may direct to indemnify the
Partnership, the Partners, the General Partner and the Transfer
Agent against any claim that may be made on account of the
alleged loss, destruction or theft of the Certificate; and
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(iv) satisfies any other reasonable requirements imposed by
the General Partner.
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If a Limited Partner fails to notify the General Partner within
a reasonable period of time after he has notice of the loss,
destruction or theft of a Certificate, and a transfer of the
Limited Partner Interests represented by the Certificate is
registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner
shall be precluded from making any claim against the
Partnership, the General Partner or the Transfer Agent for such
transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate
under this Section 4.2, the General Partner may require the
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the
Transfer Agent) reasonably connected therewith.
Section
4.3.
Record
Holders
.
The Partnership shall be entitled to recognize
the Record Holder as the Partner with respect to any
Partnership Interest and, accordingly, shall not be bound
to recognize any equitable or other claim to, or interest in,
such Partnership Interest on the part of any other Person,
regardless of whether the Partnership shall have actual or other
notice thereof, except as otherwise provided by law or any
applicable rule, regulation, guideline or requirement of any
National Securities
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Exchange on which such Partnership Interests are listed or
admitted to trading. Without limiting the foregoing, when a
Person (such as a broker, dealer, bank, trust company or
clearing corporation or an agent of any of the foregoing) is
acting as nominee, agent or in some other representative
capacity for another Person in acquiring and/or holding
Partnership Interests, as between the Partnership on the
one hand, and such other Persons on the other, such
representative Person shall be the Record Holder of such
Partnership Interest.
Section
4.4.
Transfer
Generally
.
(a) The term transfer, when used in this
Agreement with respect to a Partnership Interest, shall be
deemed to refer to a transaction (i) by which the General
Partner assigns its General Partner Units to another Person or
by which a holder of Incentive Distribution Rights assigns its
Incentive Distribution Rights to another Person, and includes a
sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange and any other disposition by law or otherwise
or (ii) by which the holder of a Limited Partner Interest
(other than an Incentive Distribution Right) assigns such
Limited Partner Interest to another Person who is or becomes a
Limited Partner, and includes a sale, assignment, gift, exchange
and any other disposition by law or otherwise, including any
transfer upon foreclosure of any pledge, encumbrance,
hypothecation or mortgage.
(b) No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and
conditions set forth in this Article IV. Any transfer or
purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed
to prevent a disposition by any stockholder, member, partner or
other owner of the General Partner of any or all of the shares
of stock, membership interests, partnership interests or other
ownership interests in the General Partner.
Section
4.5.
Registration
and Transfer of Limited Partner Interests
.
(a) The General Partner shall keep or cause to be kept on
behalf of the Partnership a register in which, subject to such
reasonable regulations as it may prescribe and subject to the
provisions of Section 4.5(b), the Partnership will provide
for the registration and transfer of Limited Partner Interests.
The Transfer Agent is hereby appointed registrar and transfer
agent for the purpose of registering Common Units and transfers
of such Common Units as herein provided. The Partnership shall
not recognize transfers of Certificates evidencing Limited
Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a
Certificate for registration of transfer of any Limited Partner
Interests evidenced by a Certificate, and subject to the
provisions of Section 4.5(b), the appropriate officers of
the General Partner on behalf of the Partnership shall execute
and deliver, and in the case of Common Units, the Transfer Agent
shall countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to
the holders instructions, one or more new Certificates
evidencing the same aggregate number and type of Limited Partner
Interests as was evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the
General Partner shall not recognize any transfer of Limited
Partner Interests until the Certificates evidencing such Limited
Partner Interests are surrendered for registration of transfer.
No charge shall be imposed by the General Partner for such
transfer;
provided,
that as a condition to the issuance
of any new Certificate under this Section 4.5, the General
Partner may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed with
respect thereto.
(c) Subject to (i) the foregoing provisions of this
Section 4.5, (ii) Section 4.3,
(iii) Section 4.8, (iv) with respect to any class
or series of Limited Partner Interests, the provisions of any
statement of designations or an amendment to this Agreement
establishing such class or series, (v) any contractual
provisions binding on any Limited Partner and
(vi) provisions of applicable law including the Securities
Act, Limited Partner Interests (other than the Incentive
Distribution Rights) shall be freely transferable.
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(d) The General Partner and its Affiliates shall have the
right at any time to transfer their Subordinated Units and
Common Units (whether issued upon conversion of the Subordinated
Units or otherwise) to one or more Persons.
Section
4.6.
Transfer
of the General Partners General Partner Interest
.
(a) Subject to Section 4.6(c) below, prior to
September 30, 2016, the General Partner shall not transfer
all or any part of its General Partner Interest (represented by
General Partner Units) to a Person unless such transfer
(i) has been approved by the prior written consent or vote
of the holders of at least a majority of the Outstanding Common
Units (excluding Common Units held by the General Partner and
its Affiliates) or (ii) is of all, but not less than all,
of its General Partner Interest to (A) an Affiliate of the
General Partner (other than an individual) or (B) another
Person (other than an individual) in connection with the merger
or consolidation of the General Partner with or into such other
Person or the transfer by the General Partner of all or
substantially all of its assets to such other Person.
(b) Subject to Section 4.6(c) below, on or after
September 30, 2016, the General Partner may transfer all or
any of its General Partner Interest without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no
transfer by the General Partner of all or any part of its
General Partner Interest to another Person shall be permitted
unless (i) the transferee agrees to assume the rights and
duties of the General Partner under this Agreement and to be
bound by the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer
would not result in the loss of limited liability of any Limited
Partner under the Delaware Act or cause the Partnership to be
treated as an association taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes (to the
extent not already so treated or taxed) and (iii) such
transferee also agrees to purchase all (or the appropriate
portion thereof, if applicable) of the partnership or membership
interest of the General Partner as the general partner or
managing member, if any, of each other Group Member. In the case
of a transfer pursuant to and in compliance with this
Section 4.6, the transferee or successor (as the case may
be) shall, subject to compliance with the terms of
Section 10.3, be admitted to the Partnership as the General
Partner immediately prior to the transfer of the General Partner
Interest, and the business of the Partnership shall continue
without dissolution.
Section
4.7.
Transfer
of Incentive Distribution Rights
.
Prior to
September 30, 2016, a holder of Incentive Distribution
Rights may transfer any or all of the Incentive Distribution
Rights held by such holder without any consent of the
Unitholders to (a) an Affiliate of such holder (other than
an individual) or (b) another Person (other than an
individual) in connection with (i) the merger or
consolidation of such holder of Incentive Distribution Rights
with or into such other Person, (ii) the transfer by such
holder of all or substantially all of its assets to such other
Person or (iii) the sale of all of the ownership interests
in such holder. Any other transfer of the Incentive Distribution
Rights prior to September 30, 2016 shall require the prior
approval of holders of at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner
and its Affiliates). On or after September 30, 2016, the
General Partner or any other holder of Incentive Distribution
Rights may transfer any or all of its Incentive Distribution
Rights without Unitholder approval. Notwithstanding anything
herein to the contrary, no transfer of Incentive Distribution
Rights to another Person shall be permitted unless the
transferee agrees to be bound by the provisions of this
Agreement.
Section
4.8.
Restrictions
on Transfers
.
(a) Except as provided in Section 4.8(d) below, but
notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interests shall be made if such
transfer would (i) violate the then applicable federal or
state securities laws or rules and regulations of the
Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer,
(ii) terminate the existence or qualification of the
Partnership under the laws of the jurisdiction of its formation
or (iii) cause the Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not
already so treated or taxed).
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(b) The General Partner may impose restrictions on the
transfer of Partnership Interests if it receives an Opinion
of Counsel that such restrictions are necessary to avoid a
significant risk of the Partnership becoming taxable as a
corporation or otherwise becoming taxable as an entity for
federal income tax purposes. The General Partner may impose such
restrictions by amending this Agreement;
provided,
however,
that any amendment that would result in the
delisting or suspension of trading of any class of Limited
Partner Interests on the principal National Securities Exchange
on which such class of Limited Partner Interests is then listed
or admitted to trading must be approved, prior to such amendment
being effected, by the holders of at least a majority of the
Outstanding Limited Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has converted
into a Common Unit shall be subject to the restrictions imposed
by Section 6.7(c).
(d) Nothing contained in this Article IV, or elsewhere
in this Agreement, shall preclude the settlement of any
transactions involving Partnership Interests entered into
through the facilities of any National Securities Exchange on
which such Partnership Interests are listed or admitted to
trading.
(e) Each certificate evidencing Partnership Interests
shall bear a conspicuous legend in substantially the following
form:
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THE HOLDER OF THIS SECURITY ACKNOWLEDGES FOR THE BENEFIT OF
UNIVERSAL COMPRESSION PARTNERS, L.P. 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 UNIVERSAL COMPRESSION PARTNERS, L.P. UNDER THE LAWS OF THE
STATE OF DELAWARE, OR (C) CAUSE UNIVERSAL COMPRESSION PARTNERS,
L.P. 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). UCO
GENERAL PARTNER, LP, THE GENERAL PARTNER OF UNIVERSAL
COMPRESSION PARTNERS, L.P., 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 UNIVERSAL COMPRESSION PARTNERS, L.P.
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.
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Section
4.9.
Citizenship
Certificates; Non-citizen Assignees
.
(a) If any Group Member is or becomes subject to any
federal, state or local law or regulation that the General
Partner determines would create a substantial risk of
cancellation or forfeiture of any property in which the Group
Member has an interest based on the nationality, citizenship or
other related status of a Limited Partner, the General Partner
may request any Limited Partner to furnish to the General
Partner, within 30 days after receipt of such request, an
executed Citizenship Certification or such other information
concerning his nationality, citizenship or other related status
(or, if the Limited Partner is a nominee holding for the account
of another Person, the nationality, citizenship or other related
status of such Person) as the General Partner may request. If a
Limited Partner fails to furnish to the General Partner within
the aforementioned
30-day
period such
Citizenship Certification or other requested information or if
upon receipt of such Citizenship Certification or other
requested information the General
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Partner determines that a Limited Partner is not an Eligible
Citizen, the Limited Partner Interests owned by such Limited
Partner shall be subject to redemption in accordance with the
provisions of Section 4.10. In addition, the General
Partner may require that the status of any such Limited Partner
be changed to that of a Non-citizen Assignee and, thereupon, the
General Partner shall be substituted for such Non-citizen
Assignee as the Limited Partner in respect of the Non-citizen
Assignees Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights
in respect of Limited Partner Interests held by it on behalf of
Non-citizen Assignees, distribute the votes in the same ratios
as the votes of Partners (including the General Partner) in
respect of Limited Partner Interests other than those of
Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen
Assignee shall have no right to receive a distribution in kind
pursuant to Section 12.4 but shall be entitled to the cash
equivalent thereof, and the Partnership shall provide cash in
exchange for an assignment of the Non-citizen Assignees
share of any distribution in kind. Such payment and assignment
shall be treated for Partnership purposes as a purchase by the
Partnership from the Non-citizen Assignee of his Limited Partner
Interest (representing his right to receive his share of such
distribution in kind).
(d) At any time after he can and does certify that he has
become an Eligible Citizen, a Non-citizen Assignee may, upon
application to the General Partner, request that with respect to
any Limited Partner Interests of such Non-citizen Assignee not
redeemed pursuant to Section 4.10, such Non-citizen
Assignee be admitted as a Limited Partner, and upon approval of
the General Partner, such Non-citizen Assignee shall be admitted
as a Limited Partner and shall no longer constitute a
Non-citizen Assignee and the General Partner shall cease to be
deemed to be the Limited Partner in respect of the Non-citizen
Assignees Limited Partner Interests.
Section
4.10.
Redemption
of Partnership Interests of Non-citizen Assignees
.
(a) If at any time a Limited Partner fails to furnish a
Citizenship Certification or other information requested within
the
30-day
period
specified in Section 4.9(a), or if upon receipt of such
Citizenship Certification or other information the General
Partner determines, with the advice of counsel, that a Limited
Partner is not an Eligible Citizen, the Partnership may, unless
the Limited Partner establishes to the satisfaction of the
General Partner that such Limited Partner is an Eligible Citizen
or has transferred his Partnership Interests to a Person
who is an Eligible Citizen and who furnishes a Citizenship
Certification to the General Partner prior to the date fixed for
redemption as provided below, redeem the Limited Partner
Interest of such Limited Partner as follows:
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(i) The General Partner shall, not later than the
30th day before the date fixed for redemption, give notice
of redemption to the Limited Partner, at his last address
designated on the records of the Partnership or the Transfer
Agent, by registered or certified mail, postage prepaid. The
notice shall be deemed to have been given when so mailed. The
notice shall specify the Redeemable Interests, the date fixed
for redemption, the place of payment, that payment of the
redemption price will be made upon surrender of the Certificate
evidencing the Redeemable Interests and that on and after the
date fixed for redemption no further allocations or
distributions to which the Limited Partner would otherwise be
entitled in respect of the Redeemable Interests will accrue or
be made.
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(ii) The aggregate redemption price for Redeemable
Interests shall be an amount equal to the Current Market Price
(the date of determination of which shall be the date fixed for
redemption) of Limited Partner Interests of the class to be so
redeemed multiplied by the number of Limited Partner Interests
of each such class included among the Redeemable Interests. The
redemption price shall be paid, as determined by the General
Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price,
bearing interest at the rate of 10% annually and payable in
three equal annual installments of principal together with
accrued interest, commencing one year after the redemption date.
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(iii) Upon surrender by or on behalf of the Limited
Partner, at the place specified in the notice of redemption, of
the Certificate evidencing the Redeemable Interests, duly
endorsed in blank or accompanied by an assignment duly executed
in blank, the Limited Partner or his duly authorized
representative shall be entitled to receive the payment therefor.
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(iv) After the redemption date, Redeemable Interests shall
no longer constitute issued and Outstanding Limited Partner
Interests.
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(b) The provisions of this Section 4.10 shall also be
applicable to Limited Partner Interests held by a Limited
Partner as nominee of a Person determined to be other than an
Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent the
recipient of a notice of redemption from transferring his
Limited Partner Interest before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon
receipt of notice of such a transfer, the General Partner shall
withdraw the notice of redemption, provided the transferee of
such Limited Partner Interest certifies to the satisfaction of
the General Partner that he is an Eligible Citizen. If the
transferee fails to make such certification, such redemption
shall be effected from the transferee on the original redemption
date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
Section
5.1.
Organizational
Contributions
.
In connection with the formation of the
Partnership under the Delaware Act, the General Partner made an
initial Capital Contribution to the Partnership in the amount of
$20.00, for a 2% General Partner Interest in the Partnership and
has been admitted as the General Partner of the Partnership, and
the Organizational Limited Partner made an initial Capital
Contribution to the Partnership in the amount of $980.00 for a
98% Limited Partner Interest in the Partnership and has been
admitted as a Limited Partner of the Partnership. As of the
Closing Date, the interest of the Organizational Limited Partner
shall be redeemed as provided in the Contribution Agreement; and
the initial Capital Contribution of the Organizational Limited
Partner shall thereupon be refunded. Ninety-eight percent of any
interest or other profit that may have resulted from the
investment or other use of such initial Capital Contributions
shall be allocated and distributed to the Organizational Limited
Partner, and the balance thereof shall be allocated and
distributed to the General Partner.
Section
5.2.
Contributions
by the General Partner and its Affiliates
.
(a) On the Closing Date and pursuant to the Contribution
Agreement: (i) the General Partner shall contribute to the
Partnership, as a Capital Contribution, all of its ownership
interests in the Operating Partnership in exchange for
(A) a continuation of its 2% General Partner Interest,
subject to all of the rights, privileges and duties of the
General Partner under this Agreement, and (B) the Incentive
Distribution Rights; and (ii) UCI shall contribute to the
Partnership, as a Capital Contribution, all of (A) its
member interest in the OLP GP and (B) all of its
ownership interest in the Operating Partnership in exchange for
825,000 Common Units, 6,325,000 Subordinated Units.
(b) Upon the issuance of any additional Limited Partner
Interests by the Partnership (other than the Common Units issued
in the Initial Offering, the Common Units issued pursuant to the
Over-Allotment Option, and the Common Units and the Subordinated
Units issued pursuant to Section 5.2(a)), the General
Partner may, in exchange for a proportionate number of General
Partner Units, make additional Capital Contributions in an
amount equal to the product obtained by multiplying (i) the
quotient determined by dividing (A) the General
Partners Percentage Interest by (B) 100 less the
General Partners Percentage Interest times (ii) the
amount contributed to the Partnership by the Limited Partners in
exchange for such additional Limited Partner Interests. Except
as set forth in Article XII, the General Partner shall not
be obligated to make any additional Capital Contributions to the
Partnership.
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Section
5.3.
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Contributions by Initial Limited Partners and
Distributions to the General Partner and its Affiliates
.
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(a) On the Closing Date and pursuant to the Purchase
Agreement, each Underwriter shall contribute to the Partnership
cash in an amount equal to the Issue Price per Initial Common
Unit, multiplied by the number of Common Units specified in the
Purchase Agreement to be purchased by such Underwriter at the
Closing Date. In exchange for such Capital Contributions by the
Underwriters, the Partnership shall issue Common Units to each
Underwriter on whose behalf such Capital Contribution is made in
an amount equal to the quotient obtained by dividing
(i) the cash contribution to the Partnership by or on
behalf of such Underwriter by (ii) the Issue Price per
Initial Common Unit.
(b) Upon the exercise of the Over-Allotment Option, each
Underwriter shall contribute to the Partnership cash in an
amount equal to the Issue Price per Initial Common Unit,
multiplied by the number of Common Units to be purchased by such
Underwriter at the Option Closing Date. In exchange for such
Capital Contributions by the Underwriters, the Partnership shall
issue Common Units to each Underwriter on whose behalf such
Capital Contribution is made in an amount equal to the quotient
obtained by dividing (i) the cash contributions to the
Partnership by or on behalf of such Underwriter by (ii) the
Issue Price per Initial Common Unit. Upon receipt by the
Partnership of the Capital Contributions from the Underwriters
as provided in this Section 5.3(b), the Partnership shall
use the net proceeds from such exercise to redeem a number of
Common Units from UCI (or UCI MLP LP LLC) equal to the number of
Common Units issued upon the exercise of the Over-Allotment
Option.
(c) No Limited Partner Interests will be issued or issuable
as of or at the Closing Date other than (i) the Common
Units issuable pursuant to subparagraph (a) hereof in
aggregate number equal to 5,500,000, (ii) the 825,000
Common Units and 6,325,000 Subordinated Units issuable pursuant
to Section 5.2 hereof, (iii) the Incentive
Distribution Rights and (iv) any Common Units issuable
under, or to satisfy the obligations of the Partnership or any
of its Affiliates under the UCO GP, LLC Long-Term Incentive
Plan. No additional Limited Partner Interests will be issued in
connection with any exercise of the Over-Allotment Option.
Section
5.4.
Interest
and Withdrawal
.
No interest shall be paid by the
Partnership on Capital Contributions. No Partner shall be
entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions
made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to
the extent provided for in this Agreement. Except to the extent
expressly provided in this Agreement, no Partner shall have
priority over any other Partner either as to the return of
Capital Contributions or as to profits, losses or distributions.
Any such return shall be a compromise to which all Partners
agree within the meaning of
Section
17-502(b)
of the Delaware Act.
Section
5.5.
Capital
Accounts
.
(a) The Partnership shall maintain for each Partner (or a
beneficial owner of Partnership Interests held by a nominee
in any case in which the nominee has furnished the identity of
such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable
to the General Partner) owning a Partnership Interest a
separate Capital Account with respect to such
Partnership Interest in accordance with the rules of
Treasury
Regulation Section
1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount
of all Capital Contributions made to the Partnership with
respect to such Partnership Interest and (ii) all
items of Partnership income and gain (including income and gain
exempt from tax) computed in accordance with Section 5.5(b)
and allocated with respect to such Partnership Interest
pursuant to Section 6.1, and decreased by (x) the
amount of cash or Net Agreed Value of all actual and deemed
distributions of cash or property made with respect to such
Partnership Interest and (y) all items of Partnership
deduction and loss computed in accordance with
Section 5.5(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction that is to be allocated pursuant
to Article VI and is to be reflected in the Partners
Capital Accounts, the
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determination, recognition and classification of any such item
shall be the same as its determination, recognition and
classification for federal income tax purposes (including any
method of depreciation, cost recovery or amortization used for
that purpose), provided, that:
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(i) Solely for purposes of this Section 5.5, the
Partnership shall be treated as owning directly its
proportionate share (as determined by the General Partner based
upon the provisions of the applicable Group Member Agreement or
governing, organizational or similar documents) of all property
owned by (x) any other Group Member classified as a
partnership for federal income tax purposes and (y) any
other partnership, limited liability company, unincorporated
business or other entity classified as a partnership for federal
income tax purposes of which a Group Member is, directly or
indirectly, a partner.
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(ii) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a
Partnership Interest that can neither be deducted nor
amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item
of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to
Section 6.1.
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(iii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items
of income, gain, loss and deduction shall be made without regard
to any election under Section 754 of the Code that may be
made by the Partnership and, as to those items described in
Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross
income or are neither currently deductible nor capitalized for
federal income tax purposes. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant
to Treasury
Regulation Section
1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment in the Capital Accounts shall be
treated as an item of gain or loss.
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(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnerships
Carrying Value with respect to such property as of such date.
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(v) In accordance with the requirements of
Section 704(b) of the Code, any deductions for
depreciation, cost recovery or amortization attributable to any
Contributed Property shall be determined as if the adjusted
basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property.
Upon an adjustment pursuant to Section 5.5(d) to the
Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further
deductions for such depreciation, cost recovery or amortization
attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying
Value of such property immediately following such adjustment and
(B) using any method that the General Partner may adopt;
provided
, the General Partner may elect not to amortize
any goodwill property of the Partnership.
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(vi) If the Partnerships adjusted basis in a
depreciable or cost recovery property is reduced for federal
income tax purposes pursuant to Section 48(q)(1) or
48(q)(3) of the Code, the amount of such reduction shall, solely
for purposes hereof, be deemed to be an additional depreciation
or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to
Section 6.1. Any restoration of such basis pursuant to
Section 48(q)(2) of the Code shall, to the extent possible,
be allocated in the same manner to the Partners to whom such
deemed deduction was allocated.
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(c) (i) A transferee of a Partnership Interest
shall succeed to a pro rata portion of the Capital Account of
the transferor relating to the Partnership Interest so
transferred.
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(i) Subject to Section 6.7(c), immediately prior to
the transfer of a Subordinated Unit or of a Subordinated Unit
that has converted into a Common Unit pursuant to
Section 5.7 by a holder thereof (other than a transfer to
an Affiliate unless the General Partner elects to have this
Section 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.
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(d) (i) In accordance with Treasury
Regulation Section
1.704-1(b)(2)(iv)(f),
on an issuance of additional Partnership Interests for cash
or Contributed Property, the issuance of
Partnership Interests as consideration for the provision of
services or the conversion of the General Partners
Combined Interest to Common Units pursuant to
Section 11.3(b), the Capital Account of all Partners and
the Carrying Value of each Partnership property immediately
prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been
allocated to the Partners at such time pursuant to
Section 6.1(c) in the same manner as any item of gain or
loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized
Loss, the aggregate cash amount and fair market value of all
Partnership assets (including cash or cash equivalents)
immediately prior to the issuance of additional
Partnership Interests shall be determined by the General
Partner using such method of valuation as it may adopt;
provided, however,
that the General Partner, in arriving
at such valuation, must take fully into account the fair market
value of the Partnership Interests of all Partners at such
time. The General Partner shall allocate such aggregate value
among the assets of the Partnership (in such manner as it
determines) to arrive at a fair market value for individual
properties.
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(ii) In accordance with Treasury
Regulation Section
1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a
Partner of any Partnership property (other than a distribution
of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners
and the Carrying Value of all Partnership property shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if
such Unrealized Gain or Unrealized Loss had been recognized in a
sale of such property immediately prior to such distribution for
an amount equal to its fair market value, and had been allocated
to the Partners, at such time, pursuant to Section 6.1(c)
in the same manner as any item of gain or loss actually
recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership
assets (including, without limitation, cash or cash equivalents)
immediately prior to a distribution shall (A) in the case
of an actual distribution that is not made pursuant to
Section 12.4 or in the case of a deemed distribution, be
determined and allocated in the same manner as that provided in
Section 5.5(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 12.4, be determined and
allocated by the Liquidator using such method of valuation as it
may adopt.
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Section
5.6.
Issuances
of Additional Partnership Securities
.
(a) The Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights
relating to the Partnership Securities for any Partnership
purpose at any time and from
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time to time to such Persons for such consideration and on such
terms and conditions as the General Partner shall determine, all
without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be
issued by the Partnership pursuant to Section 5.6(a) may be
issued in one or more classes, or one or more series of any such
classes, with such designations, preferences, rights, powers and
duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General
Partner, including (i) the right to share in Partnership
profits and losses or items thereof; (ii) the right to
share in Partnership distributions; (iii) the rights upon
dissolution and liquidation of the Partnership;
(iv) whether, and the terms and conditions upon which, the
Partnership may redeem the Partnership Security;
(v) whether such Partnership Security is issued with the
privilege of conversion or exchange and, if so, the terms and
conditions of such conversion or exchange; (vi) the terms
and conditions upon which each Partnership Security will be
issued, evidenced by certificates and assigned or transferred;
(vii) the method for determining the Percentage Interest as
to such Partnership Security; and (viii) the right, if any,
of each such Partnership Security to vote on Partnership
matters, including matters relating to the relative rights,
preferences and privileges of such Partnership Security.
(c) The General Partner shall take all actions that it
determines to be necessary or appropriate in connection with
(i) each issuance of Partnership Securities and options,
rights, warrants and appreciation rights relating to Partnership
Securities pursuant to this Section 5.6, (ii) the
conversion of the General Partner Interest (represented by
General Partner Units) or any Incentive Distribution Rights into
Units pursuant to the terms of this Agreement,
(iii) reflecting admission of such additional Limited
Partners in the books and records of the Partnership as the
Record Holder of such Limited Partner Interest and (iv) all
additional issuances of Partnership Securities. The General
Partner shall determine the relative rights, powers and duties
of the holders of the Units or other Partnership Securities
being so issued. The General Partner shall do all things
necessary to comply with the Delaware Act and is authorized and
directed to do all things that it determines to be necessary or
appropriate in connection with any future issuance of
Partnership Securities or in connection with the conversion of
the General Partner Interest or any Incentive Distribution
Rights into Units pursuant to the terms of this Agreement,
including compliance with any statute, rule, regulation or
guideline of any federal, state or other governmental agency or
any National Securities Exchange on which the Units or other
Partnership Securities are listed or admitted to trading.
(d) No fractional Units shall be issued by the Partnership.
Section
5.7.
Conversion
of Subordinated Units
.
(a) A total of 25% of the Outstanding Subordinated Units
will convert into Common Units on a one-for-one basis on the
second Business Day following the distribution of Available Cash
to Partners pursuant to Section 6.3(a) in respect of any
Quarter ending on or after September 30, 2009, in respect
of which:
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(i) distributions of Available Cash from Operating Surplus
under Section 6.4(a) on each of the Outstanding Common
Units, Subordinated Units and General Partner Units and any
other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units with respect to each of
the three consecutive, non-overlapping four-Quarter periods
immediately preceding such date equaled or exceeded the sum of
the Minimum Quarterly Distribution on all of the Outstanding
Common Units, Subordinated Units and General Partner Units and
any other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units during such periods;
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(ii) the Adjusted Operating Surplus generated during 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 General Partner 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
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(iii) there are no Cumulative Common Unit Arrearages.
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(b) An additional 25% of the Outstanding Subordinated Units
(without giving effect to the reduction in the number of
Outstanding Subordinated Units as a result of the conversion of
Subordinated Units pursuant to Section 5.7(a) above) will
convert into Common Units on a one-for-one basis on the second
Business Day following the distribution of Available Cash to
Partners pursuant to Section 6.3(a) in respect of any
Quarter ending on or after September 30, 2010, in respect
of which:
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(i) distributions of Available Cash from Operating Surplus
under Section 6.4(a) on each of the Outstanding Common
Units, Subordinated Units and General Partner Units and any
other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units and the General Partner
Units with respect to each of the three consecutive,
non-overlapping four-Quarter periods immediately preceding such
date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the Outstanding Common Units,
Subordinated Units and General Partner Units and any other
Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units during such periods;
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(ii) the Adjusted Operating Surplus generated during 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 General Partner 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
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(iii) there are no Cumulative Common Unit Arrearages;
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provided, however,
that the conversion of Subordinated
Units pursuant to this Section 5.7(b) may not occur until
at least one year following the end of the last four-Quarter
period in respect of which conversion of Subordinated Units
pursuant to Section 5.7(a) occurred.
(c) In the event that less than all of the Outstanding
Subordinated Units shall convert into Common Units pursuant to
Section 5.7(a) or (b) at a time when there shall be
more than one holder of Subordinated Units, then, unless all of
the holders of Subordinated Units shall agree to a different
allocation, the Subordinated Units that are to be converted into
Common Units shall be allocated among the holders of
Subordinated Units pro rata based on the number of Subordinated
Units held by each such holder.
(d) Notwithstanding Section 5.7(a), (b) and
(c) above, the Subordination Period shall terminate and all
Outstanding Subordinated Units shall convert into Common Units
on a one-for-one basis on the second Business Day following the
distribution of Available Cash to Partners pursuant to
Section 6.3(a) in respect of any Quarter ending on or after
September 30, 2008, in respect of which:
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(i) distributions of Available Cash from Operating Surplus
under Section 6.4(a) on each of the Outstanding Common
Units, Subordinated Units and General Partner Units and any
other Outstanding Units that are senior or equal in right of
distribution to the Subordinated Units with respect to the
four-Quarter period immediately preceding such date equaled or
exceeded 150% of the sum of the Minimum Quarterly Distribution
on all of the Outstanding Common Units, Subordinated Units and
General Partner Units and any other Outstanding Units that are
senior or equal in right of distribution to the Subordinated
Units during such period;
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(ii) the Adjusted Operating Surplus generated during the
four-Quarter period immediately preceding such date equaled or
exceeded 150% of the sum of the Minimum Quarterly Distribution
on all of the Common Units, Subordinated Units and General
Partner Units and any other Units that are senior or equal in
right of distribution to the Subordinated Units that were
Outstanding during such period on a Fully Diluted Basis; and
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(iii) there are no Cumulative Common Unit Arrearages.
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(e) Any Subordinated Units that are not converted into
Common Units pursuant to Section 5.7(a), (b) or
(d) shall convert into Common Units on a one-for-one basis
on the second Business Day following the distribution of
Available Cash to Partners pursuant to Section 6.3(a) in
respect of the final Quarter of the Subordination Period.
(f) Notwithstanding any other provision of this Agreement,
all the then Outstanding Subordinated Units will automatically
convert into Common Units on a one-for-one basis as set forth
in, and pursuant to the terms of, Section 11.4.
(g) A Subordinated Unit that has converted into a Common
Unit shall be subject to the provisions of Section 6.7(b)
and Section 6.7(c).
Section
5.8.
Limited
Preemptive Right
.
Except as provided in this
Section 5.8 and in Section 5.2(b), no Person shall
have any preemptive, preferential or other similar right with
respect to the issuance of any Partnership Security, whether
unissued, held in the treasury or hereafter created. The General
Partner shall have the right, which it may from time to time
assign in whole or in part to any of its Affiliates, to purchase
Partnership Securities from the Partnership whenever, and on the
same terms that, the Partnership issues Partnership Securities
to Persons other than the General Partner and its Affiliates, to
the extent necessary to maintain the Percentage Interests of the
General Partner and its Affiliates equal to that which existed
immediately prior to the issuance of such Partnership Securities.
Section
5.9.
Splits
and Combinations
.
(a) Subject to Section 5.9(d), Section 6.6 and
Section 6.9 (dealing with adjustments of distribution
levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as,
after any such event, each Partner shall have the same
Percentage Interest in the Partnership as before such event, and
any amounts calculated on a per Unit basis (including any Common
Unit Arrearage or Cumulative Common Unit Arrearage) or stated as
a number of Units (including the number of Subordinated Units
that may convert prior to the end of the Subordination Period)
are proportionately adjusted.
(b) Whenever such a distribution, subdivision or
combination of Partnership Securities is declared, the General
Partner shall select a Record Date as of which the distribution,
subdivision or combination shall be effective and shall send
notice thereof at least 20 days prior to such Record Date
to each Record Holder as of a date not less than 10 days
prior to the date of such notice. The General Partner also may
cause a firm of independent public accountants selected by it to
calculate the number of Partnership Securities to be held by
each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be
entitled to rely on any certificate provided by such firm as
conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution, subdivision
or combination, the Partnership may issue Certificates to the
Record Holders of Partnership Securities as of the applicable
Record Date representing the new number of Partnership
Securities held by such Record Holders, or the General Partner
may adopt such other procedures that it determines to be
necessary or appropriate to reflect such changes. If any such
combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a
condition to the delivery to a Record Holder of such new
Certificate, the surrender of any Certificate held by such
Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional Units upon
any distribution, subdivision or combination of Units. If a
distribution, subdivision or combination of Units would result
in the issuance of fractional Units but for the provisions of
this Section 5.9(d), each fractional Unit shall be rounded
to the nearest whole Unit (and a 0.5 Unit shall be rounded to
the next higher Unit).
Section
5.10.
Fully
Paid and Non-Assessable Nature of Limited Partner
Interests
.
All Limited Partner Interests issued pursuant
to, and in accordance with the requirements of, this
Article V shall be fully paid and non-assessable Limited
Partner Interests in the Partnership, except as such
non-assessability may be affected by Section 17-607 of the
Delaware Act.
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section
6.1.
Allocations
for Capital Account Purposes
.
For purposes of
maintaining the Capital Accounts and in determining the rights
of the Partners among themselves, the Partnerships items
of income, gain, loss and deduction (computed in accordance with
Section 5.5(b)) shall be allocated among the Partners in
each taxable year (or portion thereof) as provided herein below.
(a)
Net Income.
After giving effect to the special
allocations set forth in Section 6.1(d), Net Income for
each taxable year and all items of income, gain, loss and
deduction taken into account in computing Net Income for such
taxable year shall be allocated as follows:
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(i)
First,
100% to the General Partner, in an amount
equal to the aggregate Net Losses allocated to the General
Partner pursuant to Section 6.1(b)(iii) for all previous
taxable years until the aggregate Net Income allocated to the
General Partner pursuant to this Section 6.1(a)(i) for the
current taxable year and all previous taxable years is equal to
the aggregate Net Losses allocated to the General Partner
pursuant to Section 6.1(b)(iii) for all previous taxable
years;
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(ii)
Second,
100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such
Partners pursuant to this Section 6.1(a)(ii) for the
current taxable year and all previous taxable years is equal to
the aggregate Net Losses allocated to such Partners pursuant to
Section 6.1(b)(ii) for all previous taxable years; and
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(iii)
Third,
the balance, if any, 100% to the
General Partner and the Unitholders, in accordance with their
respective Percentage Interests.
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(b)
Net Losses.
After giving effect to the special
allocations set forth in Section 6.1(d), Net Losses for
each taxable period and all items of income, gain, loss and
deduction taken into account in computing Net Losses for such
taxable period shall be allocated as follows:
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(i)
First,
100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Losses allocated pursuant to
this Section 6.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income
allocated to such Partners pursuant to Section 6.1(a)(iii)
for all previous taxable years;
provided,
that the Net
Losses shall not be allocated pursuant to this
Section 6.1(b)(i) to the extent that such allocation would
cause any Unitholder to have a deficit balance in its Adjusted
Capital Account at the end of such taxable year (or increase any
existing deficit balance in its Adjusted Capital Account);
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(ii)
Second,
100% to the General Partner and the
Unitholders, in accordance with their respective Percentage
Interests;
provided,
that Net Losses shall not be
allocated pursuant to this Section 6.1(b)(ii) to the extent
that such allocation would cause any Unitholder to have a
deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in
its Adjusted Capital Account); and
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(iii)
Third,
the balance, if any, 100% to the
General Partner.
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(c)
Net Termination Gains and Losses.
After giving
effect to the special allocations set forth in
Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain
or Net Termination Loss for such taxable period shall be
allocated in the same manner as such Net Termination Gain or Net
Termination Loss is allocated hereunder. All allocations under
this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided
under this Section 6.1 and after all distributions of
Available Cash provided under Section 6.4 and
Section 6.5 have been made;
provided, however,
that
solely for purposes of this Section 6.1(c), Capital
Accounts shall not be adjusted for distributions made pursuant
to Section 12.4.
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(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Gain shall be allocated among the Partners in the
following manner (and the Capital Accounts of the Partners shall
be increased by the amount so allocated in each of the following
subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
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A.
First,
to each Partner having a deficit balance
in its Capital Account, in the proportion that such deficit
balance bears to the total deficit balances in the Capital
Accounts of all Partners, until each such Partner has been
allocated Net Termination Gain equal to any such deficit balance
in its Capital Account;
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B.
Second,
(x) to the General Partner in
accordance with its Percentage Interest and (y) to all
Unitholders holding Common Units, Pro Rata, a percentage equal
to 100% less the percentage applicable to
subclause (x) of this clause (B), until the
Capital Account in respect of each Common Unit then Outstanding
is equal to the sum of (1) its Unrecovered Capital plus
(2) the Minimum Quarterly Distribution for the Quarter
during which the Liquidation Date occurs, reduced by any
distribution pursuant to Section 6.4(a)(i) or
Section 6.4(b)(i) with respect to such Common Unit for such
Quarter (the amount determined pursuant to this clause (2)
is hereinafter defined as the
Unpaid MQD
) and
(3) any then existing Cumulative Common Unit Arrearage;
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C.
Third,
if such Net Termination Gain is recognized
(or is deemed to be recognized) prior to the conversion of the
last Outstanding Subordinated Unit, (x) to the General
Partner in accordance with its Percentage Interest and
(y) all Unitholders holding Subordinated Units, Pro Rata, a
percentage equal to 100% less the percentage applicable to
subclause (x) of this clause (C), until the
Capital Account in respect of each Subordinated Unit then
Outstanding equals the sum of (1) its Unrecovered Capital,
determined for the taxable year (or portion thereof) to which
this allocation of gain relates, and (2) the Minimum
Quarterly Distribution for the Quarter during which the
Liquidation Date occurs, reduced by any distribution pursuant to
Section 6.4(a)(iii) with respect to such Subordinated Unit
for such Quarter;
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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 Capital, (2) the Unpaid MQD, (3) any then
existing Cumulative Common Unit Arrearage, and (4) the
excess of (aa) the First Target Distribution less the
Minimum Quarterly Distribution for each Quarter of the
Partnerships existence over (bb) the cumulative per
Unit amount of any distributions of Available Cash that is
deemed to be Operating Surplus made pursuant to
Section 6.4(a)(iv) and Section 6.4(b)(ii) (the sum of
(1), (2), (3) and (4) is hereinafter defined as the
First Liquidation Target Amount
);
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E.
Fifth,
(x) to the General Partner in
accordance with its Percentage Interest and (y) 13% to the
holders of the Incentive Distribution Rights, Pro Rata, and
(z) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclause (x) and (y) of this clause (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 Section 6.4(a)(v) and Section 6.4(b)(iii)
(the sum of (1) and (2) is hereinafter defined as the
Second Liquidation Target Amount
);
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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, Pro Rata, a percentage equal to
100% less the sum of the percentages
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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 Section 6.4(a)(vi) and
Section 6.4(b)(iv) (the sum of (1) and (2) is
hereinafter defined as the
Third Liquidation Target
Amount
); and
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G.
Finally,
(x) to the General Partner in
accordance with its Percentage Interest and (y) 48% to the
holders of the Incentive Distribution Rights, Pro Rata, and
(z) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclause (x) and (y) of this clause (G).
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(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net
Termination Loss shall be allocated among the Partners in the
following manner:
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A.
First,
if such Net Termination Loss is recognized
(or is deemed to be recognized) prior to the conversion of the
last Outstanding Subordinated Unit, (x) to the General
Partner in accordance with its Percentage Interest and
(y) to all Unitholders holding Subordinated Units, Pro
Rata, a percentage equal to 100% less the percentage applicable
to subclause (x) of this clause (A), until the Capital
Account in respect of each Subordinated Unit then Outstanding
has been reduced to zero;
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B.
Second,
(x) to the General Partner in
accordance with its Percentage Interest and (y) to all
Unitholders holding Common Units, Pro Rata, a percentage equal
to 100% less the percentage applicable to subclause (x) of
this clause (B), until the Capital Account in respect of
each Common Unit then Outstanding has been reduced to
zero; and
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C.
Third,
the balance, if any, 100% to the General
Partner.
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(d)
Special Allocations.
Notwithstanding any other
provision of this Section 6.1, the following special
allocations shall be made for such taxable period:
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(i)
Partnership Minimum Gain Chargeback.
Notwithstanding any other provision of this Section 6.1, if
there is a net decrease in Partnership Minimum Gain during any
Partnership taxable period, each Partner shall be allocated
items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts
provided in Treasury Regulation
Sections
1.704-2(f)(6),
1.704-2(g)(2)
and
1.704-2(j)(2)(i),
or
any successor provision. For purposes of this
Section 6.1(d), each Partners Adjusted Capital
Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to this
Section 6.1(d) with respect to such taxable period (other
than an allocation pursuant to Section 6.1(d)(vi) and
Section 6.1(d)(vii)). This Section 6.1(d)(i) is
intended to comply with the Partnership Minimum Gain chargeback
requirement in Treasury Regulation Section 1.704-2(f)
and shall be interpreted consistently therewith.
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(ii)
Chargeback of Partner Nonrecourse Debt Minimum
Gain.
Notwithstanding the other provisions of this
Section 6.1 (other than Section 6.1(d)(i)), except as
provided in Treasury Regulation Section 1.704-2(i)(4), if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain
during any Partnership taxable period, any Partner with a share
of Partner Nonrecourse Debt Minimum Gain at the beginning of
such taxable period shall be allocated items of Partnership
income and gain for such period (and, if necessary, subsequent
periods) in the manner and amounts provided in Treasury
Regulation
Sections
1.704-2(i)(4)
and
1.704-2(j)(2)(ii),
or any successor provisions. For purposes of this
Section 6.1(d), each Partners Adjusted Capital
Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to
the application of any other allocations pursuant to
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this Section 6.1(d), other than Section 6.1(d)(i) and
other than an allocation pursuant to Section 6.1(d)(vi) and
Section 6.1(d)(vii), with respect to such taxable period.
This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury
Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
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(iii)
Priority Allocations.
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A. If the amount of cash or the Net Agreed Value of any
property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to
its Units for a taxable year is greater (on a per Unit basis)
than the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) 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.
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B. After the application of Section 6.1(d)(iii)(A),
all or any portion of the remaining items of Partnership 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 Section 6.1(d)(iii)(B) for the current
taxable year and all previous taxable years is equal to the
cumulative amount of all Incentive Distributions made to the
holders of Incentive Distribution Rights from the Closing Date
to a date 45 days after the end of the current taxable year
and (2) to the General Partner an amount equal to the
product of (aa) an amount equal to the quotient determined
by dividing (x) the General Partners Percentage
Interest by (y) the sum of 100 less the General
Partners Percentage Interest times (bb) the sum of
the amounts allocated in clause (1) above.
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(iv)
Qualified Income Offset.
In the event any
Partner unexpectedly receives any adjustments, allocations or
distributions described in Treasury
Regulation Sections
1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5),
or
1.704-1(b)(2)(ii)(d)(6),
items of Partnership income and gain shall be specially
allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations
promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible
unless such deficit balance is otherwise eliminated pursuant to
Section 6.1(d)(i) or Section 6.1(d)(ii).
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(v)
Gross Income Allocations.
In the event any
Partner has a deficit balance in its Capital Account at the end
of any Partnership taxable period in excess of the sum of
(A) the amount such Partner is required to restore pursuant
to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury
Regulation
Sections
1.704-2(g)
and
1.704-2(i)(5),
such
Partner shall be specially allocated items of Partnership 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 extent
that such Partner would have a deficit balance in its Capital
Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this
Section 6.1(d)(v) were not in this Agreement.
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(vi)
Nonrecourse Deductions.
Nonrecourse Deductions
for any taxable period shall be allocated to the Partners in
accordance with their respective Percentage Interests. If the
General Partner determines that the Partnerships
Nonrecourse Deductions should be allocated in a different ratio
to satisfy the safe harbor requirements of the Treasury
Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the other
Partners, to revise the prescribed ratio to the numerically
closest ratio that does satisfy such requirements.
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(vii)
Partner Nonrecourse Deductions.
Partner
Nonrecourse Deductions for any taxable period shall be allocated
100% to the Partner that bears the Economic Risk of Loss with
respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with
Treasury Regulation
Section
1.704-2(i).
If more than one Partner bears the Economic Risk of Loss with
respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or
among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
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(viii)
Nonrecourse Liabilities.
For purposes of
Treasury
Regulation Section
1.752-3(a)(3),
the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (A) the amount of
Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners
in accordance with their respective Percentage Interests.
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(ix)
Code Section 754 Adjustments.
To the
extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of
the Code is required, pursuant to Treasury
Regulation Section
1.704-1(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner
in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Treasury Regulations.
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(x)
Economic Uniformity.
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 such 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.
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(xi)
Curative Allocation.
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A. Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the
Required Allocations shall be taken into account in making the
Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and
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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.
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B. The General Partner shall, with respect to each taxable
period, (1) apply the provisions of
Section 6.1(d)(xi)(A) in whatever order is most likely to
minimize the economic distortions that might otherwise result
from the Required Allocations, and (2) divide all
allocations pursuant to Section 6.1(d)(xi)(A) among the
Partners in a manner that is likely to minimize such economic
distortions.
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(xii)
Corrective Allocations.
In the event of any
allocation of Additional Book Basis Derivative Items or any
Book-Down Event or any recognition of a Net Termination Loss,
the following rules shall apply:
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A. In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the General
Partner shall allocate additional items of 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.
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B. In the case of any negative adjustments to the Capital
Accounts of the Partners resulting from a Book-Down Event or
from the recognition of a Net Termination Loss, such negative
adjustment (1) shall first be allocated, to the extent of
the Aggregate Remaining Net Positive Adjustments, in such a
manner, as determined by the General Partner, that to the extent
possible the aggregate Capital Accounts of the Partners will
equal the amount that would have been the Capital Account
balance of the Partners if no prior Book-Up Events had occurred,
and (2) any negative adjustment in excess of the Aggregate
Remaining Net Positive Adjustments shall be allocated pursuant
to Section 6.1(c) hereof.
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C. In making the allocations required under this
Section 6.1(d)(xii), the General Partner may apply whatever
conventions or other methodology it determines will satisfy the
purpose of this Section 6.1(d)(xii).
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Section
6.2.
Allocations
for Tax Purposes
.
(a) Except as otherwise provided herein, for federal income
tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its
correlative item of
book
income, gain, loss
or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property,
items of income, gain, loss, depreciation, amortization and cost
recovery deductions shall be allocated for federal income tax
purposes among the Partners as follows:
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(i) (A) In the case of a Contributed Property, such
items attributable thereto shall be allocated among the Partners
in the manner provided under Section 704(c) of the Code
that takes into account the variation between the Agreed Value
of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated
among the Partners in the same manner as its correlative item of
book
gain or loss is allocated pursuant to
Section 6.1.
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(ii) (A) In the case of an Adjusted Property, such
items shall (1) first, be allocated among the Partners in a
manner consistent with the principles of Section 704(c) of
the Code to take into account the Unrealized Gain or Unrealized
Loss attributable to such property and the allocations thereof
pursuant to Section 5.5(d)(i) or Section 5.5(d)(ii),
and (2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a
manner consistent with Section 6.2(b)(i)(A); and
(B) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the Partners in
the same manner as its correlative item of
book
gain or loss is allocated pursuant to
Section 6.1.
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(iii) The General Partner shall apply the principles of
Treasury Regulation Section 1.704-3(d) to eliminate
Book-Tax Disparities, except as otherwise determined by the
General Partner with respect to any goodwill property of the
Partnership.
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(c) For the proper administration of the Partnership and
for the preservation of uniformity of the Limited Partner
Interests (or any class or classes thereof), the General Partner
shall (i) adopt such conventions as it deems appropriate in
determining the amount of depreciation, amortization and cost
recovery deductions, (ii) make special allocations for
federal income tax purposes of income (including, without
limitation, gross income) or deductions, and (iii) amend
the provisions of this Agreement as appropriate (x) to
reflect the proposal or promulgation of Treasury Regulations
under Section 704(b) or Section 704(c) of the Code or
(y) otherwise to preserve or achieve uniformity of the
Limited Partner Interests (or any class or classes thereof). The
General Partner may adopt such conventions, make such
allocations and make such amendments to this Agreement as
provided in this Section 6.2(c) only if such conventions,
allocations or amendments would not have a material adverse
effect on the Partners, the holders of any class or classes of
Limited Partner Interests issued and Outstanding or the
Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.
(d) The General Partner may determine not to depreciate or
amortize the portion of an adjustment under Section 743(b)
of the Code attributable to unrealized appreciation in any
Adjusted Property (to the extent of the unamortized Book-Tax
Disparity) or to depreciate or amortize such portion of an
adjustment using a predetermined rate derived from the
depreciation or amortization method and useful life applied to
the Partnerships common basis of such property, despite
any inconsistency of such approach with Treasury
Regulation Section 1.167(c)-l(a)(6), Treasury
Regulation Section 1.197-2(g)(3), the legislative history of
Section 743 of the Code or any successor regulations thereto. If
the General Partner determines that such reporting position
cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all
purchasers acquiring Limited Partner Interests in the same month
would receive depreciation and amortization deductions, based
upon the same
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applicable rate as if they had purchased a direct interest in
the Partnerships property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may
use any other depreciation and amortization conventions to
preserve the uniformity of the intrinsic tax characteristics of
any Limited Partner Interests, so long as such conventions would
not have a material adverse effect on the Limited Partners or
the Record Holders of any class or classes of Limited Partner
Interests.
(e) Any gain allocated to the Partners upon the sale or
other taxable disposition of any Partnership asset shall, to the
extent possible, after taking into account other required
allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to
the same extent as such Partners (or their predecessors in
interest) have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes
and allocated to the Partners in accordance with the provisions
hereof shall be determined without regard to any election under
Section 754 of the Code that may be made by the
Partnership;
provided, however,
that such allocations,
once made, shall be adjusted (in the manner determined by the
General Partner) to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and
deduction shall for federal income tax purposes, be determined
on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the National
Securities Exchange on which the Units are then traded on the
first Business Day of each month;
provided, however,
such
items for the period beginning on the Closing Date and ending on
the last day of the month in which the Option Closing Date or
the expiration of the Over-Allotment Option occurs shall be
allocated to the Partners as of the opening of the National
Securities Exchange on which the Units are then traded on the
first Business Day of the next succeeding month; and provided,
further, that gain or loss on a sale or other disposition of any
assets of the Partnership or any other extraordinary item of
income or loss realized and recognized other than in the
ordinary course of business, as determined by the General
Partner, shall be allocated to the Partners as of the opening of
the National Securities Exchange on which the Units are then
traded on the first Business Day of the month in which such gain
or loss is recognized for federal income tax purposes. The
General Partner may revise, alter or otherwise modify such
methods of allocation to the extent permitted or required by
Section 706 of the Code and the regulations or rulings
promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited
Partner under the provisions of this Article VI shall
instead be made to the beneficial owner of Limited Partner
Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other
method determined by the General Partner.
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Section
6.3.
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Requirement and Characterization of Distributions;
Distributions to Record Holders
.
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(a) Within 45 days following the end of each Quarter
commencing with the Quarter ending on December 31, 2006, an
amount equal to 100% of Available Cash with respect to such
Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by
the Partnership to the Partners as of the Record Date selected
by the General Partner. All amounts of Available Cash
distributed by the Partnership on any date from any source shall
be deemed to be Operating Surplus until the sum of all amounts
of Available Cash theretofore distributed by the Partnership to
the Partners pursuant to Section 6.4 equals the Operating
Surplus from the Closing Date through the close of the
immediately preceding Quarter. Any remaining amounts of
Available Cash distributed by the Partnership on such date
shall, except as otherwise provided in Section 6.5, be
deemed to be
Capital Surplus.
All
distributions required to be made under this Agreement shall be
made subject to Section 17-607 of the Delaware Act.
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(b) Notwithstanding Section 6.3(a), in the event of
the dissolution and liquidation of the Partnership, all receipts
received during or after the Quarter in which the Liquidation
Date occurs shall be applied and distributed solely in
accordance with, and subject to the terms and conditions of,
Section 12.4.
(c) The General Partner may treat taxes paid by the
Partnership on behalf of, or amounts withheld with respect to,
all or less than all of the Partners, as a distribution of
Available Cash to such Partners.
(d) Each distribution in respect of a
Partnership Interest shall be paid by the Partnership,
directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such
Partnership Interest as of the Record Date set for such
distribution. Such payment shall constitute full payment and
satisfaction of the Partnerships liability in respect of
such payment, regardless of any claim of any Person who may have
an interest in such payment by reason of an assignment or
otherwise.
Section
6.4.
Distributions
of Available Cash from Operating Surplus
.
(a)
During Subordination Period.
Available Cash with
respect to any Quarter within the Subordination Period that is
deemed to be Operating Surplus pursuant to the provisions of
Section 6.3 or Section 6.5 shall, subject to
Section 17-607 of the Delaware Act, be distributed as
follows, except as otherwise required by Section 5.6(b) in
respect of other Partnership Securities issued pursuant thereto:
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(i)
First,
to the General Partner and to the
Unitholders holding Common Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the Minimum Quarterly Distribution for such
Quarter;
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(ii)
Second,
to the General Partner and to the
Unitholders holding Common Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the Cumulative Common Unit Arrearage existing
with respect to such Quarter;
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(iii)
Third,
to the General Partner and to the
Unitholders holding Subordinated Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Subordinated Unit then
Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
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(iv)
Fourth,
to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
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(v)
Fifth,
(A) to the General Partner in
accordance with its Percentage Interest; (B) 13% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (v),
until there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target
Distribution over the First Target Distribution for such Quarter;
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(vi)
Sixth,
(A) to the General Partner in
accordance with its Percentage Interest, (B) 23% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (vi),
until there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Third Target
Distribution over the Second Target Distribution for such
Quarter; and
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(vii)
Thereafter,
(A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all
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Unitholders, Pro Rata, a percentage equal to 100% less the sum
of the percentages applicable to subclauses (A) and
(B) of this clause (vii);
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provided, however,
if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(a)(vii).
(b)
After Subordination Period.
Available Cash with
respect to any Quarter after the Subordination Period that is
deemed to be Operating Surplus pursuant to the provisions of
Section 6.3 or Section 6.5, subject to
Section 17-607 of the Delaware Act, shall be distributed as
follows, except as otherwise required by Section 5.6(b) in
respect of additional Partnership Securities issued pursuant
thereto:
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(i)
First,
100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
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(ii)
Second,
100% to the General Partner and the
Unitholders in accordance with their respective Percentage
Interests, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
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(iii)
Third,
(A) to the General Partner in
accordance with its Percentage Interest; (B) 13% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (iii),
until there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target
Distribution over the First Target Distribution for such Quarter;
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(iv)
Fourth,
(A) to the General Partner in
accordance with its Percentage Interest; (B) 23% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (iv),
until there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Third Target
Distribution over the Second Target Distribution for such
Quarter; and
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(v)
Thereafter,
(A) to the General Partner in
accordance with its Percentage Interest; (B) 48% to the
holders of the Incentive Distribution Rights, Pro Rata; and
(C) to all Unitholders, Pro Rata, a percentage equal to
100% less the sum of the percentages applicable to
subclauses (A) and (B) of this clause (v);
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provided, however,
if the Minimum Quarterly Distribution,
the First Target Distribution, the Second Target Distribution
and the Third Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating
Surplus with respect to any Quarter will be made solely in
accordance with Section 6.4(b)(v).
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Section
6.5.
Distributions
of Available Cash from Capital Surplus
.
Available Cash
that is deemed to be Capital Surplus pursuant to the provisions
of Section 6.3(a) shall, subject to Section 17-607 of
the Delaware Act, be distributed, unless the provisions of
Section 6.3 require otherwise, 100% to the General Partner
and the Unitholders in accordance with their respective
Percentage Interests, until a hypothetical holder of a Common
Unit acquired on the Closing Date has received with respect to
such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are
deemed to be Capital Surplus in an aggregate amount equal to the
Initial Unit Price. Available Cash that is deemed to be Capital
Surplus shall then be distributed to the General Partner and to
all Unitholders holding Common Units, in accordance with their
respective Percentage Interests, until there has been
distributed in respect of each Common Unit then Outstanding an
amount equal to the
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Cumulative Common Unit Arrearage. Thereafter, all Available Cash
shall be distributed as if it were Operating Surplus and shall
be distributed in accordance with Section 6.4.
Section
6.6.
Adjustment
of Minimum Quarterly Distribution and Target Distribution
Levels
.
(a) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution, Third Target
Distribution, Common Unit Arrearages and Cumulative Common Unit
Arrearages shall be proportionately adjusted in the event of any
distribution, combination or subdivision (whether effected by a
distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.9. In
the event of a distribution of Available Cash that is deemed to
be from Capital Surplus, the then applicable Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be adjusted
proportionately downward to equal the product obtained by
multiplying the otherwise applicable Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, as the case may be,
by a fraction of which the numerator is the Unrecovered Capital
of the Common Units immediately after giving effect to such
distribution and of which the denominator is the Unrecovered
Capital of the Common Units immediately prior to giving effect
to such distribution.
(b) The Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target
Distribution, shall also be subject to adjustment pursuant to
Section 6.9.
Section
6.7.
Special
Provisions Relating to the Holders of Subordinated Units
.
(a) Except with respect to the right to vote on or approve
matters requiring the vote or approval of a percentage of the
holders of Outstanding Common Units and the right to participate
in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units, the holder of a
Subordinated Unit shall have all of the rights and obligations
of a Unitholder holding Common Units hereunder;
provided,
however,
that immediately upon the conversion of
Subordinated Units into Common Units pursuant to
Section 5.7, the Unitholder holding a Subordinated Unit
shall possess all of the rights and obligations of a Unitholder
holding Common Units hereunder, including the right to vote as a
Common Unitholder and the right to participate in allocations of
income, gain, loss and deduction and distributions made with
respect to Common Units;
provided, however,
that such
converted Subordinated Units shall remain subject to the
provisions of Section 5.5(c)(ii), Section 6.1(d)(x)
and Section 6.7(b) and (c).
(b) A Unitholder shall not be permitted to transfer a
Subordinated Unit or a Subordinated Unit that has converted into
a Common Unit pursuant to Section 5.8 (other than a
transfer to an Affiliate) if the remaining balance in the
transferring Unitholders Capital Account with respect to
the retained Subordinated Units or retained converted
Subordinated Units would be negative after giving effect to the
allocation under Section 5.5(c)(ii)(B).
(c) The Unitholder holding a Common Unit that has resulted
from the conversion of a Subordinated Unit pursuant to
Section 5.7 shall not be issued a Common Unit Certificate
pursuant to Section 4.1, and shall not be permitted to
transfer such Common Units to a Person that is not an Affiliate
of the holder until such time as the General Partner determines,
based on advice of counsel, that each such Common Unit should
have, as a substantive matter, like intrinsic economic and
federal income tax characteristics, in all material respects, to
the intrinsic economic and federal income tax characteristics of
an Initial Common Unit. In providing such advice, counsel may
rely upon the fact that the General Partner will take positions
in filing the tax returns of the Partnership (including
information returns to unitholders) which are intended to
preserve the uniformity of units, as described at Material
Tax Consequences Uniformity of Units in the
Registration Statement, and may assume the validity of such
positions. In connection with the condition imposed by this
Section 6.7(c), the General Partner may take whatever steps
are required to provide economic uniformity to such Common Units
in preparation for a transfer of such Common Units, including
the application of Section 5.5(c)(ii) and
Section 6.1(d)(x);
provided, however,
that no such
steps may be taken that would have a material adverse effect on
the Unitholders holding Common Units represented by Common Unit
Certificates.
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Section
6.8.
Special
Provisions Relating to the Holders of Incentive Distribution
Rights
.
Notwithstanding anything to the contrary set
forth in this Agreement, the holders of the Incentive
Distribution Rights (a) shall (i) possess the rights
and obligations provided in this Agreement with respect to a
Limited Partner pursuant to Article III and
Article VII and (ii) have a Capital Account as a
Partner pursuant to Section 5.5 and all other provisions
related thereto and (b) shall not (i) be entitled to
vote on any matters requiring the approval or vote of the
holders of Outstanding Units, except as provided by law,
(ii) be entitled to any distributions other than as
provided in Section 6.4(a)(v), (vi) and (vii),
Section 6.4(b)(iii), (iv) and (v), and
Section 12.4 or (iii) be allocated items of income,
gain, loss or deduction other than as specified in this
Article VI.
Section
6.9.
Entity-Level Taxation
.
If legislation is enacted or the interpretation of existing
language is modified by a governmental taxing authority so that
a Group Member is treated as an association taxable as a
corporation or is otherwise subject to an entity-level tax for
federal, state or local income tax purposes, then the General
Partner may reduce the Minimum Quarterly Distribution, the First
Target Distribution, the Second Target Distribution and the
Third Target Distribution by the amount of the income taxes that
are payable by reason of any such new legislation or
interpretation (the
Incremental Income
Taxes
), or any portion thereof selected by the General
Partner, in the manner provided in this Section 6.9. If the
General Partner elects to reduce the Minimum Quarterly
Distribution, the First Target Distribution, the Second Target
Distribution and the Third Target Distribution for any Quarter
with respect to all or a portion of any Incremental Income
Taxes, the General Partner shall estimate for such Quarter the
Partnership Groups aggregate liability (the
Estimated Incremental Quarterly Tax Amount
)
for all (or the relevant portion of) such Incremental Income
Taxes;
provided
that any difference between such estimate
and the actual liability for Incremental Income Taxes (or the
relevant portion thereof) for such Quarter may, to the extent
determined by the General Partner, shall be taken into account
in determining the Estimated Incremental Quarterly Tax Amount
with respect to each Quarter in which any such difference can be
determined. For each such Quarter, the Minimum Quarterly
Distribution, First Target Distribution, Second Target
Distribution and Third Target Distribution, shall be the product
obtained by multiplying (a) the amounts therefor that are
set out herein prior to the application of this Section 6.9
times (b) the quotient obtained by dividing
(i) Available Cash with respect to such Quarter by
(ii) the sum of Available Cash with respect to such Quarter
and the Estimated Incremental Quarterly Tax Amount for such
Quarter, as determined by the General Partner. For purposes of
the foregoing, Available Cash with respect to a Quarter will be
deemed reduced by the Estimated Incremental Quarterly Tax Amount
for that Quarter.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section
7.1.
Management
.
(a) The General Partner shall conduct, direct and manage
all activities of the Partnership. Except as otherwise expressly
provided in this Agreement, all management powers over the
business and affairs of the Partnership shall be exclusively
vested in the General Partner, and no Limited Partner shall have
any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted
a general partner of a limited partnership under applicable law
or that are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to
Section 7.3, shall have full power and authority to do all
things and on such terms as it determines to be necessary or
appropriate to conduct the business of the Partnership, to
exercise all powers set forth in Section 2.5 and to
effectuate the purposes set forth in Section 2.4, including
the following:
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(i) the making of any expenditures, the lending or
borrowing of money, the assumption or guarantee of, or other
contracting for, indebtedness and other liabilities, the
issuance of evidences of indebtedness, including indebtedness
that is convertible into Partnership Securities, and the
incurring of any other obligations;
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(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the
Partnership;
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(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of
the Partnership with or into another Person (the matters
described in this clause (iii) being subject, however, to
any prior approval that may be required by Section 7.3 and
Article XIV);
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(iv) the use of the assets of the Partnership (including
cash on hand) for any purpose consistent with the terms of this
Agreement, including the financing of the conduct of the
operations of the Partnership Group; subject to
Section 7.6(a), the lending of funds to other Persons
(including other Group Members); the repayment or guarantee of
obligations of any Group Member; and the making of capital
contributions to any Group Member;
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(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including
instruments that limit the liability of the Partnership under
contractual arrangements to all or particular assets of the
Partnership, with the other party to the contract to have no
recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the
terms of the transaction being less favorable to the Partnership
than would otherwise be the case);
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(vi) the distribution of Partnership cash;
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(vii) the selection and dismissal of employees (including
employees having titles such as
president,
vice president, secretary
and
treasurer
) and agents, outside attorneys,
accountants, consultants and contractors and the determination
of their compensation and other terms of employment or hiring;
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(viii) the maintenance of insurance for the benefit of the
Partnership Group; the Partners and Indemnitees;
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(ix) the formation of, or acquisition of an interest in,
and the contribution of property and the making of loans to, any
further limited or general partnerships, joint ventures,
corporations, limited liability companies or other relationships
(including the acquisition of interests in, and the
contributions of property to, any Group Member from time to
time) subject to the restrictions set forth in Section 2.4;
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(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and
defending of actions at law or in equity and otherwise engaging
in the conduct of litigation, arbitration or mediation and the
incurring of legal expense and the settlement of claims and
litigation;
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(xi) the indemnification of any Person against liabilities
and contingencies to the extent permitted by law;
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(xii) the entering into of listing agreements with any
National Securities Exchange and the delisting of some or all of
the Limited Partner Interests from, or requesting that trading
be suspended on, any such exchange (subject to any prior
approval that may be required under Section 4.8);
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(xiii) the purchase, sale or other acquisition or
disposition of Partnership Securities and the issuance of
options, rights, warrants and appreciation rights relating to
Partnership Securities;
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(xiv) the undertaking of any action in connection with the
Partnerships participation in any Group Member; and
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(xv) the entering into of agreements with any of its
Affiliates to render services to a Group Member or to itself in
the discharge of its duties as General Partner of the
Partnership.
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(b) Notwithstanding any other provision of this Agreement,
any Group Member Agreement, the Delaware Act or any applicable
law, rule or regulation, each of the Partners and each other
Person who may acquire an interest in Partnership Securities
hereby (i) approves, ratifies and confirms the execution,
delivery and performance by the parties thereto of this
Agreement and the Group Member Agreement of each other Group
Member, the Purchase Agreement, the Omnibus Agreement, the
Contribution Agreement, any Group Member Agreement and the other
agreements described in or filed as exhibits to the Registration
Statement that are related to the transactions contemplated by
the Registration Statement; (ii) agrees that the General
Partner (on its own or through any officer of the Partnership)
is authorized to execute, deliver and perform the agreements
referred to in clause (i) of this sentence and the other
agreements, acts, transactions and matters described in or
contemplated by the Registration Statement on behalf of the
Partnership without any further act, approval or vote of the
Partners or the other Persons who may acquire an interest in
Partnership Securities; and (iii) agrees that the
execution, delivery or performance by the General Partner, any
Group Member or any Affiliate of any of them of this Agreement
or any agreement authorized or permitted under this Agreement
(including the exercise by the General Partner or any Affiliate
of the General Partner of the rights accorded pursuant to
Article XV) shall not constitute a breach by the General
Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under
this Agreement (or any other agreements) or of any duty stated
or implied by law or equity.
Section
7.2.
Certificate
of Limited Partnership
.
The General Partner has caused
the Certificate of Limited Partnership to be filed with the
Secretary of State of the State of Delaware as required by the
Delaware Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or
documents that the General Partner determines to be necessary or
appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of
Delaware or any other state in which the Partnership may elect
to do business or own property. To the extent the General
Partner determines such action to be necessary or appropriate,
the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a
partnership or other entity in which the limited partners have
limited liability) under the laws of the State of Delaware or of
any other state in which the Partnership may elect to do
business or own property. Subject to the terms of
Section 3.4(a), the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership, any qualification document
or any amendment thereto to any Limited Partner.
Section
7.3.
Restrictions
on the General Partners Authority
.
Except as
provided in Article XII and Article XIV, the General
Partner may not sell, exchange or otherwise dispose of all or
substantially all of the assets of the Partnership Group, taken
as a whole, in a single transaction or a series of related
transactions (including by way of merger, consolidation or other
combination or sale of ownership interests of the
Partnerships Subsidiaries) without the approval of holders
of a Unit Majority;
provided, however,
that this
provision shall not preclude or limit the General Partners
ability to mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of the
Partnership Group and shall not apply to any forced sale of any
or all of the assets of the Partnership Group pursuant to the
foreclosure of, or other realization upon, any such encumbrance.
Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, except as
permitted under Section 4.6, Section 11.1 and
Section 11.2, elect or cause the Partnership to elect a
successor general partner of the Partnership.
Section
7.4.
Reimbursement
of the General Partner
.
(a) Except as provided in this Section 7.4 and
elsewhere in this Agreement, the General Partner shall not be
compensated for its services as a general partner or managing
member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly
basis, or such other basis as the General Partner may determine,
for (i) all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership Group (including
salary, bonus, incentive compensation and other amounts paid
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to any Person including Affiliates of the General Partner to
perform services for the Partnership Group or for the General
Partner in the discharge of its duties to the Partnership Group,
which amounts shall also include reimbursement for any Common
Units purchased to satisfy obligations of the Partnership under
any of its equity compensation plans), and (ii) all other
expenses allocable to the Partnership Group or otherwise
incurred by the General Partner in connection with operating the
Partnership Groups business (including expenses allocated
to the General Partner by its Affiliates). The General Partner
shall determine the expenses that are allocable to the
Partnership Group. Reimbursements pursuant to this
Section 7.4 shall be in addition to any reimbursement to
the General Partner as a result of indemnification pursuant to
Section 7.7.
(c) The General Partner, without the approval of the
Limited Partners (who shall have no right to vote in respect
thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices
(including plans, programs and practices involving the issuance
of Partnership Securities or options to purchase or rights,
warrants or appreciation rights relating to Partnership
Securities), or cause the Partnership to issue Partnership
Securities in connection with, or pursuant to, any employee
benefit plan, employee program or employee practice maintained
or sponsored by the General Partner, Group Member or any
Affiliates in each case for the benefit of employees of the
General Partner, any Group Member or any Affiliate, or any of
them, in respect of services performed, directly or indirectly,
for the benefit of the Partnership Group. The Partnership agrees
to issue and sell to the General Partner or any of its
Affiliates any Partnership Securities that the General Partner
or such Affiliates are obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs
or employee practices. Expenses incurred by the General Partner
in connection with any such plans, programs and practices
(including the net cost to the General Partner or such
Affiliates of Partnership Securities purchased by the General
Partner or such Affiliates from the Partnership to fulfill
options or awards under such plans, programs and practices)
shall be reimbursed in accordance with Section 7.4(b). Any
and all obligations of the General Partner under any employee
benefit plans, employee programs or employee practices adopted
by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder
and shall be assumed by any successor General Partner approved
pursuant to Section 11.1 or Section 11.2 or the
transferee of or successor to all of the General Partners
General Partner Interest (represented by General Partner Units)
pursuant to Section 4.6.
Section
7.5.
Outside
Activities
.
(a) After the Closing Date, the General Partner, for so
long as it is the General Partner of the Partnership
(i) agrees that its sole business will be to act as a
general partner or managing member, as the case may be, of the
Partnership and any other partnership or limited liability
company of which the Partnership is, directly or indirectly, a
partner or member and to undertake activities that are ancillary
or related thereto (including being a limited partner in the
Partnership) and (ii) shall not engage in any business or
activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general
partner or managing member, if any, of one or more Group Members
or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity
securities in any Group Member.
(b) Except as specifically restricted by the Omnibus
Agreement, each Indemnitee (other than the General Partner)
shall have the right to engage in businesses of every type and
description and other activities for profit and to engage in and
possess an interest in other business ventures of any and every
type or description, whether in businesses engaged in or
anticipated to be engaged in by any Group Member, independently
or with others, including business interests and activities in
direct competition with the business and activities of any Group
Member, and none of the same shall constitute a breach of this
Agreement or any duty expressed or implied by law to any Group
Member or any Partner. Notwithstanding anything to the contrary
in this Agreement, (i) the engaging in competitive
activities by any Indemnitees (other than the General Partner)
in accordance with the provisions of this Section 7.5 is
hereby approved by the Partnership and all Partners,
(ii) it shall be deemed not to be a breach of any fiduciary
duty or any other obligation of any type whatsoever of the
General Partner or of any Indemnitee
A-46
for the Indemnitees (other than the General Partner) to engage
in such business interests and activities in preference to or to
the exclusion of the Partnership.
(c) None of any Group Member, any Limited Partner or any
other Person shall have any rights by virtue of this Agreement,
any Group Member Agreement, or the partnership relationship
established hereby in any business ventures of any Indemnitee.
(d) The General Partner and each of its Affiliates may
acquire Units or other Partnership Securities in addition to
those acquired on the Closing Date and, except as otherwise
provided in this Agreement, shall be entitled to exercise, at
their option, all rights relating to all Units or other
Partnership Securities acquired by them. For purposes of this
Section 7.5(d), the term
Affiliates,
when used with respect to the General Partner, shall not include
any Group Member.
(e) Notwithstanding anything to the contrary in this
Agreement, to the extent that any provision of this
Section 7.5 purports or is interpreted to have the effect
of restricting, eliminating or otherwise modifying the fiduciary
duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the
Partnership and its Limited Partners, or to constitute a waiver
or consent by the Limited Partners to any such fiduciary duty,
such provisions in this Section 7.5 shall be deemed to have
been approved by the Partners.
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Section
7.6.
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Loans from the General Partner; Loans or Contributions
from the Partnership or Group Members
.
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(a) The General Partner or any of its Affiliates may lend
to any Group Member, and any Group Member may borrow from the
General Partner or any of its Affiliates, funds needed or
desired by the Group Member for such periods of time and in such
amounts as the General Partner may determine;
provided,
however,
that in any such case the lending party may not
charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms
less favorable to the borrowing party than would be charged or
imposed on the borrowing party by unrelated lenders on
comparable loans made on an arms-length basis (without
reference to the lending partys financial abilities or
guarantees), all as determined by the General Partner. The
borrowing party shall reimburse the lending party for any costs
(other than any additional interest costs) incurred by the
lending party in connection with the borrowing of such funds.
For purposes of this Section 7.6(a) and
Section 7.6(b), the term
Group Member
shall include any Affiliate of a Group Member that is controlled
by the Group Member.
(b) The Partnership may lend or contribute to any Group
Member, and any Group Member may borrow from the Partnership,
funds on terms and conditions determined by the General Partner.
No Group Member may lend funds to the General Partner or any of
its Affiliates (other than another Group Member).
(c) No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a
breach of any duty, expressed or implied, of the General Partner
or its Affiliates to the Partnership or the Limited Partners by
reason of the fact that the purpose or effect of such borrowing
is directly or indirectly to (i) enable distributions to
the General Partner or its Affiliates (including in their
capacities as Limited Partners) to exceed the General
Partners Percentage Interest of the total amount
distributed to all partners or (ii) hasten the expiration
of the Subordination Period or the conversion of any
Subordinated Units into Common Units.
Section
7.7.
Indemnification
.
(a) To the fullest extent permitted by law but subject to
the limitations expressly provided in this Agreement, all
Indemnitees shall be indemnified and held harmless by the
Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all claims,
demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be
involved, or is threatened to be involved, as a party or
otherwise, by reason
A-47
of its status as an Indemnitee;
provided,
that the
Indemnitee shall not be indemnified and held harmless if there
has been a final and non-appealable judgment entered by a court
of competent jurisdiction determining that, in respect of the
matter for which the Indemnitee is seeking indemnification
pursuant to this Section 7.7, the Indemnitee acted in bad
faith or engaged in fraud, willful misconduct or, in the case of
a criminal matter, acted with knowledge that the
Indemnitees conduct was unlawful;
provided,
further,
no indemnification pursuant to this
Section 7.7 shall be available to the General Partner or
its Affiliates (other than a Group Member) with respect to its
or their obligations incurred pursuant to the Purchase
Agreement, the Omnibus Agreement or the Contribution Agreement
(other than obligations incurred by the General Partner on
behalf of the Partnership). Any indemnification pursuant to this
Section 7.7 shall be made only out of the assets of the
Partnership, it being agreed that the General Partner shall not
be personally liable for such indemnification and shall have no
obligation to contribute or lend any monies or property to the
Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses
(including legal fees and expenses) incurred by an Indemnitee
who is indemnified pursuant to Section 7.7(a) in defending
any claim, demand, action, suit or proceeding shall, from time
to time, be advanced by the Partnership prior to a determination
that the Indemnitee is not entitled to be indemnified upon
receipt by the Partnership of an undertaking by or on behalf of
the Indemnitee to repay such amount if it shall be determined
that the Indemnitee is not entitled to be indemnified as
authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7
shall be in addition to any other rights to which an Indemnitee
may be entitled under any agreement, pursuant to any vote of the
holders of Outstanding Limited Partner Interests, as a matter of
law or otherwise, both as to actions in the Indemnitees
capacity as an Indemnitee and as to actions in any other
capacity (including any capacity under the Purchase Agreement),
and shall continue as to an Indemnitee who has ceased to serve
in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse
the General Partner or its Affiliates for the cost of)
insurance, on behalf of the General Partner, its Affiliates and
such other Persons as the General Partner shall determine,
against any liability that may be asserted against, or expense
that may be incurred by, such Person in connection with the
Partnerships activities or such Persons activities
on behalf of the Partnership, regardless of whether the
Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership
shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance
by it of its duties to the Partnership also imposes duties on,
or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed
on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute
fines
within the meaning of
Section 7.7(a); and action taken or omitted by it with
respect to any employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the best
interest of the participants and beneficiaries of the plan shall
be deemed to be for a purpose that is in the best interests of
the Partnership.
(f) In no event may an Indemnitee subject the Limited
Partners to personal liability by reason of the indemnification
provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to
which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for
the benefit of any other Persons.
(i) No amendment, modification or repeal of this
Section 7.7 or any provision hereof shall in any manner
terminate, reduce or impair the right of any past, present or
future Indemnitee to be indemnified
A-48
by the Partnership, nor the obligations of the Partnership to
indemnify any such Indemnitee under and in accordance with the
provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal,
regardless of when such claims may arise or be asserted.
Section
7.8.
Liability
of Indemnitees
.
(a) Notwithstanding anything to the contrary set forth in
this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, the Limited Partners or any other
Persons who have acquired interests in the Partnership
Securities, for losses sustained or liabilities incurred as a
result of any act or omission of an Indemnitee unless there has
been a final and non-appealable judgment entered by a court of
competent jurisdiction determining that, in respect of the
matter in question, the Indemnitee acted in bad faith or engaged
in fraud, willful misconduct or, in the case of a criminal
matter, acted with knowledge that the Indemnitees conduct
was criminal.
(b) Subject to its obligations and duties as General
Partner set forth in Section 7.1(a), the General Partner
may exercise any of the powers granted to it by this Agreement
and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner
shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by the General Partner in good
faith.
(c) To the extent that, at law or in equity, an Indemnitee
has duties (including fiduciary duties) and liabilities relating
thereto to the Partnership or to the Partners, the General
Partner and any other Indemnitee acting in connection with the
Partnerships business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on
the provisions of this Agreement.
(d) Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective
only and shall not in any way affect the limitations on the
liability of the Indemnitees under this Section 7.8 as in
effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise
or be asserted.
Section
7.9.
Resolution
of Conflicts of Interest; Standards of Conduct and Modification
of Duties
.
(a) Unless otherwise expressly provided in this Agreement
or any Group Member Agreement, whenever a potential conflict of
interest exists or arises between the General Partner or any of
its Affiliates, on the one hand, and the Partnership, any Group
Member or any Partner, on the other, any resolution or course of
action by the General Partner or its Affiliates in respect of
such conflict of interest shall be permitted and deemed approved
by all Partners, and shall not constitute a breach of this
Agreement, of any Group Member Agreement, of any agreement
contemplated herein or therein, or of any duty stated or implied
by law or equity, if the resolution or course of action in
respect of such conflict of interest is (i) approved by
Special Approval, (ii) approved by the vote of a majority
of the Common Units (excluding Common Units owned by the General
Partner and its Affiliates), (iii) on terms no less
favorable to the Partnership than those generally being provided
to or available from unrelated third parties or (iv) fair
and reasonable to the Partnership, taking into account the
totality of the relationships between the parties involved
(including other transactions that may be particularly favorable
or advantageous to the Partnership). The General Partner shall
be authorized but not required in connection with its resolution
of such conflict of interest to seek Special Approval of such
resolution, and the General Partner may also adopt a resolution
or course of action that has not received Special Approval. If
Special Approval is sought, then it shall be presumed that, in
making its decision, the Conflicts Committee acted in good
faith, and if Special Approval is not sought and the Board of
Directors determines that the resolution or course of action
taken with respect to a conflict of interest satisfies either of
the standards set forth in clauses (iii) or
(iv) above, then it shall be presumed that, in making its
decision, the Board of Directors acted in good faith, and, in
either case, in any proceeding brought by any Limited Partner or
by or on behalf of such Limited Partner or any other Limited
Partner or the Partnership challenging such approval,
A-49
the Person bringing or prosecuting such proceeding shall have
the burden of overcoming such presumption. Notwithstanding
anything to the contrary in this Agreement or any duty otherwise
existing at law or equity, the existence of the conflicts of
interest described in the Registration Statement are hereby
approved by all Partners and shall not constitute a breach of
this Agreement.
(b) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its capacity as the general
partner of the Partnership as opposed to in its individual
capacity, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then, unless another express standard is provided for
in this Agreement, the General Partner, or such Affiliates
causing it to do so, shall make such determination or take or
decline to take such other action in good faith and shall not be
subject to any other or different standards imposed by this
Agreement, any Group Member Agreement, any other agreement
contemplated hereby or under the Delaware Act or any other law,
rule or regulation or at equity. In order for a determination or
other action to be in
good faith
for purposes
of this Agreement, the Person or Persons making such
determination or taking or declining to take such other action
must believe that the determination or other action is in the
best interests of the Partnership.
(c) Whenever the General Partner makes a determination or
takes or declines to take any other action, or any of its
Affiliates causes it to do so, in its individual capacity as
opposed to in its capacity as the general partner of the
Partnership, whether under this Agreement, any Group Member
Agreement or any other agreement contemplated hereby or
otherwise, then the General Partner, or such Affiliates causing
it to do so, are entitled to make such determination or to take
or decline to take such other action free of any fiduciary duty
or obligation whatsoever to the Partnership, any Limited
Partner, and the General Partner, or such Affiliates causing it
to do so, shall not be required to act in good faith or pursuant
to any other standard imposed by this Agreement, any Group
Member Agreement, any other agreement contemplated hereby or
under the Delaware Act or any other law, rule or regulation or
at equity. By way of illustration and not of limitation,
whenever the phrase, at the option of the General
Partner, or some variation of that phrase, is used in this
Agreement, it indicates that the General Partner is acting in
its individual capacity. For the avoidance of doubt, whenever
the General Partner votes or transfers its
Partnership Interests, or refrains from voting or
transferring its Partnership Interests, it shall be acting
in its individual capacity. The General Partners
organizational documents may provide that determinations to take
or decline to take any action in its individual, rather than
representative, capacity may or shall be determined by its
members, if the General Partner is a limited liability company,
stockholders, if the General Partner is a corporation, or the
members or stockholders of the General Partners general
partner, if the General Partner is a partnership.
(d) Notwithstanding anything to the contrary in this
Agreement, the General Partner and its Affiliates shall have no
duty or obligation, express or implied, to (i) sell or
otherwise dispose of any asset of the Partnership Group other
than in the ordinary course of business or (ii) permit any
Group Member to use any facilities or assets of the General
Partner and its Affiliates, except as may be provided in
contracts entered into from time to time specifically dealing
with such use. Any determination by the General Partner or any
of its Affiliates to enter into such contracts shall be at its
option.
(e) Except as expressly set forth in this Agreement,
neither the General Partner nor any other Indemnitee shall have
any duties or liabilities, including fiduciary duties, to the
Partnership or any Limited Partner and the provisions of this
Agreement, to the extent that they restrict, eliminate or
otherwise modify the duties and liabilities, including fiduciary
duties, of the General Partner or any other Indemnitee otherwise
existing at law or in equity, are agreed by the Partners to
replace such other duties and liabilities of the General Partner
or such other Indemnitee.
(f) The Unitholders hereby authorize the General Partner,
on behalf of the Partnership as a partner or member of a Group
Member, to approve of actions by the general partner or managing
member of such Group Member similar to those actions permitted
to be taken by the General Partner pursuant to this
Section 7.9.
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Section
7.10.
Other
Matters Concerning the General Partner
.
(a) The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(b) The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment
bankers and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the
opinion (including an Opinion of Counsel) of such Persons as to
matters that the General Partner reasonably believes to be
within such Persons professional or expert competence
shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of
any of its powers or obligations hereunder, to act through any
of its duly authorized officers, a duly appointed attorney or
attorneys-in
-fact or
the duly authorized officers of the Partnership.
Section
7.11.
Purchase
or Sale of Partnership Securities
.
The General Partner
may cause the Partnership to purchase or otherwise acquire
Partnership Securities;
provided
that, except as
permitted by Section 4.10, the General Partner may not
cause any Group Member to purchase Subordinated Units during the
Subordination Period. Such Partnership Securities shall be held
by the Partnership as treasury securities unless they are
expressly cancelled by action of an appropriate officer of the
General Partner. As long as Partnership Securities are held by
any Group Member, such Partnership Securities shall not be
considered Outstanding for any purpose, except as otherwise
provided herein. The General Partner or any Affiliate of the
General Partner may also purchase or otherwise acquire and sell
or otherwise dispose of Partnership Securities for its own
account, subject to the provisions of Articles IV and X.
Section
7.12.
Registration
Rights of the General Partner and its Affiliates
.
(a) If (i) the General Partner or any Affiliate of the
General Partner (including for purposes of this
Section 7.12, any Person that is an Affiliate of the
General Partner at the date hereof notwithstanding that it may
later cease to be an Affiliate of the General Partner) holds
Partnership Securities that it desires to sell and
(ii) Rule 144 of the Securities Act (or any successor
rule or regulation to Rule 144) or another exemption from
registration is not available to enable such holder of
Partnership Securities (the
Holder
) to
dispose of the number of Partnership Securities it desires to
sell at the time it desires to do so without registration under
the Securities Act, then at the option and upon the request of
the Holder, the Partnership shall file with the Commission as
promptly as practicable after receiving such request, and use
all commercially reasonable efforts to cause to become effective
and remain effective for a period of not less than six months
following its effective date or such shorter period as shall
terminate when all Partnership Securities covered by such
registration statement have been sold, a registration statement
under the Securities Act registering the offering and sale of
the number of Partnership Securities specified by the Holder;
provided, however,
that the Partnership shall not be
required to effect more than three registrations pursuant to
Section 7.12(a) and Section 7.12(b); and
provided
further,
however, that if the Conflicts Committee determines
that the requested registration would be materially detrimental
to the Partnership and its Partners because such registration
would (x) materially interfere with a significant
acquisition, reorganization or other similar transaction
involving the Partnership, (y) require premature disclosure
of material information that the Partnership has a bona fide
business purpose for preserving as confidential or
(z) render the Partnership unable to comply with
requirements under applicable securities laws, then the
Partnership shall have the right to postpone such requested
registration for a period of not more than three months after
receipt of the Holders request, such right pursuant to
this Section 7.12(a) or Section 7.12(b) not to be
utilized more than twice in any twelve-month period. Except as
provided in the preceding sentence, the Partnership shall be
deemed not to have used all commercially reasonable efforts to
keep the registration statement effective during the applicable
period if it voluntarily takes any action that would result in
Holders of Partnership Securities covered thereby not being able
to offer and sell such Partnership Securities at any time during
such period, unless such action is required by
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applicable law. In connection with any registration pursuant to
the first sentence of this Section 7.12(a), the Partnership
shall (i) promptly prepare and file (A) such documents as
may be necessary to register or qualify the securities subject
to such registration under the securities laws of such states as
the Holder shall reasonably request;
provided, however,
that no such qualification shall be required in any jurisdiction
where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to
do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such registration on such National Securities Exchange as the
Holder shall reasonably request, and (ii) do any and all
other acts and things that may be necessary or appropriate to
enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(d), all costs and expenses of any such
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(b) If any Holder holds Partnership Securities that it
desires to sell and Rule 144 of the Securities Act (or any
successor rule or regulation to Rule 144) or another
exemption from registration is not available to enable such
Holder to dispose of the number of Partnership Securities it
desires to sell at the time it desires to do so without
registration under the Securities Act, then at the option and
upon the request of the Holder, the Partnership shall file with
the Commission as promptly as practicable after receiving such
request, and use all reasonable efforts to cause to become
effective and remain effective for a period of not less than six
months following its effective date or such shorter period as
shall terminate when all Partnership Securities covered by such
shelf registration statement have been sold, a
shelf
registration statement covering the
Partnership Securities specified by the Holder on an appropriate
form under Rule 415 under the Securities Act, or any
similar rule that may be adopted by the Commission;
provided,
however,
that the Partnership shall not be required to
effect more than three registrations pursuant to
Section 7.12(a) and this Section 7.12(b); and provided
further, however, that if the Conflicts Committee determines in
good faith that any offering under, or the use of any prospectus
forming a part of, the shelf registration statement would be
materially detrimental to the Partnership and its Partners
because such offering or use would (x) materially interfere
with a significant acquisition, reorganization or other similar
transaction involving the Partnership, (y) require
premature disclosure of material information that the
Partnership has a bona fide business purpose for preserving as
confidential or (z) render the Partnership unable to comply
with requirements under applicable securities laws, then the
Partnership shall have the right to suspend such offering or use
for a period of not more than three months after receipt of the
Holders request, such right pursuant to
Section 7.12(a) or this Section 7.12(b) not to be
utilized more than twice in any twelve-month period.
(c) Except as provided in the first sentence of each of
subsection (a) and (b) of this Section 7.12,
the Partnership shall be deemed not to have used all reasonable
efforts to keep the registration statement effective during the
applicable period if it voluntarily takes any action that would
result in Holders of Partnership Securities covered thereby not
being able to offer and sell such Partnership Securities at any
time during such period, unless such action is required by
applicable law. In connection with any shelf registration
pursuant to subsection (a) or (b) of this
Section 7.12(c), the Partnership shall (i) promptly
prepare and file (A) such documents as may be necessary to
register or qualify the securities subject to such shelf
registration under the securities laws of such states as the
Holder shall reasonably request;
provided, however,
that
no such qualification shall be required in any jurisdiction
where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to
do business as a foreign corporation or partnership doing
business in such jurisdiction solely as a result of such shelf
registration, and (B) such documents as may be necessary to
apply for listing or to list the Partnership Securities subject
to such shelf registration on such National Securities Exchange
as the Holder shall reasonably request, and (ii) do any and
all other acts and things that may be necessary or appropriate
to enable the Holder to consummate a public sale of such
Partnership Securities in such states. Except as set forth in
Section 7.12(e), all costs and expenses of any such shelf
registration and offering (other than the underwriting discounts
and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
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(d) If the Partnership shall at any time propose to file a
registration statement under the Securities Act for an offering
of equity securities of the Partnership for cash (other than an
offering relating solely to an employee benefit plan), the
Partnership shall use all reasonable efforts to provide notice
of its intention to file such registration statement and shall
use all reasonable efforts to include such number or amount of
securities held by the Holder in such registration statement as
the Holder shall request;
provided,
that the Partnership
is not required to make any effort or take any action to so
include the securities of the Holder once the registration
statement is declared effective by the Commission or otherwise
becomes effective, including any registration statement
providing for the offering from time to time of securities
pursuant to Rule 415 of the Securities Act. If the proposed
offering pursuant to this Section 7.12(d) shall be an
underwritten offering, then, if the managing underwriter or
managing underwriters of such offering advise the Partnership
and the Holder in writing that in their opinion the inclusion of
all or some of the Holders Partnership Securities would
adversely and materially affect the success of the offering, the
Partnership shall include in such offering only that number or
amount, if any, of securities held by the Holder that, in the
opinion of the managing underwriter or managing underwriters,
will not so adversely and materially affect the offering. Except
as set forth in Section 7.12(e), all costs and expenses of
any such registration and offering (other than the underwriting
discounts and commissions) shall be paid by the Partnership,
without reimbursement by the Holder.
(e) If underwriters are engaged in connection with any
registration referred to in this Section 7.12, the
Partnership shall provide indemnification, representations,
covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters.
Further, in addition to and not in limitation of the
Partnerships obligation under Section 7.7, the
Partnership shall, to the fullest extent permitted by law,
indemnify and hold harmless the Holder, its officers, directors
and each Person who controls the Holder (within the meaning of
the Securities Act) and any agent thereof (collectively,
Indemnified Persons
) from and against any and
all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines,
penalties, interest, settlements or other amounts arising from
any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in
which any Indemnified Person may be involved, or is threatened
to be involved, as a party or otherwise under the Securities Act
or otherwise (hereinafter referred to in this
Section 7.12(e) as a
claim
and in the
plural as
claims
) based upon, arising out of
or resulting from any untrue statement or alleged untrue
statement of any material fact contained in any registration
statement under which any Partnership Securities were registered
under the Securities Act or any state securities or Blue Sky
laws, in any preliminary prospectus (if used prior to the
effective date of such registration statement), or in any
summary or final prospectus or in any amendment or supplement
thereto (if used during the period the Partnership is required
to keep the registration statement current), or arising out of,
based upon or resulting from the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading;
provided, however,
that the Partnership shall not be
liable to any Indemnified Person to the extent that any such
claim arises out of, is based upon or results from an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, such preliminary,
summary or final prospectus or such amendment or supplement, in
reliance upon and in conformity with written information
furnished to the Partnership by or on behalf of such Indemnified
Person specifically for use in the preparation thereof.
(f) The provisions of Section 7.12(a),
Section 7.12(b) and Section 7.12(d) shall continue to
be applicable with respect to the General Partner (and any of
the General Partners Affiliates) after it ceases to be a
general partner of the Partnership, during a period of two years
subsequent to the effective date of such cessation and for so
long thereafter as is required for the Holder to sell all of the
Partnership Securities with respect to which it has requested
during such two-year period inclusion in a registration
statement otherwise filed or that a registration statement be
filed;
provided, however,
that the Partnership shall not
be required to file successive registration statements covering
the same Partnership Securities for which registration was
demanded during such two-year period. The provisions of
Section 7.12(d) shall continue in effect thereafter.
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(g) The rights to cause the Partnership to register
Partnership Securities pursuant to this Section 7.12 may be
assigned (but only with all related obligations) by a Holder to
a transferee or assignee of such Partnership Securities,
provided (i) the Partnership is, within a reasonable time
after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the Partnership
Securities with respect to which such registration rights are
being assigned; and (ii) such transferee or assignee agrees
in writing to be bound by and subject to the terms set forth in
this Section 7.12.
(h) Any request to register Partnership Securities pursuant
to this Section 7.12 shall (i) specify the Partnership
Securities intended to be offered and sold by the Person making
the request, (ii) express such Persons present intent
to offer such Partnership Securities for distribution,
(iii) describe the nature or method of the proposed offer
and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and
materials and take all action as may be required in order to
permit the Partnership to comply with all applicable
requirements in connection with the registration of such
Partnership Securities.
Section
7.13.
Reliance
by Third Parties
.
Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the
Partnership shall be entitled to assume that the General Partner
and any officer of the General Partner authorized by the General
Partner to act on behalf of and in the name of the Partnership
has full power and authority to encumber, sell or otherwise use
in any manner any and all assets of the Partnership and to enter
into any authorized contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnerships sole
party in interest, both legally and beneficially. Each Limited
Partner hereby waives any and all defenses or other remedies
that may be available against such Person to contest, negate or
disaffirm any action of the General Partner or any such officer
in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or
its representatives be obligated to ascertain that the terms of
this Agreement have been complied with or to inquire into the
necessity or expedience of any act or action of the General
Partner or any such officer or its representatives. Each and
every certificate, document or other instrument executed on
behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and
every Person relying thereon or claiming thereunder that
(a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and
empowered to do so for and on behalf of the Partnership and
(c) such certificate, document or instrument was duly
executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section
8.1.
Records
and Accounting
.
The General Partner shall keep or cause
to be kept at the principal office of the Partnership
appropriate books and records with respect to the
Partnerships business, including all books and records
necessary to provide to the Limited Partners any information
required to be provided pursuant to Section 3.4(a). Any
books and records maintained by or on behalf of the Partnership
in the regular course of its business, including the record of
the Record Holders of Units or other Partnership Securities,
books of account and records of Partnership proceedings, may be
kept on, or be in the form of, computer disks, hard drives,
punch cards, magnetic tape, photographs, micrographics or any
other information storage device;
provided,
that the
books and records so maintained are convertible into clearly
legible written form within a reasonable period of time. The
books of the Partnership shall be maintained, for financial
reporting purposes, on an accrual basis in accordance with
U.S. GAAP.
Section
8.2.
Fiscal
Year
.
The fiscal year of the Partnership shall be a
fiscal year ending December 31.
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Section
8.3.
Reports
.
(a) As soon as practicable, but in no event later than
120 days after the close of each fiscal year of the
Partnership, the General Partner shall cause to be mailed or
made available, by any reasonable means (including posting on or
accessible through the Partnerships website), to each
Record Holder of a Unit as of a date selected by the General
Partner, an annual report containing financial statements of the
Partnership for such fiscal year of the Partnership, presented
in accordance with U.S. GAAP, including a balance sheet and
statements of operations, Partnership equity and cash flows,
such statements to be audited by a firm of independent public
accountants selected by the General Partner.
(b) As soon as practicable, but in no event later than
90 days after the close of each Quarter except the last
Quarter of each fiscal year, the General Partner shall cause to
be mailed or made available, by any reasonable means (including
posting on or accessible through the Partnerships
website), to each Record Holder of a Unit, as of a date selected
by the General Partner, a report containing unaudited financial
statements of the Partnership and such other information as may
be required by applicable law, regulation or rule of any
National Securities Exchange on which the Units are listed or
admitted to trading, or as the General Partner determines to be
necessary or appropriate.
ARTICLE IX
TAX MATTERS
Section
9.1.
Tax
Returns and Information
.
The Partnership shall timely
file all returns of the Partnership that are required for
federal, state and local income tax purposes on the basis of the
accrual method and the taxable year or years that it is required
by law to adopt, from time to time, as determined by the General
Partner. In the event the Partnership is required to use a
taxable year other than a year ending on December 31, the
General Partner shall use reasonable efforts to change the
taxable year of the Partnership to a taxable year ending on
December 31. The tax information reasonably required by
Record Holders for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to
them within 90 days of the close of the calendar year in
which the Partnerships taxable year ends. The
classification, realization and recognition of income, gain,
losses and deductions and other items shall be on the accrual
method of accounting for federal income tax purposes.
Section
9.2.
Tax
Elections
.
(a) The Partnership shall make the election under
Section 754 of the Code in accordance with applicable
regulations thereunder, subject to the reservation of the right
to seek to revoke any such election upon the General
Partners determination that such revocation is in the best
interests of the Limited Partners. Notwithstanding any other
provision herein contained, for the purposes of computing the
adjustments under Section 743(b) of the Code, the General
Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of a Limited
Partner Interest will be deemed to be the lowest quoted closing
price of the Limited Partner Interests on any National
Securities Exchange on which such Limited Partner Interests are
listed or admitted to trading during the calendar month in which
such transfer is deemed to occur pursuant to Section 6.2(g)
without regard to the actual price paid by such transferee.
(b) Except as otherwise provided herein, the General
Partner shall determine whether the Partnership should make any
other elections permitted by the Code.
Section
9.3.
Tax
Controversies
.
Subject to the provisions hereof, the
General Partner is designated as the Tax Matters Partner (as
defined in the Code) and is authorized and required to represent
the Partnership (at the Partnerships expense) in
connection with all examinations of the Partnerships
affairs by tax authorities, including resulting administrative
and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. Each
Partner agrees to cooperate with the General Partner and to do
or refrain from doing any or all things reasonably required by
the General Partner to conduct such proceedings.
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Section
9.4.
Withholding
.
Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that may be
required to cause the Partnership and other Group Members to
comply with any withholding requirements established under the
Code or any other federal, state or local law including pursuant
to Sections 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to any Partner
(including by reason of Section 1446 of the Code), the
General Partner may treat the amount withheld as a distribution
of cash pursuant to Section 6.3 in the amount of such
withholding from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
Section
10.1.
Admission
of Initial Limited Partners
.
Upon the issuance by the
Partnership of Common Units, Subordinated Units and Incentive
Distribution Rights to the General Partner, UCI and the
Underwriters as described in Article V in connection with
the Initial Offering, the General Partner shall admit such
parties to the Partnership as Initial Limited Partners in
respect of the Common Units, Subordinated Units or Incentive
Distribution Rights issued to them.
Section
10.2.
Admission
of Limited Partners
.
(a) By acceptance of the transfer of any Limited Partner
Interests in accordance with Article IV or the acceptance
of any Limited Partner Interests issued pursuant to
Article V or pursuant to a merger or consolidation pursuant
to Article XIV, and except as provided in Section 4.9,
each transferee of, or other such Person acquiring, a Limited
Partner Interest (including any nominee holder or an agent or
representative acquiring such Limited Partner Interests for the
account of another Person) (i) shall be admitted to the
Partnership as a Limited Partner with respect to the Limited
Partner Interests so transferred or issued to such Person when
any such transfer, issuance or admission is reflected in the
books and records of the Partnership and such Limited Partner
becomes the Record Holder of the Limited Partner Interests so
transferred, (ii) shall become bound by the terms of this
Agreement, (iii) represents that the transferee has the
capacity, power and authority to enter into this Agreement,
(iv) grants the powers of attorney set forth in this
Agreement and (v) makes the consents and waivers contained
in this Agreement, all with or without execution of this
Agreement by such Person. The transfer of any Limited Partner
Interests and the admission of any new Limited Partner shall not
constitute an amendment to this Agreement. A Person may become a
Limited Partner or Record Holder of a Limited Partner Interest
without the consent or approval of any of the Partners. A Person
may not become a Limited Partner without acquiring a Limited
Partner Interest and until such Person is reflected in the books
and records of the Partnership as the Record Holder of such
Limited Partner Interest. The rights and obligations of a Person
who is a Non-citizen Assignee shall be determined in accordance
with Section 4.9 hereof.
(b) The name and mailing address of each Limited Partner
shall be listed on the books and records of the Partnership
maintained for such purpose by the Partnership or the Transfer
Agent. The General Partner shall update the books and records of
the Partnership from time to time as necessary to reflect
accurately the information therein (or shall cause the Transfer
Agent to do so, as applicable). A Limited Partner Interest may
be represented by a Certificate, as provided in Section 4.1
hereof.
(c) Any transfer of a Limited Partner Interest shall not
entitle the transferee to share in the profits and losses, to
receive distributions, to receive allocations of income, gain,
loss, deduction or credit or any similar item or to any other
rights to which the transferor was entitled until the transferee
becomes a Limited Partner pursuant to Section 10.2(a).
Section
10.3.
Admission
of Successor General Partner
.
A successor General
Partner approved pursuant to Section 11.1 or
Section 11.2 or the transferee of or successor to all of
the General Partner Interest (represented by General Partner
Units) pursuant to Section 4.6 who is proposed to be
admitted as a successor General Partner shall be admitted to the
Partnership as the General Partner, effective immediately prior
to the withdrawal or removal of the predecessor or transferring
General Partner,
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pursuant to Section 11.1 or Section 11.2 or the
transfer of the General Partner Interest (represented by General
Partner Units) pursuant to Section 4.6,
provided,
however,
that no such successor shall be admitted to the
Partnership until compliance with the terms of Section 4.6
has occurred and such successor has executed and delivered such
other documents or instruments as may be required to effect such
admission. Any such successor shall, subject to the terms
hereof, carry on the business of the members of the Partnership
Group without dissolution.
Section
10.4.
Amendment
of Agreement and Certificate of Limited Partnership
.
To
effect the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary or appropriate
under the Delaware Act to amend the records of the Partnership
to reflect such admission and, if necessary, to prepare as soon
as practicable an amendment to this Agreement and, if required
by law, the General Partner shall prepare and file an amendment
to the Certificate of Limited Partnership, and the General
Partner may for this purpose, among others, exercise the power
of attorney granted pursuant to Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section
11.1.
Withdrawal
of the General Partner
.
(a) The General Partner shall be deemed to have withdrawn
from the Partnership upon the occurrence of any one of the
following events (each such event herein referred to as an
Event of Withdrawal
);
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(i) The General Partner voluntarily withdraws from the
Partnership by giving written notice to the other Partners;
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(ii) The General Partner transfers all of its rights as
General Partner pursuant to Section 4.6;
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(iii) The General Partner is removed pursuant to
Section 11.2;
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(iv) The General Partner (A) makes a general
assignment for the benefit of creditors; (B) files a
voluntary bankruptcy petition for relief under Chapter 7 of
the United States Bankruptcy Code; (C) files a petition or
answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files
an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against the General
Partner in a proceeding of the type described in
clauses (A)-(C) of this Section 11.1(a)(iv); or
(E) seeks, consents to or acquiesces in the appointment of
a trustee (but not a
debtor-in
-possession),
receiver or liquidator of the General Partner or of all or any
substantial part of its properties;
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(v) A final and non-appealable order of relief under
Chapter 7 of the United States Bankruptcy Code is entered
by a court with appropriate jurisdiction pursuant to a voluntary
or involuntary petition by or against the General
Partner; or
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(vi) If 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) if the General Partner is a partnership
or a limited liability company, the dissolution and commencement
of winding up of the General Partner; (C) if the General
Partner is acting in such capacity by virtue of being a trustee
of a trust, the termination of the trust; (D) if 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.
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If an Event of Withdrawal specified in Section 11.1(a)(iv),
(v) or (vi)(A), (B), (C) or (E) occurs, the
withdrawing General Partner shall give notice to the Limited
Partners within 30 days after
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such occurrence. The Partners hereby agree that only the Events
of Withdrawal described in this Section 11.1 shall result
in the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership
upon the occurrence of an Event of Withdrawal shall not
constitute a breach of this Agreement under the following
circumstances: (i) at any time during the period beginning
on the Closing Date and ending at 12:00 midnight, Central Time,
on September 30, 2016, the General Partner voluntarily
withdraws by giving at least 90 days advance notice
of its intention to withdraw to the Limited Partners;
provided,
that prior to the effective date of such
withdrawal, the withdrawal is approved by Unitholders holding at
least a majority of the Outstanding Common Units (excluding
Common Units held by the General Partner and its Affiliates) and
the General Partner delivers to the Partnership an Opinion of
Counsel
(Withdrawal Opinion of Counsel
) that
such withdrawal (following the selection of the successor
General Partner) would not result in the loss of the limited
liability of any Limited Partner or any Group Member or cause
any Group Member to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not already so treated or
taxed); (ii) at any time after 12:00 midnight, Central
Time, on September 30, 2016, the General Partner
voluntarily withdraws by giving at least 90 days
advance notice to the Unitholders, such withdrawal to take
effect on the date specified in such notice; (iii) at any
time that the General Partner ceases to be the General Partner
pursuant to Section 11.1(a)(ii) or is removed pursuant to
Section 11.2; or (iv) notwithstanding clause (i)
of this sentence, at any time that the General Partner
voluntarily withdraws by giving at least 90 days
advance notice of its intention to withdraw to the Limited
Partners, such withdrawal to take effect on the date specified
in the notice, if at the time such notice is given one Person
and its Affiliates (other than the General Partner and its
Affiliates) own beneficially or of record or control at least
50% of the Outstanding Units. The withdrawal of the General
Partner from the Partnership upon the occurrence of an Event of
Withdrawal shall also constitute the withdrawal of the General
Partner as general partner or managing member, if any, to the
extent applicable, of the other Group Members. If the General
Partner gives a notice of withdrawal pursuant to
Section 11.1(a)(i), the holders of a Unit Majority, may,
prior to the effective date of such withdrawal, elect a
successor General Partner. The Person so elected as successor
General Partner shall automatically become the successor general
partner or managing member, to the extent applicable, of the
other Group Members of which the General Partner is a general
partner or a managing member. If, prior to the effective date of
the General Partners withdrawal, a successor is not
selected by the Unitholders as provided herein or the
Partnership does not receive a Withdrawal Opinion of Counsel,
the Partnership shall be dissolved in accordance with
Section 12.1. Any successor General Partner elected in
accordance with the terms of this Section 11.1 shall be
subject to the provisions of Section 10.3.
Section
11.2.
Removal
of the General Partner
.
The General Partner may be
removed if such removal is approved by the Unitholders holding
at least
66
2
/
3
%
of the Outstanding Units (including Units held by the General
Partner and its Affiliates) voting as a single class. Any such
action by such holders for removal of the General Partner must
also provide for the election of a successor General Partner by
the Unitholders holding a majority of the outstanding Common
Units voting as a class and a majority of the outstanding
Subordinated Units (if any Subordinated Units are then
Outstanding) voting as a class (including, in each case, Units
held by the General Partner and its Affiliates). Such removal
shall be effective immediately following the admission of a
successor General Partner pursuant to Section 10.3. The
removal of the General Partner shall also automatically
constitute the removal of the General Partner as general partner
or managing member, to the extent applicable, of the other Group
Members of which the General Partner is a general partner or a
managing member. If a Person is elected as a successor General
Partner in accordance with the terms of this Section 11.2,
such Person shall, upon admission pursuant to Section 10.3,
automatically become a successor general partner or managing
member, to the extent applicable, of the other Group Members of
which the General Partner is a general partner or a managing
member. The right of the holders of Outstanding Units to remove
the General Partner shall not exist or be exercised unless the
Partnership has received an opinion opining as to the matters
covered by a Withdrawal Opinion of Counsel. Any successor
General Partner elected in accordance with the terms of this
Section 11.2 shall be subject to the provisions of
Section 10.3.
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Section
11.3.
Interest
of Departing General Partner and Successor General
Partner
.
(a) In the event of (i) withdrawal of the General
Partner under circumstances in which such withdrawal does not
violate this Agreement or (ii) removal of the General
Partner by the holders of Outstanding Units under circumstances
where Cause does not exist, if the successor General Partner is
elected in accordance with the terms of Section 11.1 or
Section 11.2, the Departing General Partner shall have the
option, exercisable prior to the effective date of the departure
of such Departing General Partner, to require its successor to
purchase its General Partner Interest (represented by General
Partner Units) and its general partner interest (or equivalent
interest), if any, in the other Group Members and all of its
Incentive Distribution Rights (collectively, the
Combined Interest
) in exchange for an amount
in cash equal to the fair market value of such Combined
Interest, such amount to be determined and payable as of the
effective date of its departure. If the General Partner is
removed by the Unitholders under circumstances where Cause
exists or if the General Partner withdraws under circumstances
where such withdrawal violates this Agreement, and if a
successor General Partner is elected in accordance with the
terms of Section 11.1 or Section 11.2 (or if the
business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner), such successor shall have the option,
exercisable prior to the effective date of the departure of such
Departing General Partner (or, if the business of the
Partnership is continued, prior to the date the business of the
Partnership is continued), to purchase the Combined Interest for
such fair market value of such Combined Interest of the
Departing General Partner. In either event, the Departing
General Partner shall be entitled to receive all reimbursements
due such Departing General Partner pursuant to Section 7.4,
including any employee-related liabilities (including severance
liabilities), incurred in connection with the termination of any
employees employed by the Departing General Partner or its
Affiliates (other than any Group Member) for the benefit of the
Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value
of the Departing General Partners Combined Interest shall
be determined by agreement between the Departing General Partner
and its successor or, failing agreement within 30 days
after the effective date of such Departing General
Partners departure, by an independent investment banking
firm or other independent expert selected by the Departing
General Partner and its successor, which, in turn, may rely on
other experts, and the determination of which shall be
conclusive as to such matter. If such parties cannot agree upon
one independent investment banking firm or other independent
expert within 45 days after the effective date of such
departure, then the Departing General Partner shall designate an
independent investment banking firm or other independent expert,
the Departing General Partners successor shall designate
an independent investment banking firm or other independent
expert, and such firms or experts shall mutually select a third
independent investment banking firm or independent expert, which
third independent investment banking firm or other independent
expert shall determine the fair market value of the Combined
Interest of the Departing General Partner. In making its
determination, such third independent investment banking firm or
other independent expert may consider the then current trading
price of Units on any National Securities Exchange on which
Units are then listed or admitted to trading, the value of the
Partnerships assets, the rights and obligations of the
Departing General Partner and other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner
set forth in Section 11.3(a), the Departing General Partner
(or its transferee) shall become a Limited Partner and its
Combined Interest shall be converted into Common Units pursuant
to a valuation made by an investment banking firm or other
independent expert selected pursuant to Section 11.3(a),
without reduction in such Partnership Interest (but subject
to proportionate dilution by reason of the admission of its
successor). Any successor General Partner shall indemnify the
Departing General Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date
on which the Departing General Partner (or its transferee)
becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest of the Departing General
Partner to Common Units will be characterized as if the
Departing General Partner (or its transferee) contributed its
Combined Interest to the Partnership in exchange for the newly
issued Common Units.
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(c) If a successor General Partner is elected in accordance
with the terms of Section 11.1 or Section 11.2 (or if
the business of the Partnership is continued pursuant to
Section 12.2 and the successor General Partner is not the
former General Partner) and the option described in
Section 11.3(a) is not exercised by the party entitled to
do so, the successor General Partner shall, at the effective
date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to the product of the
Percentage Interest of the Departing General Partner and the Net
Agreed Value of the Partnerships assets on such date. In
such event, such successor General Partner shall, subject to the
following sentence, be entitled to its Percentage Interest of
all Partnership allocations and distributions to which the
Departing General Partner was entitled. In addition, the
successor General Partner shall cause this Agreement to be
amended to reflect that, from and after the date of such
successor General Partners admission, the successor
General Partners interest in all Partnership distributions
and allocations shall be its Percentage Interest.
Section
11.4.
Termination
of Subordination Period, Conversion of Subordinated Units and
Extinguishment of Cumulative Common Unit Arrearages
.
Notwithstanding any provision of this Agreement, if the General
Partner is removed as general partner of the Partnership under
circumstances where Cause does not exist and Units held by the
General Partner and its Affiliates are not voted in favor of
such removal, (i) the Subordination Period will end and all
Outstanding Subordinated Units will immediately and
automatically convert into Common Units on a one-for-one basis,
(ii) all Cumulative Common Unit Arrearages on the Common
Units will be extinguished and (iii) the General Partner
will have the right to convert its General Partner Interest
(represented by General Partner Units) and its Incentive
Distribution Rights into Common Units or to receive cash in
exchange therefore in accordance with Section 11.3.
Section
11.5.
Withdrawal
of Limited Partners
.
No Limited Partner shall have any
right to withdraw from the Partnership;
provided,
however,
that when a transferee of a Limited Partners
Limited Partner Interest becomes a Record Holder of the Limited
Partner Interest so transferred, such transferring Limited
Partner shall cease to be a Limited Partner with respect to the
Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section
12.1.
Dissolution
.
The Partnership shall not be dissolved by the admission of
additional Limited Partners or by the admission of a successor
General Partner in accordance with the terms of this Agreement.
Upon the removal or withdrawal of the General Partner, if a
successor General Partner is elected pursuant to
Section 11.1 or Section 11.2, the Partnership shall
not be dissolved and such successor General Partner shall
continue the business of the Partnership. The Partnership shall
dissolve, and (subject to Section 12.2) its affairs shall
be wound up, upon:
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(a) an election to dissolve the Partnership by the General
Partner that is approved by the holders of a Unit Majority;
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(b) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Act;
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(c) 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 Section 11.2 and such successor is
admitted to the Partnership pursuant to
Section 10.3; or
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(d) at any time there are no Limited Partners, unless the
Partnership is continued without dissolution in accordance with
the Delaware Act.
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Section
12.2.
Continuation
of the Business of the Partnership After Dissolution
.
Upon (a) dissolution of the Partnership following an Event
of Withdrawal caused by the withdrawal or removal
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of the General Partner as provided in Section 11.1(a)(i) or
(iii) and the failure of the Partners to select a successor
to such Departing General Partner pursuant to Section 11.1
or Section 11.2, then within 90 days thereafter, or
(b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in
Section 11.1(a)(iv), (v) or (vi), then, to the maximum
extent permitted by law, within 180 days thereafter, the
holders of a Unit Majority may elect to continue the business of
the Partnership on the same terms and conditions set forth in
this Agreement by appointing as a successor General Partner a
Person approved by the holders of a Unit Majority. Unless such
an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities
necessary to wind up its affairs. If such an election is so
made, then:
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(i) the Partnership shall continue without dissolution
unless earlier dissolved in accordance with this
Article XII;
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(ii) if the successor General Partner is not the former
General Partner, then the interest of the former General Partner
shall be treated in the manner provided in
Section 11.3; and
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(iii) the successor General Partner shall be admitted to
the Partnership as General Partner, effective as of the Event of
Withdrawal, by agreeing in writing to be bound by this
Agreement;
provided, however,
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).
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Section
12.3.
Liquidator
.
Upon dissolution of the Partnership, unless the business of the
Partnership is continued pursuant to Section 12.2, the
General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner)
shall be entitled to receive such compensation for its services
as may be approved by holders of at least a majority of the
Outstanding Common Units and Subordinated Units voting as a
single class. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days
prior notice and may be removed at any time, with or without
cause, by notice of removal approved by holders of at least a
majority of the Outstanding Common Units and Subordinated Units
voting as a single class. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute
Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days
thereafter be approved by holders of at least a majority of the
Outstanding Common Units and Subordinated Units voting as a
single class. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to
refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly
provided in this Article XII, the Liquidator approved in
the manner provided herein shall have and may exercise, without
further authorization or consent of any of the parties hereto,
all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of
such powers, other than the limitation on sale set forth in
Section 7.3) necessary or appropriate to carry out the
duties and functions of the Liquidator hereunder for and during
the period of time required to complete the winding up and
liquidation of the Partnership as provided for herein.
Section
12.4.
Liquidation
.
The Liquidator shall proceed to dispose of the assets of the
Partnership, discharge its liabilities, and otherwise wind up
its affairs in such manner and over such period as determined by
the Liquidator, subject to Section 17-804 of the Delaware
Act and the following:
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(a) The assets may be disposed of by public or private sale
or by distribution in kind to one or more Partners on such terms
as the Liquidator and such Partner or Partners may agree. If any
property is distributed in kind, the Partner receiving the
property shall be deemed for purposes of Section 12.4(c) to
have received cash equal to its fair market value; and
contemporaneously therewith, appropriate cash distributions must
be made to the other Partners. The Liquidator may
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defer liquidation or distribution of the Partnerships
assets for a reasonable time if it determines that an immediate
sale or distribution of all or some of the Partnerships
assets would be impractical or would cause undue loss to the
Partners. The Liquidator may distribute the Partnerships
assets, in whole or in part, in kind if it determines that a
sale would be impractical or would cause undue loss to the
Partners.
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(b) Liabilities of the Partnership include amounts owed to
the Liquidator as compensation for serving in such capacity
(subject to the terms of Section 12.3) and amounts to
Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is
contingent, conditional or unmatured or is otherwise not yet due
and payable, the Liquidator shall either settle such claim for
such amount as it thinks appropriate or establish a reserve of
cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional
liquidation proceeds.
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(c) All property and all cash in excess of that required to
discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the
extent of, the positive balances in their respective Capital
Accounts, as determined after taking into account all Capital
Account adjustments (other than those made by reason of
distributions pursuant to this Section 12.4(c)) for the
taxable year of the Partnership during which the liquidation of
the Partnership occurs (with such date of occurrence being
determined pursuant to Treasury
Regulation Section 1.704-1(b)(2)(ii)(g)), and such
distribution shall be made by the end of such taxable year (or,
if later, within 90 days after said date of such
occurrence).
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Section
12.5.
Cancellation
of Certificate of Limited Partnership
.
Upon the
completion of the distribution of Partnership cash and property
as provided in Section 12.4 in connection with the
liquidation of the Partnership, the Certificate of Limited
Partnership and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as
may be necessary to terminate the Partnership shall be taken.
Section
12.6.
Return
of Contributions
.
The General Partner shall not be
personally liable for, and shall have no obligation to
contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions
of the Limited Partners or Unitholders, or any portion thereof,
it being expressly understood that any such return shall be made
solely from Partnership assets.
Section
12.7.
Waiver
of Partition
.
To the maximum extent permitted by law,
each Partner hereby waives any right to partition of the
Partnership property.
Section
12.8.
Capital
Account Restoration
.
No Limited Partner shall have any
obligation to restore any negative balance in its Capital
Account upon liquidation of the Partnership. The General Partner
shall be obligated to restore any negative balance in its
Capital Account upon liquidation of its interest in the
Partnership by the end of the taxable year of the Partnership
during which such liquidation occurs, or, if later, within
90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
Section
13.1.
Amendments
to be Adopted Solely by the General Partner
.
Each
Partner agrees that the General Partner, without the approval of
any Partner may amend any provision of this Agreement and
execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to
reflect:
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(a) a change in the name of the Partnership, the location
of the principal place of business of the Partnership, the
registered agent of the Partnership or the registered office of
the Partnership;
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(b) admission, substitution, withdrawal or removal of
Partners in accordance with this Agreement;
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(c) a change that the General Partner determines to be
necessary or appropriate to qualify or continue the
qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability
under the laws of any state or to ensure that the Group Members
will not be treated as associations taxable as corporations or
otherwise taxed as entities for federal income tax purposes;
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(d) a change that the General Partner determines
(i) does not adversely affect the Limited Partners
(including any particular class of Partnership Interests as
compared to other classes of Partnership Interests) in any
material respect, (ii) to be necessary or appropriate
(A) to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or judicial authority or
contained in any federal or state statute (including the
Delaware Act) or (B) to 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 5.9 or (iv) is required to effect the
intent expressed in the Registration Statement or the intent of
the provisions of this Agreement or is otherwise contemplated by
this Agreement;
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(e) a change in the fiscal year or taxable year of the
Partnership and any other changes that the General Partner
determines to be necessary or appropriate as a result of a
change in the fiscal year or taxable year of the Partnership
including, if the General Partner shall so determine, a change
in the definition of
Quarter
and the dates on
which distributions are to be made by the Partnership;
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(f) an amendment that is necessary, in the Opinion of
Counsel, to prevent the Partnership, or the General Partner or
its directors, officers, trustees or agents from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended,
regardless of whether such are substantially similar to plan
asset regulations currently applied or proposed by the United
States Department of Labor;
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(g) an amendment that the General Partner determines to be
necessary or appropriate in connection with the authorization or
issuance of any class or series of Partnership Securities
pursuant to Section 5.6;
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(h) any amendment expressly permitted in this Agreement to
be made by the General Partner acting alone;
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(i) an amendment effected, necessitated or contemplated by
a Merger Agreement approved in accordance with Section 14.3;
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(j) an amendment that the General Partner determines to be
necessary or appropriate to reflect and account for the
formation by the Partnership of, or investment by the
Partnership in, any corporation, partnership, joint venture,
limited liability company or other entity, in connection with
the conduct by the Partnership of activities permitted by the
terms of Section 2.4;
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(k) an amendment necessary to require Limited Partners to
provide a statement, certification or other evidence to the
Partnership regarding whether such Limited Partner is subject to
United States federal income taxation on the income generated by
the Partnership;
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(l) a merger, conveyance or conversion pursuant to
Section 14.3(d); or
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(m) any other amendments substantially similar to the
foregoing.
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Section
13.2.
Amendment
Procedures
.
Except as provided in Section 13.1 and
Section 13.3, all amendments to this Agreement shall be
made in accordance with the following requirements. Amendments
to this Agreement may be proposed only by the General Partner;
provided, however,
that the General Partner shall have no
duty or obligation to propose any amendment to this Agreement
and may decline to do so free of any fiduciary duty or
obligation whatsoever to the Partnership or any Limited Partner
and, in declining to propose an amendment, to the fullest extent
permitted by law shall not be required to act in good faith or
pursuant to any other standard imposed by this Agreement, any
Group Member Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation
or at equity. A proposed amendment shall be effective upon its
approval by the General Partner and the holders of a Unit
Majority, unless a greater or different percentage is required
under this Agreement or by Delaware law. Each proposed amendment
that requires the approval of the holders of a specified
percentage of Outstanding Units shall be set forth in a writing
that contains the text of the proposed amendment. If such an
amendment is proposed, the General Partner shall seek the
written approval of the requisite percentage of Outstanding
Units or call a meeting of the Unitholders to consider and vote
on such proposed amendment. The General Partner shall notify all
Record Holders upon final adoption of any such proposed
amendments.
Section
13.3.
Amendment
Requirements
.
(a) Notwithstanding the provisions of Section 13.1 and
Section 13.2, no provision of this Agreement that
establishes a percentage of Outstanding Units (including Units
deemed owned by the General Partner) required to take any action
shall be amended, altered, changed, repealed or rescinded in any
respect that would have the effect of reducing such voting
percentage unless such amendment is approved by the written
consent or the affirmative vote of holders of Outstanding Units
whose aggregate Outstanding Units constitute not less than the
voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Section 13.1 and
Section 13.2, no amendment to this Agreement may
(i) enlarge the obligations of any Limited Partner without
its consent, unless such shall be deemed to have occurred as a
result of an amendment approved pursuant to
Section 13.3(c), or (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any
way the amounts distributable, reimbursable or otherwise payable
to, the General Partner or any of its Affiliates without its
consent, which consent may be given or withheld at its option.
(c) Except as provided in Section 14.3, and without
limitation of the General Partners authority to adopt
amendments to this Agreement without the approval of any
Partners as contemplated in Section 13.1, any amendment
that would have a material adverse effect on the rights or
preferences of any class of Partnership Interests in
relation to other classes of Partnership Interests must be
approved by the holders of not less than a majority of the
Outstanding Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement,
except for amendments pursuant to Section 13.1 and except
as otherwise provided by Section 14.3(b), no amendments
shall become effective without the approval of the holders of at
least 90% of the Outstanding Units voting as a single class
unless the Partnership obtains an Opinion of Counsel to the
effect that such amendment will not affect the limited liability
of any Limited Partner under applicable partnership law of the
state under whose laws the Partnership is organized.
(e) Except as provided in Section 13.1, this
Section 13.3 shall only be amended with the approval of the
holders of at least 90% of the Outstanding Units.
Section
13.4.
Special
Meetings
.
All acts of Limited Partners to be taken
pursuant to this Agreement shall be taken in the manner provided
in this Article XIII. Special meetings of the Limited
Partners may be called by the General Partner or by Limited
Partners owning 20% or more of the Outstanding Units of the
class or classes for which a meeting is proposed. Limited
Partners shall call a
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special meeting by delivering to the General Partner one or more
requests in writing stating that the signing Limited Partners
wish to call a special meeting and indicating the general or
specific purposes for which the special meeting is to be called.
Within 60 days after receipt of such a call from Limited
Partners or within such greater time as may be reasonably
necessary for the Partnership to comply with any statutes,
rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of
proxies for use at such a meeting, the General Partner shall
send a notice of the meeting to the Limited Partners either
directly or indirectly through the Transfer Agent. A meeting
shall be held at a time and place determined by the General
Partner on a date not less than 10 days nor more than
60 days after the mailing of notice of the meeting. Limited
Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and
control of the business and affairs of the Partnership so as to
jeopardize the Limited Partners limited liability under
the Delaware Act or the law of any other state in which the
Partnership is qualified to do business.
Section
13.5.
Notice
of a Meeting
.
Notice of a meeting called pursuant to
Section 13.4 shall be given to the Record Holders of the
class or classes of Units for which a meeting is proposed in
writing by mail or other means of written communication in
accordance with Section 16.1. The notice shall be deemed to
have been given at the time when deposited in the mail or sent
by other means of written communication.
Section
13.6.
Record
Date
.
For purposes of determining the Limited Partners
entitled to notice of or to vote at a meeting of the Limited
Partners or to give approvals without a meeting as provided in
Section 13.11 the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 days
before (a) the date of the meeting (unless such requirement
conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are listed
or admitted to trading, in which case the rule, regulation,
guideline or requirement of such National Securities Exchange
shall govern) or (b) if approvals are sought without a
meeting, the date by which Limited Partners are requested in
writing by the General Partner to give such approvals. If the
General Partner does not set a Record Date, then (a) the
Record Date for determining the Limited Partners entitled to
notice of or to vote at a meeting of the Limited Partners shall
be the close of business on the day next preceding the day on
which notice is given, and (b) the Record Date for
determining the Limited Partners entitled to give approvals
without a meeting shall be the date the first written approval
is deposited with the Partnership in care of the General Partner
in accordance with Section 13.11.
Section
13.7.
Adjournment
.
When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced
at the meeting at which the adjournment is taken, unless such
adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record
Date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given in accordance with this
Article XIII.
Section
13.8.
Waiver
of Notice; Approval of Meeting; Approval of Minutes
.
The
transactions of any meeting of Limited Partners, however called
and noticed, and whenever held, shall be as valid as if it had
occurred at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy. Attendance
of a Limited Partner at a meeting shall constitute a waiver of
notice of the meeting, except when the Limited Partner attends
the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened; and
except that attendance at a meeting is not a waiver of any right
to disapprove the consideration of matters required to be
included in the notice of the meeting, but not so included, if
the disapproval is expressly made at the meeting.
Section
13.9.
Quorum
and Voting
.
The holders of a majority of the Outstanding
Units of the class or classes for which a meeting has been
called (including Outstanding Units deemed owned by the General
Partner) represented in person or by proxy shall constitute a
quorum at a meeting of Limited Partners of such class or classes
unless any such action by the Limited Partners requires approval
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holders of a greater percentage of such Units, in which case the
quorum shall be such greater percentage. At any meeting of the
Limited Partners duly called and held in accordance with this
Agreement at which a quorum is present, the act of Limited
Partners holding Outstanding Units that in the aggregate
represent a majority of the Outstanding Units entitled to vote
and be present in person or by proxy at such meeting shall be
deemed to constitute the act of all Limited Partners, unless a
greater or different percentage is required with respect to such
action under the provisions of this Agreement, in which case the
act of the Limited Partners holding Outstanding Units that in
the aggregate represent at least such greater or different
percentage shall be required. The Limited Partners present at a
duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding
the withdrawal of enough Limited Partners to leave less than a
quorum, if any action taken (other than adjournment) is approved
by the required percentage of Outstanding Units specified in
this Agreement (including Outstanding Units deemed owned by the
General Partner). In the absence of a quorum any meeting of
Limited Partners may be adjourned from time to time by the
affirmative vote of holders of at least a majority of the
Outstanding Units entitled to vote at such meeting (including
Outstanding Units deemed owned by the General Partner)
represented either in person or by proxy, but no other business
may be transacted, except as provided in Section 13.7.
Section
13.10.
Conduct
of a Meeting
.
The General Partner shall have full power
and authority concerning the manner of conducting any meeting of
the Limited Partners or solicitation of approvals in writing,
including the determination of Persons entitled to vote, the
existence of a quorum, the satisfaction of the requirements of
Section 13.4, the conduct of voting, the validity and
effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or
during the meeting or voting. The General Partner shall
designate a Person to serve as chairman of any meeting and shall
further designate a Person to take the minutes of any meeting.
All minutes shall be kept with the records of the Partnership
maintained by the General Partner. The General Partner may make
such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any
meeting of the Limited Partners or solicitation of approvals in
writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and
approvals, the submission and examination of proxies and other
evidence of the right to vote, and the revocation of approvals
in writing.
Section
13.11.
Action
Without a Meeting
.
If authorized by the General Partner,
any action that may be taken at a meeting of the Limited
Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited
Partners owning not less than the minimum percentage of the
Outstanding Units (including Units deemed owned by the General
Partner) that would be necessary to authorize or take such
action at a meeting at which all the Limited Partners were
present and voted (unless such provision conflicts with any
rule, regulation, guideline or requirement of any National
Securities Exchange on which the Units are listed or admitted to
trading, in which case the rule, regulation, guideline or
requirement of such National Securities Exchange shall govern).
Prompt notice of the taking of action without a meeting shall be
given to the Limited Partners who have not approved in writing.
The General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any
action without a meeting shall be returned to the Partnership
within the time period, which shall be not less than
20 days, specified by the General Partner. If a ballot
returned to the Partnership does not vote all of the Units held
by the Limited Partners, the Partnership shall be deemed to have
failed to receive a ballot for the Units that were not voted. If
approval of the taking of any action by the Limited Partners is
solicited by any Person other than by or on behalf of the
General Partner, the written approvals shall have no force and
effect unless and until (a) they are deposited with the
Partnership in care of the General Partner, (b) approvals
sufficient to take the action proposed are dated as of a date
not more than 90 days prior to the date sufficient
approvals are deposited with the Partnership and (c) an
Opinion of Counsel is delivered to the General Partner to the
effect that the exercise of such right and the action proposed
to be taken with respect to any particular matter (i) will
not cause the Limited Partners to be deemed to be taking part in
the management and control of the business and affairs of the
Partnership so as to jeopardize the Limited Partners
limited liability, and (ii) is otherwise
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permissible under the state statutes then governing the rights,
duties and liabilities of the Partnership and the Partners.
Section
13.12.
Right
to Vote and Related Matters
.
(a) Only those Record Holders of the Units on the Record
Date set pursuant to Section 13.6 (and also subject to the
limitations contained in the definition of
Outstanding
) shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with
respect to matters as to which the holders of the Outstanding
Units have the right to vote or to act. All references in this
Agreement to votes of, or other acts that may be taken by, the
Outstanding Units shall be deemed to be references to the votes
or acts of the Record Holders of such Outstanding Units.
(b) With respect to Units that are held for a Persons
account by another Person (such as a broker, dealer, bank, trust
company or clearing corporation, or an agent of any of the
foregoing), in whose name such Units are registered, such other
Person shall, in exercising the voting rights in respect of such
Units on any matter, and unless the arrangement between such
Persons provides otherwise, vote such Units in favor of, and at
the direction of, the Person who is the beneficial owner, and
the Partnership shall be entitled to assume it is so acting
without further inquiry. The provisions of this
Section 13.12(b) (as well as all other provisions of this
Agreement) are subject to the provisions of Section 4.3.
ARTICLE XIV
MERGER, CONSOLIDATION OR CONVERSION
Section
14.1.
Authority
.
(a) The Partnership may merge or consolidate with or into
one or more corporations, limited liability companies, statutory
trusts or associations, real estate investment trusts, common
law trusts or unincorporated businesses, including a partnership
(whether general or limited (including a limited liability
partnership)) or convert into any such entity, whether such
entity is formed under the laws of the State of Delaware or any
other state of the United States of America, pursuant to a
written plan of merger or consolidation (
Merger
Agreement
) or a written plan of conversion
(
Plan of Conversion
), as the case may
be, in accordance with this Article XIV.
Section
14.2.
Procedure
for Merger, Consolidation or Conversion
.
(a) Merger, consolidation or conversion of the Partnership
pursuant to this Article XIV requires the prior consent of
the General Partner, provided, however, that, to the fullest
extent permitted by law, the General Partner shall have no duty
or obligation to consent to any merger, consolidation or
conversion of the Partnership and may decline to do so free of
any fiduciary duty or obligation whatsoever to the Partnership,
any Limited Partner and, in declining to consent to a merger,
consolidation or conversion, shall not be required to act in
good faith or pursuant to any other standard imposed by this
Agreement, any other agreement contemplated hereby or under the
Act or any other law, rule or regulation or at equity.
(b) If the General Partner shall determine to consent to
the merger or consolidation, the General partner shall approve
the Merger Agreement, which shall set forth:
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(i) name and state of domicile of each of the business
entities proposing to merge or consolidate;
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(ii) the name and state of domicile of the business entity
that is to survive the proposed merger or consolidation
(the
Surviving Business Entity
);
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(iii) the terms and conditions of the proposed merger or
consolidation;
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(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if
any general or limited partner interests, securities or
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rights of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or
general or limited partner interests, rights, securities or
obligations of the Surviving Business Entity, the cash, property
or interests, rights, securities or obligations of any general
or limited partnership, corporation, trust, limited liability
company, unincorporated business or other entity (other than the
Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive
in exchange for, or upon conversion of their interests,
securities or rights, and (ii) in the case of securities
represented by certificates, upon the surrender of such
certificates, which cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving
Business Entity or any general or limited partnership,
corporation, trust, limited liability company, unincorporated
business or other entity (other than the Surviving Business
Entity), or evidences thereof, are to be delivered;
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(v) a statement of any changes in the constituent documents
or the adoption of new constituent documents (the articles or
certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership,
operating agreement or other similar charter or governing
document) of the Surviving Business Entity to be effected by
such merger or consolidation;
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(vi) the effective time of the merger, which may be the
date of the filing of the certificate of merger pursuant to
Section 14.4 or a later date specified in or determinable
in accordance with the Merger Agreement (provided, that if the
effective time of the merger is to be later than the date of the
filing of such certificate of merger, the effective time shall
be fixed at a date or time certain at or prior to the time of
the filing of such certificate of merger and stated
therein); and
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(vii) such other provisions with respect to the proposed
merger or consolidation that the General Partner determines to
be necessary or appropriate.
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(c) If the General Partner shall determine to consent to
the conversion, the General Partner shall approve the Plan of
Conversion, which shall set forth:
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(i) the name of the converting entity and the converted
entity;
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(ii) a statement that the Partnership is continuing its
existence in the organizational form of the converted entity;
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(iii) a statement as to the type of entity that the
converted entity is to be and the state or country under the
laws of which the converted entity is to be incorporated, formed
or organized;
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(iv) the manner and basis of exchanging or converting the
equity securities of each constituent business entity for, or
into, cash, property or interests, rights, securities or
obligations of the converted entity;
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(v) in an attachment or exhibit, the certificate of limited
partnership of the Partnership; and
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(vi) in an attachment or exhibit, the certificate of
limited partnership, articles of incorporation, or other
organizational documents of the converted entity;
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(vii) the effective time of the conversion, which may be
the date of the filing of the articles of conversion or a later
date specified in or determinable in accordance with the Plan of
Conversion (provided, that if the effective time of the
conversion is to be later than the date of the filing of such
articles of conversion, the effective time shall be fixed at a
date or time certain at or prior to the time of the filing of
such articles of conversion and stated therein); and
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(viii) such other provisions with respect to the proposed
conversion that the General Partner determines to be necessary
or appropriate.
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Section
14.3.
Approval
by Limited Partners
.
(a) Except as provided in Sections 14.3(d), the
General Partner, upon its approval of the Merger Agreement or
the Plan of Conversion, as the case may be, shall direct that
the Merger Agreement or the Plan of Conversion, as applicable,
be submitted to a vote of Limited Partners, whether at a special
meeting or by written consent, in either case in accordance with
the requirements of Article XIII. A copy or a summary of
the Merger Agreement or the Plan of Conversion, as the case may
be, shall be included in or enclosed with the notice of a
special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger
Agreement or Plan of Conversion, as the case may be, shall be
approved upon receiving the affirmative vote or consent of the
holders of a Unit Majority.
(c) Except as provided in Section 14.3(d), after such
approval by vote or consent of the Limited Partners, and at any
time prior to the filing of the certificate of merger or
articles of conversion pursuant to Section 14.4, the
merger, consolidation or conversion may be abandoned pursuant to
provisions therefor, if any, set forth in the Merger Agreement
or Plan of Conversion, as the case may be.
(d) Notwithstanding anything else contained in this
Article XIV or in this Agreement, the General Partner is
permitted, without Limited Partner approval, to convert the
Partnership or any Group Member into a new limited liability
entity, to merge the Partnership or any Group Member into, or
convey all of the Partnerships assets to, another limited
liability entity that shall be newly formed and shall have no
assets, liabilities or operations at the time of such
conversion, merger or conveyance other than those it receives
from the Partnership or other Group Member if (i) the
General Partner has received an Opinion of Counsel that the
conversion, merger or conveyance, as the case may be, would not
result in the loss of the limited liability of any Limited
Partner or cause the Partnership to be treated as an association
taxable as a corporation or otherwise to be taxed as an entity
for federal income tax purposes (to the extent not previously
treated as such), (ii) the sole purpose of such conversion,
merger, or conveyance is to effect a mere change in the legal
form of the Partnership into another limited liability entity
and (iii) the governing instruments of the new entity
provide the Limited Partners and the General Partner with the
same rights and obligations as are herein contained.
(e) Additionally, notwithstanding anything else contained
in this Article XIV or in this Agreement, the General
Partner is permitted, without Limited Partner approval, to merge
or consolidate the Partnership with or into another entity if
(A) the General Partner has received an Opinion of Counsel
that the merger or consolidation, as the case may be, would not
result in the loss of the limited liability of any Limited
Partner or cause the Partnership to be treated as an association
taxable as a corporation or otherwise to be taxed as an entity
for federal income tax purposes (to the extent not previously
treated as such), (B) the merger or consolidation would not
result in an amendment to the Partnership Agreement, other than
any amendments that could be adopted pursuant to
Section 13.1, (C) the Partnership is the Surviving
Business Entity in such merger or consolidation, (D) each
Unit outstanding immediately prior to the effective date of the
merger or consolidation is to be an identical Unit of the
Partnership after the effective date of the merger or
consolidation, and (E) the number of Partnership Securities
to be issued by the Partnership in such merger or consolidation
do not exceed 20% of the Partnership Securities Outstanding
immediately prior to the effective date of such merger or
consolidation.
(f) Pursuant to Section 17-211(g) of the Delaware Act,
an agreement of merger or consolidation approved in accordance
with this Article XIV may (a) effect any amendment to
this Agreement or (b) effect the adoption of a new
partnership agreement for the Partnership if it is the Surviving
Business Entity. Any such amendment or adoption made pursuant to
this Section 14.5 shall be effective at the effective time
or date of the merger or consolidation.
Section
14.4.
Certificate
of Merger
.
Upon the required approval by the General Partner and the
Unitholders of a Merger Agreement or the Plan of Conversion, as
the case may be, a certificate of merger or articles of
conversion, as
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applicable, shall be executed and filed with the Secretary of
State of the State of Delaware in conformity with the
requirements of the Delaware Act.
Section
14.5.
Effect
of Merger, Consolidation or Conversion
.
(a) At the effective time of the certificate of merger:
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(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all
property, real, personal and mixed, and all debts due to any of
those business entities and all other things and causes of
action belonging to each of those business entities, shall be
vested in the Surviving Business Entity and after the merger or
consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business
entity;
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(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall
not revert and is not in any way impaired because of the merger
or consolidation;
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(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business
entities shall be preserved unimpaired; and
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(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity
and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted by
it.
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(b) At the effective time of the articles of conversion:
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(i) the Partnership shall continue to exist, without
interruption, but in the organizational form of the converted
entity rather than in its prior organizational form;
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(ii) all rights, title, and interests to all real estate
and other property owned by the Partnership shall continue to be
owned by the converted entity in its new organizational form
without reversion or impairment, without further act or deed,
and without any transfer or assignment having occurred, but
subject to any existing liens or other encumbrances thereon;
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(iii) all liabilities and obligations of the Partnership
shall continue to be liabilities and obligations of the
converted entity in its new organizational form without
impairment or diminution by reason of the conversion;
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(iv) all rights of creditors or other parties with respect
to or against the prior interest holders or other owners of the
Partnership in their capacities as such in existence as of the
effective time of the conversion will continue in existence as
to those liabilities and obligations and may be pursued by such
creditors and obligees as if the conversion did not occur;
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(v) a proceeding pending by or against the Partnership or
by or against any of Partners in their capacities as such may be
continued by or against the converted entity in its new
organizational form and by or against the prior partners without
any need for substitution of parties; and
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(vi) the Partnership Units that are to be converted into
partnership interests, shares, evidences of ownership, or other
securities in the converted entity as provided in the plan of
conversion shall be so converted, and Partners shall be entitled
only to the rights provided in the Plan of Conversion.
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ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
Section
15.1.
Right
to Acquire Limited Partner Interests
.
(a) Notwithstanding any other provision of this Agreement,
if at any time the General Partner and its Affiliates hold more
than 80% of the total Limited Partner Interests of any class
then Outstanding, the General Partner shall then have the right,
which right it may assign and transfer in whole or in part to
the Partnership or any Affiliate of the General Partner,
exercisable at its option, to purchase all, but not less than
all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and
its Affiliates, at the greater of (x) the Current Market
Price as of the date three days prior to the date that the
notice described in Section 15.1(b) is mailed and
(y) the highest price paid by the General Partner or any of
its Affiliates for any such Limited Partner Interest of such
class purchased during the
90-day
period preceding
the date that the notice described in Section 15.1(b) is
mailed. As used in this Agreement, (i)
Current
Market Price
as of any date of any class of Limited
Partner Interests means the average of the daily Closing Prices
(as hereinafter defined) per Limited Partner Interest of such
class for the 20 consecutive Trading Days (as hereinafter
defined) immediately prior to such date;
(ii)
Closing Price
for any day means the
last sale price on such day, regular way, or in case no such
sale takes place on such day, the average of the closing bid and
asked prices on such day, regular way, as reported in the
principal consolidated transaction reporting system with respect
to securities listed on the principal National Securities
Exchange (other than The Nasdaq Stock Market) on which such
Limited Partner Interests are listed or admitted to trading or,
if such Limited Partner Interests of such class are not listed
or admitted to trading on any National Securities Exchange
(other than The Nasdaq Stock Market), the last quoted price on
such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the
over-the
-counter
market, as reported by The Nasdaq Stock Market or such other
system then in use, or, if on any such day such Limited Partner
Interests of such class are not quoted by any such organization,
the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in such
Limited Partner Interests of such class selected by the General
Partner, or if on any such day no market maker is making a
market in such Limited Partner Interests of such class, the fair
value of such Limited Partner Interests on such day as
determined by the General Partner; and
(iii)
Trading Day
means a day on which
the principal National Securities Exchange on which such Limited
Partner Interests of any class are listed or admitted for
trading is open for the transaction of business or, if Limited
Partner Interests of a class are not listed or admitted for
trading on any National Securities Exchange, a day on which
banking institutions in New York City generally are open.
(b) If the General Partner, any Affiliate of the General
Partner or the Partnership elects to exercise the right to
purchase Limited Partner Interests granted pursuant to
Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the
Notice of Election to Purchase
) and shall
cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner
Interests of such class (as of a Record Date selected by the
General Partner) at least 10, but not more than 60, days
prior to the Purchase Date. Such Notice of Election to Purchase
shall also be published for a period of at least three
consecutive days in at least two daily newspapers of general
circulation printed in the English language and published in the
Borough of Manhattan, New York. The Notice of Election to
Purchase shall specify the Purchase Date and the price
(determined in accordance with Section 15.1(a)) at which
Limited Partner Interests will be purchased and state that the
General Partner, its Affiliate or the Partnership, as the case
may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner
Interests in exchange for payment, at such office or offices of
the Transfer Agent as the Transfer Agent may specify, or as may
be required by any National Securities Exchange on which such
Limited Partner Interests are listed. Any such Notice of
Election to Purchase mailed to a Record Holder of Limited
Partner Interests at his address as reflected in the records of
the Transfer Agent shall be conclusively presumed to have been
given regardless of whether the owner receives such notice. On
or prior to the Purchase Date, the General Partner, its
Affiliate or the Partnership, as the case may be, shall deposit
with
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the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of such Limited Partner
Interests to be purchased in accordance with this
Section 15.1. If the Notice of Election to Purchase shall
have been duly given as aforesaid at least 10 days prior to
the Purchase Date, and if on or prior to the Purchase Date the
deposit described in the preceding sentence has been made for
the benefit of the holders of Limited Partner Interests subject
to purchase as provided herein, then from and after the Purchase
Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such
Limited Partner Interests (including any rights pursuant to
Article IV, Article V, Article VI and
Article XII) shall thereupon cease, except the right to
receive the purchase price (determined in accordance with
Section 15.1(a)) for Limited Partner Interests therefor,
without interest, upon surrender to the Transfer Agent of the
Certificates representing such Limited Partner Interests, and
such Limited Partner Interests shall thereupon be deemed to be
transferred to the General Partner, its Affiliate or the
Partnership, as the case may be, on the record books of the
Transfer Agent and the Partnership, and the General Partner or
any Affiliate of the General Partner, or the Partnership, as the
case may be, shall be deemed to be the owner of all such Limited
Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited Partner Interests
(including all rights as owner of such Limited Partner Interests
pursuant to Article IV, Article V, Article VI and
Article XII).
(c) At any time from and after the Purchase Date, a holder
of an Outstanding Limited Partner Interest subject to purchase
as provided in this Section 15.1 may surrender his
Certificate evidencing such Limited Partner Interest to the
Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL PROVISIONS
Section
16.1.
Addresses
and Notices
.
Any notice, demand, request, report or
proxy materials required or permitted to be given or made to a
Partner under this Agreement shall be in writing and shall be
deemed given or made when delivered in person or when sent by
first class United States mail or by other means of written
communication to the Partner at the address described below. Any
notice, payment or report to be given or made to a Partner
hereunder shall be deemed conclusively to have been given or
made, and the obligation to give such notice or report or to
make such payment shall be deemed conclusively to have been
fully satisfied, upon sending of such notice, payment or report
to the Record Holder of such Partnership Securities at his
address as shown on the records of the Transfer Agent or as
otherwise shown on the records of the Partnership, regardless of
any claim of any Person who may have an interest in such
Partnership Securities by reason of any assignment or otherwise.
An affidavit or certificate of making of any notice, payment or
report in accordance with the provisions of this
Section 16.1 executed by the General Partner, the Transfer
Agent or the mailing organization shall be prima facie evidence
of the giving or making of such notice, payment or report. If
any notice, payment or report addressed to a Record Holder at
the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by
the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments
and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder
or another Person notifies the Transfer Agent or the Partnership
of a change in his address) if they are available for the
Partner at the principal office of the Partnership for a period
of one year from the date of the giving or making of such
notice, payment or report to the other Partners. Any notice to
the Partnership shall be deemed given if received by the General
Partner at the principal office of the Partnership designated
pursuant to Section 2.3. The General Partner may rely and
shall be protected in relying on any notice or other document
from a Partner or other Person if believed by it to be genuine.
Section
16.2.
Further
Action
.
The parties shall execute and deliver all
documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the
purposes of this Agreement.
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Section
16.3.
Binding
Effect
.
This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted
assigns.
Section
16.4.
Integration
.
This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining
thereto.
Section
16.5.
Creditors
.
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the
Partnership.
Section
16.6.
Waiver
.
No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach of any other
covenant, duty, agreement or condition.
Section
16.7.
Third-Party
Beneficiaries
.
Each Partner agrees that any Indemnitee
shall be entitled to assert rights and remedies hereunder as a
third-party beneficiary hereto with respect to those provisions
of this Agreement affording a right, benefit or privilege to
such Indemnitee.
Section
16.8.
Counterparts
.
This Agreement may be executed in counterparts, all of which
together shall constitute an agreement binding on all the
parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party
shall become bound by this Agreement immediately upon affixing
its signature hereto or, in the case of a Person acquiring a
Limited Partner Interest, pursuant to Section 10.2(a)
without execution of this Agreement.
Section
16.9.
Applicable
Law
.
This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section
16.10.
Invalidity
of Provisions
.
If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.
Section
16.11.
Consent
of Partners
.
Each Partner hereby expressly consents and
agrees that, whenever in this Agreement it is specified that an
action may be taken upon the affirmative vote or consent of less
than all of the Partners, such action may be so taken upon the
concurrence of less than all of the Partners and each Partner
shall be bound by the results of such action.
Section
16.12.
Facsimile
Signatures
.
The use of facsimile signatures affixed in
the name and on behalf of the transfer agent and registrar of
the Partnership on certificates representing Common Units is
expressly permitted by this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF,
the parties hereto have executed this
Agreement as of the date first written above.
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GENERAL PARTNER:
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UCO GENERAL PARTNER, LP
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Name:
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Title:
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ORGANIZATIONAL LIMITED PARTNER:
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UNIVERSAL COMPRESSION, INC.
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Name:
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Title:
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All Limited Partners now and hereafter admitted as Limited
Partners of the Partnership, pursuant to powers of attorney now
and hereafter executed in favor of, and granted and delivered to
the General Partner or without execution hereof pursuant to
Section 10.2(a) hereof.
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UCO GENERAL PARTNER, LP
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Signature Page to First Amended and Restated Agreement of
Limited Partnership
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EXHIBIT A
to the First Amended and Restated
Agreement of Limited Partnership of
Universal Compression Partners, L.P.
Certificate Evidencing Common Units
Representing Limited Partner Interests in
Universal Compression Partners, L.P.
CUSIP
In accordance with Section 4.1 of the Amended and Restated
Agreement of Limited Partnership of Universal Compression
Partners, L.P., as amended, supplemented or restated from time
to time (the
Partnership Agreement
),
Universal Compression Partners, L.P., a Delaware limited
partnership (the
Partnership
), hereby
certifies
that (the
Holder
) is the registered owner
of Common
Units representing limited partner interests in the Partnership
(the
Common Units
) transferable on the books
of the Partnership, in person or by duly authorized attorney,
upon surrender of this Certificate properly endorsed. The
rights, preferences and limitations of the Common Units are set
forth in, and this Certificate and the Common Units represented
hereby are issued and shall in all respects be subject to the
terms and provisions of, the Partnership Agreement. Copies of
the Partnership Agreement are on file at, and will be furnished
without charge on delivery of written request to the Partnership
at, the principal office of the Partnership located at
4444 Brittmoore Road, Houston, Texas 77041. Capitalized
terms used herein but not defined shall have the meanings given
them in the Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have
(i) requested admission as, and agreed to become, a Limited
Partner and to have agreed to comply with and be bound by and to
have executed the Partnership Agreement, (ii) represented
and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney
provided for in the Partnership Agreement and (iv) made the
waivers and given the consents and approvals contained in the
Partnership Agreement.
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). UCO GP, LLC, THE GENERAL PARTNER OF
UCO GENERAL PARTNER, LP, 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-1
This Certificate shall not be valid for any purpose unless it
has been countersigned and registered by the Transfer Agent and
Registrar.
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Dated:
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Universal Compression Partners, L.P.
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Countersigned and Registered by:
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By:
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UCO General Partner, LP,
its General Partner
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as
Transfer Agent and Registrar
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By:
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UCO GP, LLC,
its General Partner
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By:
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By:
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Authorized Signature
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Name:
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By:
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Secretary
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[Reverse of Certificate]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows
according to applicable laws or regulations:
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TEN COM
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-as tenants in common
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UNIF GIFT/TRANSFERS MIN ACT
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TEN ENT
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-as tenants by the entireties
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Custodian
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(Cust)
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(Minor)
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JT TEN
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-as joint tenants with right of survivorship and not as tenants
in common
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under Uniform Gifts/Transfers to
Minors Act (State)
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Additional abbreviations, though not in the above list, may also
be used.
A-2
ASSIGNMENT OF COMMON UNITS
in
UNIVERSAL COMPRESSION PARTNERS, L.P.
FOR VALUE
RECEIVED, hereby
assigns, conveys, sells and transfers unto
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(Please
print or typewrite name
and address of assignee)
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(Please
insert Social Security or other
identifying number of assignee)
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Common
Units representing limited partner interests evidenced by this
Certificate, subject to the Partnership Agreement, and does
hereby irrevocably constitute and
appoint as
its
attorney-in
-fact
with full power of substitution to transfer the same on the
books of Universal Compression Partners, L.P.
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NOTE:
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The signature to any endorsement hereon must correspond with the
name as written upon the face of this Certificate in every
particular, without alteration, enlargement or change.
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C
RULE 17Ad-15
(Signature)
(Signature)
Signature(s) Guaranteed
No transfer of the Common Units evidenced hereby will be
registered on the books of the Partnership, unless the
Certificate evidencing the Common Units to be transferred is
surrendered for registration or transfer.
ASSIGNEE CERTIFICATION
Type of Entity (check one):
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o
Individual
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o
Partnership
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o
Corporation
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o
Trust
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o
Other (specify)
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Nationality (check one):
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o
U.S. Citizen,
Resident or Domestic Entity
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o
Foreign Corporation
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o
Non-resident Alien
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If the U.S. Citizen, Resident or Domestic Entity is
checked, the following certification must be completed:
Under Section 1445(e) of the Internal Revenue Code of 1986,
as amended (the
Code
), the Partnership must
withhold tax with respect to certain transfers of property if a
holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with
respect to the
A-3
undersigned Interestholders Interest in it, the
undersigned hereby certifies the following (or, if applicable,
certifies the following on behalf of the Interestholder).
Complete either A or B:
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A.
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Individual Interestholder
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1.
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I am not a non-resident alien for purposes of U.S. income
taxation;
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2.
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My U.S. taxpayer identification number (social security
number) is:
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B.
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Partnership, Corporation or Other Interestholder
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1.
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is
not a foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the Code and
Treasury Regulations)
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2.
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The interestholders U.S. employer identification
number
is
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3.
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The interestholders office address and place of
incorporation (if applicable) is
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The interestholder agrees to notify the Partnership within sixty
(60) days of the date the Interestholder becomes a foreign
person.
The interestholder understands that this certificate may be
disclosed to the Internal Revenue Service by the Partnership and
that any false statement contained herein could be punishable by
fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is a
true, correct and complete and, if applicable, I further declare
that I have authority to sign this document on behalf of:
Name of Interest holder
Signature and Date
Title (if applicable)
Note:
If the assignee is a broker, dealer, bank, trust
company, clearing corporation, other nominee holder or an agent
of any of the foregoing, and is holding for the account of any
other person, this application should be completed by an officer
thereof or, in the case of a broker or dealer, by a registered
representative who is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. or, in the case of any other nominee
holder, a person performing a similar function. If the assignee
is a broker, dealer, bank, trust company, clearing corporation,
other nominee owner or an agent of any of the foregoing, the
above certification as to any person for whom the assignee will
hold the Common Units shall be made to the best of
assignees knowledge.
A-4
APPENDIX B
GLOSSARY OF TERMS
Adjusted operating surplus:
For any period,
operating surplus generated during that period is adjusted to:
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(a) increase operating surplus by any net decreases made in
subsequent periods in cash reserves for operating expenditures
initially established with respect to such period;
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(b) decrease operating surplus by any net decrease in cash
reserves for operating expenditures during that period not
relating to an operating expenditure made during that
period; and
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(c) increase operating surplus by any net increase in cash
reserves for operating expenditures during that period required
by any debt instrument for the repayment of principal, interest
or premium.
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Adjusted operating surplus does not include the portion of
operating surplus described in subpart (a)(2) of the definition
of operating surplus in this Appendix B.
Available cash:
For any quarter ending prior to
liquidation:
(a) the sum of:
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(1) all cash and cash equivalents of Universal Compression
Partners, L.P. and its subsidiaries on hand at the end of that
quarter; and
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(2) if our general partner so determines all or a portion
of any additional cash or cash equivalents of Universal
Compression Partners, L.P. and its subsidiaries on hand on the
date of determination of available cash for that quarter;
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(b) less the amount of cash reserves established by our
general partner to:
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(1) provide for the proper conduct of the business of
Universal Compression Partners, L.P. and its subsidiaries
(including reserves for future capital expenditures and for
future credit needs of Universal Compression Partners, L.P. and
its subsidiaries) after that quarter;
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(2) comply with applicable law or any debt instrument or
other agreement or obligation to which Universal Compression
Partners, L.P. or any of its subsidiaries is a party or its
assets are subject; and
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(3) provide funds for minimum quarterly distributions and
cumulative common unit arrearages for any one or more of the
next four quarters;
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provided, however
, that our general partner may not
establish cash reserves pursuant to clause (b)(3)
immediately above unless our general partner has determined that
the establishment of reserves will not prevent us from
distributing the minimum quarterly distribution on all common
units and any cumulative common unit arrearages thereon for that
quarter; and
provided, further
, that disbursements made by us or any
of our subsidiaries or cash reserves established, increased or
reduced after the end of that quarter but on or before the date
of determination of available cash for that quarter shall be
deemed to have been made, established, increased or reduced, for
purposes of determining available cash, within that quarter if
our general partner so determines.
Capital account:
The capital account maintained
for a partner under the partnership agreement. The capital
account of a partner for a general partner unit, a common unit,
a subordinated unit, an incentive distribution right or any
other partnership interest will be the amount which that capital
account would be if that common unit, subordinated unit,
incentive distribution right or other partnership interest were
the only interest in Universal Compression Partners, L.P. held
by a partner.
B-1
Capital surplus:
All available cash distributed by
us from any source will be treated as distributed from operating
surplus until the sum of all available cash distributed since
the closing of the initial public offering equals the operating
surplus as of the end of the quarter before that distribution.
Any excess available cash will be deemed to be capital surplus.
Closing price:
The last sale price on a day,
regular way, or in case no sale takes place on that day, the
average of the closing bid and asked prices on that day, regular
way, in either case, as reported in the principal consolidated
transaction reporting system for securities listed or admitted
to trading on the principal national securities exchange on
which the units of that class are listed or admitted to trading.
If the units of that class are not listed or admitted to trading
on any national securities exchange, the last quoted price on
that day. If no quoted price exists, the average of the high bid
and low asked prices on that day in the
over-the
-counter
market, as reported by the Nasdaq Global Market or any other
system then in use. If on any day the units of that class are
not quoted by any organization of that type, the average of the
closing bid and asked prices on that day as furnished by a
professional market maker making a market in the units of the
class selected by the our board of directors. If on that day no
market maker is making a market in the units of that class, the
fair value of the units on that day as determined reasonably and
in good faith by our board of directors.
Common unit arrearage:
The amount by which the
minimum quarterly distribution for a quarter during the
subordination period exceeds the distribution of available cash
from operating surplus actually made for that quarter on a
common unit, cumulative for that quarter and all prior quarters
during the subordination period.
Current market price:
For any class of units
listed or admitted to trading on any national securities
exchange as of any date, the average of the daily closing prices
for the 20 consecutive trading days immediately prior to that
date.
Interim capital transactions:
The following
transactions if they occur prior to liquidation:
(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 Universal
Compression Partners, L.P. or any of its subsidiaries;
(b) sales of equity interests by Universal Compression
Partners, L.P. or any of its subsidiaries;
(c) sales or other voluntary or involuntary dispositions of
any assets of Universal Compression 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); and
(d) capital contributions received.
Operating expenditures:
All of our cash
expenditures and cash expenditures of our subsidiaries,
including, without limitation, taxes, reimbursements of our
general partner, interest payments and maintenance capital
expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and
premium on indebtedness will not constitute operating
expenditures.
(b) Operating expenditures will not include:
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(1) capital expenditures made for acquisitions or for
capital improvements;
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(2) payment of transaction expenses relating to interim
capital transactions; or
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(3) distributions to unitholders.
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Where capital expenditures are made in part for acquisitions or
for capital improvements and in part for other purposes, our
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
B-2
purposes, the period over which the capital expenditures made
for other purposes will be deducted as an operating expenditure
in calculating operating surplus.
Operating surplus:
For any period prior to
liquidation, on a cumulative basis and without duplication:
(a) the sum of:
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(1) all cash receipts of Universal Compression Partners,
L.P. and our subsidiaries for the period beginning on the
closing date of our initial public offering and ending with the
last day of that period, other than cash receipts from interim
capital transactions; and
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(2) an amount equal to three times the amount needed for
any one quarter for us to pay a distribution on all units
(including general partner units) and incentive distribution
rights at the same per-unit amount as was distributed in the
immediately preceding quarter; less
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(b) the sum of:
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(1) operating expenditures for the period beginning on the
closing date of our initial public offering and ending with the
last day of that period; and
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(2) the amount of cash reserves that is established by our
general partner to provide funds for future operating
expenditures;
provided, however
, that disbursements made
(including contributions to a partner of Universal Compression
Partners, L.P. and our subsidiaries or disbursements on behalf
of a partner of Universal Compression 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.
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Subordination period:
The subordination period
will generally extend from the closing of the initial public
offering until the first to occur of:
(a) the first day of any quarter beginning after
September 30, 2011 for which:
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(1) distributions of available cash from operating surplus
on each of the outstanding common units and subordinated units
equaled or exceeded the sum of the minimum quarterly
distributions on all of the outstanding common units and
subordinated units for each of the three consecutive,
non-overlapping four-quarter periods immediately preceding that
date;
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(2) the adjusted operating surplus generated during each of
the three consecutive, non-overlapping four quarter periods,
immediately preceding that date equaled or exceeded the sum of
the minimum quarterly distributions on all of the common units
and subordinated units that were outstanding during those
periods on a fully diluted basis; and
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(3) there are no outstanding cumulative common units
arrearages.
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(b) the date on which the general partner is removed as our
general partner upon the requisite vote by the limited partners
under circumstances where cause does not exist and units held by
our general partner and its affiliates are not voted in favor of
the removal,
provided, however,
subordinated units may additionally
convert into common units as described in Provisions of
Our Partnership Agreement Relating to Cash
Distributions Subordination Period Early
Termination of Subordination Period.
B-3
5,500,000 Common Units
Representing Limited Partner Interests
PROSPECTUS
Merrill Lynch & Co.
Lehman Brothers
Wachovia Securities
A.G. Edwards
Deutsche Bank Securities
,
2006
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
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Item 13.
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Other Expenses of Issuance and Distribution.
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Set forth below are the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered
hereby. With the exception of the Securities and Exchange
Commission registration fee, the NASD filing fee, the amounts
set forth below are estimates.
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SEC registration fee
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$
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14,213
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NASD filing fee
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13,783
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NASDAQ listing fee
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100,000
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Printing and engraving expenses
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550,000
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Fees and expenses of legal counsel
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1,500,000
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Accounting fees and expenses
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700,000
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Transfer agent and registrar fees
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3,000
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Miscellaneous
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119,000
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Total
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$
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3,000,000
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*
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To be provided by amendment.
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Item 14.
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Indemnification of Officers and Members of Our Board of
Directors.
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The section of the prospectus entitled The Partnership
Agreement Indemnification discloses that we
will generally indemnify officers, directors and affiliates of
the general partner to the fullest extent permitted by the law
against all losses, claims, damages or similar events and is
incorporated herein by this reference. Reference is also made to
Section 6 of the Purchase Agreement filed as an exhibit to
this registration statement in which Universal Compression
Partners, L.P. and certain of its affiliates will agree to
indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as
amended, and to contribute to payments that may be required to
be made in respect of these liabilities. Subject to any terms,
conditions or restrictions set forth in the partnership
agreement, Section 17-108 of the Delaware Revised Uniform
Limited Partnership Act empowers a Delaware limited partnership
to indemnify and hold harmless any partner or other persons from
and against all claims and demands whatsoever.
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Item 15.
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Recent Sales of Unregistered Securities.
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On June 22, 2006, in connection with the formation of
Universal Compression Partners, L.P. (the
Partnership), the Partnership issued to (i) UCO
General Partner, LP the 2% general partner interest in the
Partnership for $20 and (ii) Universal Compression, Inc.
the 98% limited partner interest in the Partnership for $980.
The issuance was exempt from registration under
Section 4(2) of the Securities Act. There have been no
other sales of unregistered securities within the past three
years.
II-1
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Item 16.
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Exhibits and Financial Statement Schedules.
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(a) Exhibits.
The following documents are filed as exhibits to this
registration statement:
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Exhibit
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Number
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Description
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1
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.1*
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Form of Purchase Agreement
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3
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.1**
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Certificate of Limited Partnership of Universal Compression
Partners, L.P.
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3
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.2
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Form of Amended and Restated Limited Partnership Agreement of
Universal Compression Partners, L.P. (included as Appendix A to
the Prospectus and including specimen unit certificate for the
common units)
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3
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.3**
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Certificate of Partnership of UCO General Partner, LP
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3
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.4
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Form of Amended and Restated Limited Partnership Agreement of
UCO General Partner, LP
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3
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.5**
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Certificate of Formation of UCO GP, LLC
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3
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.6
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Form of Amended and Restated Limited Liability Company Agreement
of UCO GP, LLC
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5
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.1
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Opinion of Vinson & Elkins L.L.P. as to the legality of
the securities being registered
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8
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.1
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Opinion of Vinson & Elkins L.L.P. relating to tax
matters
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10
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.1
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Form of Revolving Credit Agreement
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10
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.2
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Universal Compression Partners, L.P. Long-Term Incentive Plan
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10
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.3
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Form of Contribution, Conveyance and Assumption Agreement
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10
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.4
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Form of Unit Option Grant
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10
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.5
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Form of Phantom Unit Grant
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10
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.6
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Form of Omnibus Agreement
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21
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.1**
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List of Subsidiaries of Universal Compression Partners, L.P.
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23
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.1
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Consent of Deloitte & Touche LLP
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23
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.2
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Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1)
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23
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.3
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Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1)
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24
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.1**
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Powers of Attorney (contained on the signature page)
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99
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.1
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Consent of Nominee for Director
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99
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.2
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Consent of Nominee for Director
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99
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.3
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Consent of Nominee for Director
|
|
99
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.4
|
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Consent of Nominee for Director
|
|
99
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.5
|
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Consent of Nominee for Director
|
|
99
|
.6
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Consent of Nominee for Director
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*
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To be filed by amendment.
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(b) Schedule II Valuation and Qualifying
Accounts
II-2
UNIVERSAL COMPRESSION PARTNERS PREDECESSOR
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
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Balance at
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Charged to
|
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Balance at
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Beginning
|
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Costs and
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Collections/
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Close of
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Item
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of Period
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Expenses(1)
|
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Deductions(2)
|
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Period
|
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(dollars in thousands)
|
December 31, 2005 Allowance for doubtful accounts
|
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$
|
401
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$
|
241
|
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$
|
125
|
|
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$
|
767
|
|
March 31, 2005 Allowance for doubtful accounts
|
|
$
|
693
|
|
|
$
|
163
|
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|
$
|
(455
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)
|
|
$
|
401
|
|
March 31, 2004 Allowance for doubtful accounts
|
|
$
|
1,918
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$
|
169
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$
|
(1,394
|
)
|
|
$
|
693
|
|
|
|
(1)
|
Amounts accrued for uncollectibility
|
|
(2)
|
Uncollectible accounts written off, net of recoveries
|
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
|
|
|
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
|
The registrant undertakes to send to each limited partner at
least on an annual basis a detailed statement of any
transactions with UCO GP, LLC or its affiliates, and of fees,
commissions, compensation and other benefits paid, or accrued to
UCO GP, LLC or its affiliates for the fiscal year completed,
showing the amount paid or accrued to each recipient and the
services performed.
The registrant undertakes to provide to the limited partners the
financial statements required by
Form
10-K
for the
first full fiscal year of operations of the partnership.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of
Texas, on October 4, 2006.
|
|
|
Universal Compression Partners, L.P.
|
|
|
|
|
By:
|
UCO GENERAL PARTNER, LP
|
|
|
|
|
|
|
|
By:
|
|
/s/ Stephen A. Snider
Name:
Stephen A. Snider
Title: President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Stephen A. Snider
Stephen
A. Snider
|
|
President and Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
October 4, 2006
|
|
*
Daniel
K. Schlanger
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
October 4, 2006
|
|
*
Kenneth
R. Bickett
|
|
Vice President and Controller
(Principal Accounting Officer)
|
|
October 4, 2006
|
|
*By:
|
|
/s/ Stephen A. Snider
Stephen
A. Snider
Attorney-in-Fact
|
|
|
|
|
II-4
INDEX
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
|
|
|
|
1
|
.1*
|
|
|
|
Form of Purchase Agreement
|
|
3
|
.1**
|
|
|
|
Certificate of Limited Partnership of Universal Compression
Partners, L.P.
|
|
3
|
.2
|
|
|
|
Form of Amended and Restated Limited Partnership Agreement of
Universal Compression Partners, L.P. (included as Appendix A to
the Prospectus and including specimen unit certificate for the
common units)
|
|
3
|
.3**
|
|
|
|
Certificate of Partnership of UCO General Partner, LP
|
|
3
|
.4
|
|
|
|
Form of Amended and Restated Limited Partnership Agreement of
UCO General Partner, LP
|
|
3
|
.5**
|
|
|
|
Certificate of Formation of UCO GP, LLC
|
|
3
|
.6
|
|
|
|
Form of Amended and Restated Limited Liability Company Agreement
of UCO 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 Revolving Credit Agreement
|
|
10
|
.2
|
|
|
|
Universal Compression 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 Phantom Unit Grant
|
|
10
|
.6
|
|
|
|
Form of Omnibus Agreement
|
|
21
|
.1**
|
|
|
|
List of Subsidiaries of Universal Compression Partners, L.P.
|
|
23
|
.1
|
|
|
|
Consent of Deloitte & Touche LLP
|
|
23
|
.2
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1)
|
|
23
|
.3
|
|
|
|
Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 8.1)
|
|
24
|
.1**
|
|
|
|
Powers of Attorney (contained on the signature page)
|
|
99
|
.1
|
|
|
|
Consent of Nominee for Director
|
|
99
|
.2
|
|
|
|
Consent of Nominee for Director
|
|
99
|
.3
|
|
|
|
Consent of Nominee for Director
|
|
99
|
.4
|
|
|
|
Consent of Nominee for Director
|
|
99
|
.5
|
|
|
|
Consent of Nominee for Director
|
|
99
|
.6
|
|
|
|
Consent of Nominee for Director
|
|
|
|
|
*
|
To be filed by amendment.
|
Exhibit 10.1
SENIOR SECURED CREDIT AGREEMENT
Dated as of October ___, 2006
Among
UC OPERATING PARTNERSHIP, L.P.,
as Borrower,
UNIVERSAL COMPRESSION PARTNERS, L.P.
as Guarantor,
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Administrative Agent,
DEUTSCHE BANK TRUST COMPANY AMERICAS,
as Syndication Agent,
FORTIS CAPITAL, CORP. AND WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Co-Documentation Agents
AND
THE LENDERS SIGNATORY HERETO
Arranged by:
WACHOVIA CAPITAL MARKETS, LLC AND DEUTSCHE BANK SECURITIES INC.
as Joint Lead Arrangers and Joint Book Runners
$225,000,000 Senior Secured Credit Facilities
TABLE OF CONTENTS
|
|
|
|
|
|
|
Page
|
|
ARTICLE I
|
|
|
|
|
DEFINITIONS AND ACCOUNTING MATTERS
|
|
|
|
|
|
|
|
|
|
Section 1.01 Terms Defined Above
|
|
|
1
|
|
Section 1.02 Certain Defined Terms
|
|
|
1
|
|
Section 1.03 Types of Loans and Borrowings
|
|
|
22
|
|
Section 1.04 Terms Generally; Rules of Construction
|
|
|
22
|
|
Section 1.05 Accounting Terms and Determinations; GAAP
|
|
|
22
|
|
|
|
|
|
|
ARTICLE II
|
|
|
|
|
THE CREDITS
|
|
|
|
|
|
|
|
|
|
Section 2.01 Commitments
|
|
|
23
|
|
Section 2.02 Loans and Borrowings
|
|
|
23
|
|
Section 2.03 Requests for Borrowings
|
|
|
24
|
|
Section 2.04 Interest Elections
|
|
|
25
|
|
Section 2.05 Funding of Borrowings
|
|
|
27
|
|
Section 2.06 Termination, Reduction and Increase of Aggregate Commitments
|
|
|
30
|
|
Section 2.07 Letters of Credit
|
|
|
30
|
|
|
|
|
|
|
ARTICLE III
|
|
|
|
|
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
|
|
|
|
|
|
|
|
|
|
Section 3.01 Repayment of Loans
|
|
|
35
|
|
Section 3.02 Interest
|
|
|
35
|
|
Section 3.03 Alternate Rate of Interest
|
|
|
36
|
|
Section 3.04 Prepayments
|
|
|
36
|
|
Section 3.05 Fees
|
|
|
37
|
|
|
|
|
|
|
ARTICLE IV
|
|
|
|
|
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
|
|
|
|
|
|
|
|
|
|
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
|
|
|
38
|
|
Section 4.02 Presumption of Payment by the Borrower
|
|
|
39
|
|
Section 4.03 Certain Deductions by the Administrative Agent
|
|
|
40
|
|
Section 4.04 Disposition of Proceeds
|
|
|
40
|
|
|
|
|
|
|
ARTICLE V
|
|
|
|
|
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
|
|
|
|
|
|
|
|
|
|
Section 5.01 Increased Costs
|
|
|
40
|
|
Section 5.02 Break Funding Payments
|
|
|
41
|
|
Section 5.03 Taxes.
|
|
|
42
|
|
Section 5.04 Mitigation Obligations; Replacement of Lenders
|
|
|
43
|
|
Section 5.05 Illegality
|
|
|
44
|
|
i
|
|
|
|
|
|
|
Page
|
|
ARTICLE VI
|
|
|
|
|
CONDITIONS PRECEDENT
|
|
|
|
|
|
|
|
|
|
Section 6.01 Effective Date
|
|
|
44
|
|
Section 6.02 Each Credit Event
|
|
|
46
|
|
Section 6.03 Conditions Precedent to the Term Loans and Commitment Increases
|
|
|
47
|
|
|
|
|
|
|
ARTICLE VII
|
|
|
|
|
REPRESENTATIONS AND WARRANTIES
|
|
|
|
|
|
|
|
|
|
Section 7.01 Legal Existence
|
|
|
48
|
|
Section 7.02 Financial Condition
|
|
|
48
|
|
Section 7.03 Litigation
|
|
|
48
|
|
Section 7.04 No Breach
|
|
|
48
|
|
Section 7.05 Authority
|
|
|
48
|
|
Section 7.06 Approvals
|
|
|
48
|
|
Section 7.07 Use of Loans and Letters of Credit
|
|
|
49
|
|
Section 7.08 ERISA
|
|
|
49
|
|
Section 7.09 Taxes
|
|
|
49
|
|
Section 7.10 Titles, Etc.
|
|
|
50
|
|
Section 7.11 No Material Misstatements
|
|
|
50
|
|
Section 7.12 Investment Company Act
|
|
|
50
|
|
Section 7.13 Subsidiaries
|
|
|
50
|
|
Section 7.14 Location of Business and Offices
|
|
|
50
|
|
Section 7.15 Defaults
|
|
|
50
|
|
Section 7.16 Environmental Matters
|
|
|
50
|
|
Section 7.17 Compliance with the Law
|
|
|
51
|
|
Section 7.18 Insurance
|
|
|
52
|
|
Section 7.19 Hedging Agreements
|
|
|
52
|
|
Section 7.20 Restriction on Liens
|
|
|
52
|
|
|
|
|
|
|
ARTICLE VIII
|
|
|
|
|
AFFIRMATIVE COVENANTS
|
|
|
|
|
|
|
|
|
|
Section 8.01 Reporting Requirements
|
|
|
52
|
|
Section 8.02 Litigation
|
|
|
54
|
|
Section 8.03 Maintenance, Etc.
|
|
|
54
|
|
Section 8.04 Environmental Matters
|
|
|
55
|
|
Section 8.05 Further Assurances
|
|
|
55
|
|
Section 8.06 Performance of Obligations
|
|
|
56
|
|
Section 8.07 Collateral
|
|
|
56
|
|
Section 8.08 Notice of an ERISA Event
|
|
|
57
|
|
|
|
|
|
|
ARTICLE IX
|
|
|
|
|
NEGATIVE COVENANTS
|
|
|
|
|
|
|
|
|
|
Section 9.01 Debt
|
|
|
57
|
|
Section 9.02 Liens
|
|
|
58
|
|
Section 9.03 Investments
|
|
|
59
|
|
Section 9.04 Dividends, Distributions and Redemptions
|
|
|
60
|
|
ii
|
|
|
|
|
|
|
Page
|
|
Section 9.05 Nature of Business
|
|
|
60
|
|
Section 9.06 Mergers, Etc.
|
|
|
60
|
|
Section 9.07 Proceeds of Notes; Letters of Credit
|
|
|
60
|
|
Section 9.08 Sale or Discount of Receivables
|
|
|
61
|
|
Section 9.09 Fiscal Year Change
|
|
|
61
|
|
Section 9.10 Certain Financial Covenants
|
|
|
61
|
|
Section 9.11 Sale of Properties
|
|
|
61
|
|
Section 9.12 Environmental Matters
|
|
|
61
|
|
Section 9.13 Transactions with Affiliates
|
|
|
62
|
|
Section 9.14 Subsidiaries
|
|
|
62
|
|
Section 9.15 Negative Pledge Agreements
|
|
|
63
|
|
|
|
|
|
|
ARTICLE X
|
|
|
|
|
EVENTS OF DEFAULT; REMEDIES
|
|
|
|
|
|
|
|
|
|
Section 10.01 Events of Default
|
|
|
63
|
|
Section 10.02 Remedies
|
|
|
65
|
|
|
|
|
|
|
ARTICLE XI
|
|
|
|
|
THE AGENTS
|
|
|
|
|
|
|
|
|
|
Section 11.01 Appointment; Powers
|
|
|
66
|
|
Section 11.02 Duties and Obligations of Administrative Agent
|
|
|
66
|
|
Section 11.03 Action by Administrative Agent
|
|
|
67
|
|
Section 11.04 Reliance by Administrative Agent
|
|
|
67
|
|
Section 11.05 Subagents
|
|
|
68
|
|
Section 11.06 Resignation or Removal of Administrative Agent
|
|
|
68
|
|
Section 11.07 Agents as Lenders
|
|
|
68
|
|
Section 11.08 No Reliance
|
|
|
68
|
|
Section 11.09 Administrative Agent May File Proofs of Claim
|
|
|
69
|
|
Section 11.10 Authority of Administrative Agent to Release Collateral and Liens
|
|
|
69
|
|
Section 11.11 The Joint Lead Arrangers, the Syndication Agent and the Co-
Documentation Agents
|
|
|
70
|
|
|
|
|
|
|
ARTICLE XII
|
|
|
|
|
MISCELLANEOUS
|
|
|
|
|
|
|
|
|
|
Section 12.01 Notices
|
|
|
70
|
|
Section 12.02 Waivers; Amendments
|
|
|
70
|
|
Section 12.03 Expenses, Indemnity; Damage Waiver
|
|
|
71
|
|
Section 12.04 Successors and Assigns
|
|
|
74
|
|
Section 12.05 Survival; Revival; Reinstatement
|
|
|
75
|
|
Section 12.06 Counterparts; Integration; Effectiveness
|
|
|
76
|
|
Section 12.07 Severability
|
|
|
77
|
|
Section 12.08 Right of Setoff
|
|
|
77
|
|
Section 12.09
Governing Law; Jurisdiction; Consent to Service of Process
|
|
|
77
|
|
Section 12.10 Headings
|
|
|
78
|
|
Section 12.11 Confidentiality
|
|
|
78
|
|
Section 12.12 Interest Rate Limitation
|
|
|
79
|
|
Section 12.13
Exculpation Provisions
|
|
|
80
|
|
iii
|
|
|
|
|
|
|
Page
|
|
Section 12.14 Collateral Matters; Hedging Agreements
|
|
|
81
|
|
Section 12.15 No Third Party Beneficiaries
|
|
|
81
|
|
Section 12.16 USA Patriot Act Notice
|
|
|
81
|
|
Section 12.17 No General Partners Liability
|
|
|
81
|
|
iv
EXHIBITS AND SCHEDULES
|
|
|
Exhibit A
|
|
Form of Note
|
Exhibit B
|
|
Form of Borrowing Request
|
Exhibit C
|
|
Form of Interest Election Request
|
Exhibit D-1
|
|
Form of Effective Date Compliance Certificate
|
Exhibit D-2
|
|
Form of Ongoing Compliance Certificate
|
Exhibit E
|
|
Form of Assignment and Assumption
|
Exhibit F-1
|
|
Security Instruments
|
Exhibit F-2
|
|
Form of Guaranty Agreement
|
Exhibit G-1
|
|
Form of Commitment Increase Certificate
|
Exhibit G-2
|
|
Form of Additional Lender Certificate
|
|
|
|
Schedule 6.01(m)
|
|
Excepted Property
|
Schedule 7.02
|
|
Liabilities
|
Schedule 7.03
|
|
Litigation
|
Schedule 7.09
|
|
Taxes
|
Schedule 7.10
|
|
Titles, Etc.
|
Schedule 7.13
|
|
Subsidiaries
|
Schedule 7.19
|
|
Hedging Agreements
|
Schedule 7.20
|
|
Restriction on Liens
|
Schedule 8.07
|
|
Excluded Collateral
|
Schedule 9.01
|
|
Debt
|
Schedule 9.02
|
|
Liens
|
Schedule 9.03
|
|
Investments, Loans and Advances
|
Schedule 9.13
|
|
Transactions with Affiliates
|
v
THIS SENIOR SECURED CREDIT AGREEMENT
dated as of October ___, 2006, is among: UC
OPERATING PARTNERSHIP, L.P., a limited partnership formed under the laws of the State of Delaware
(the
Borrower
); UNIVERSAL COMPRESSION PARTNERS, L.P., a limited partnership formed under
the laws of the State of Delaware (
UCLP
, and in its capacity as guarantor of the Loans, a
Guarantor
); WACHOVIA BANK, NATIONAL ASSOCIATION, individually and as administrative agent
for the Lenders (herein, together with its successors in such capacity, the
Administrative
Agent
); DEUTSCHE BANK TRUST COMPANY AMERICAS, individually and as syndication agent (herein,
together with its successors in such capacity, the
Syndication Agent
); WACHOVIA CAPITAL
MARKETS, LLC (
Wachovia Securities
) and DEUTSCHE BANK SECURITIES INC. (
DBSI
and
together with Wachovia Securities and their successors in such capacity, the
Joint Lead
Arrangers
and
Joint Book Runners
); FORTIS CAPITAL, CORP., (
Fortis
) and
WELLS FARGO BANK, NATIONAL ASSOCIATION (
Wells Fargo
and together with Fortis and their
successors in such capacity, the
Co-Documentation Agents
); and each of the lenders that
is now or which becomes a party hereto (individually, together with its successors and assigns, a
Lender
and, collectively, the
Lenders
).
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain loans to and extensions of
credit on behalf of the Borrower.
B. The Lenders have agreed to make such loans and extensions of credit subject to the terms
and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein contained and of the loans,
extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows:
ARTICLE I
Definitions and Accounting Matters
Section 1.01
Terms Defined Above
. As used in this Agreement, each term defined above has
the meaning indicated above.
Section 1.02
Certain Defined Terms
. As used in this Agreement, the following terms have
the meanings specified below:
ABR
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to
the Base Rate.
ABS Facility
means an asset backed securitization facility with terms no more
restrictive than those contained in the Holdings ABS Facility, as such documents may be amended,
modified, supplemented, restated, refinanced, or replaced by another non-recourse facility which
facility will be secured by domestic compressor assets and related Property.
-1-
ABS Subsidiary
means any Subsidiary certified by the Borrower to be involved in or
created in connection with or as a requirement of an ABS Facility.
Additional Lender
has the meaning assigned to such term in Section 2.06(c)(i).
Additional Lender Certificate
has the meaning assigned to such term in Section
2.06(c)(ii)(F).
Administrative Questionnaire
means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
Affected Loans
has the meaning assigned such term in Section 5.05.
Affiliate
of any Person means (a) any Person directly or indirectly controlled by,
controlling or under common control with such first Person, (b) any director or officer of such
first Person or of any Person referred to in clause (a) above and (c) if any Person in clause (a)
above is an individual, any member of the immediate family (including parents, spouse and children)
of such individual and any trust whose principal beneficiary is such individual or one or more
members of such immediate family and any Person who is controlled by any such member or trust. For
purposes of this definition, any Person which owns directly or indirectly 10% or more of the
securities having ordinary voting power for the election of directors or other governing body of a
corporation or 10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to control (including, with
its correlative meanings, controlled by and under common control with) such corporation or
other Person.
Agents
means, collectively, the Administrative Agent, the Syndication Agent and the
Co-Documentation Agents; and Agent means either the Administrative Agent, the Syndication Agent
or the Co-Documentation Agents, as the context requires.
Aggregate Commitments
shall mean, collectively the Aggregate Revolving Commitments
and the Aggregate Term Commitments.
Aggregate Revolving Commitments
at any time shall equal the sum of the Revolving
Commitments, as the same may be increased, reduced or terminated pursuant to Section 2.06. The
initial Aggregate Revolving Commitments are $225,000,000.
Aggregate Term Commitments
at any time shall equal the sum of the Term Commitments
of all Term Loan Lenders, as the same may be increased pursuant to Section 2.06. The initial
Aggregate Term Commitments are $0.00.
Agreement
means this Credit Agreement, as the same may from time to time be amended,
modified, supplemented or restated.
Alternate Currency
means such foreign currencies which are readily convertible into
dollars and are acceptable to the Administrative Agent.
-2-
Applicable Margin
means:
(a) In respect of the Term Loan Facility, a percentage per annum as set forth in the Term Loan
Assumption Agreement.
(b) In respect of the Revolving Credit Facility, a percentage per annum determined by
reference to the Total Leverage Ratio as in effect from time to time, as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Applicable Margin
|
Total Leverage Ratio
|
|
Eurodollar Loans
|
|
ABR Loans
|
|
Commitment Fees
|
Greater than
4.75 to 1.0
|
|
|
200
|
|
|
|
100
|
|
|
|
.375
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to
4.75 to 1.0 but
greater than 4.25 to
1.0
|
|
|
175
|
|
|
|
75
|
|
|
|
.375
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to
4.25 to 1.0 but
greater than 3.75 to
1.0
|
|
|
150
|
|
|
|
50
|
|
|
|
.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to
3.75 to 1.0 but
greater than 3.25 to
1.0
|
|
|
125
|
|
|
|
25
|
|
|
|
.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal to
3.25 to 1.0
|
|
|
100
|
|
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|
0
|
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.20
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%
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For purposes of determining the Applicable Margin for the period commencing on the
Effective Date and through December 31, 2006, the Total Leverage Ratio will be deemed to be less
than or equal to 3.75 to 1.0 but greater than 3.25 to 1.0 resulting in the Applicable Margin for
Eurodollar Loans of 125 basis points. Each change in the Applicable Margin resulting from a change
in the Total Leverage Ratio (which shall be calculated quarterly) shall take effect as of the fifth
Business Day following the receipt of the compliance certificate delivered pursuant to Section
8.01(g).
Applicable Lending Office
shall mean, for each Lender and for each Type of Loan, the
lending office of such Lender designated for such Type of Loan on the signature pages hereof or
such other offices of such Lender as such Lender may from time to time specify to the
Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made
and maintained.
Applicable Percentage
means, with respect to any Revolving Lender, the percentage of
the Aggregate Revolving Commitments represented by such Revolving Lenders Revolving Commitment as
such percentage is set forth on such documentation on file with the Administrative Agent.
-3-
Assignment and Assumption
means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by Section 12.04),
and accepted by the Administrative Agent, in the form of
Exhibit E
or any other form
reasonably approved by the Administrative Agent.
Availability Period
means the period from and including the Effective Date to but
excluding the Revolving Credit Maturity Date.
Bankruptcy Code
means the Bankruptcy Code in Title 11 of the United States Code, as
amended, modified, succeeded or replaced from time to time.
Base Rate
means, for any day, a rate per annum equal to the greatest of (a) the
Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day
plus
1
/
2
of 1%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such change in the Prime
Rate or the Federal Funds Effective Rate, respectively.
Board
means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
Borrowing
means Loans of the same Type, made, converted or continued on the same
date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
Borrowing Request
means a request by the Borrower for a Borrowing in accordance with
Section 2.03.
Business Day
means any day that is not a Saturday, Sunday or other day on which
commercial banks in Charlotte, North Carolina are authorized or required by law to remain closed;
and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of
or interest on, or a conversion of or into, or the Interest Period for, a Eurodollar Loan or a
notice by the Borrower with respect to any such Borrowing or continuation, payment, prepayment,
conversion or Interest Period, any day which is also a day on which dealings in dollar deposits are
carried out in the London interbank market. With respect to Letters of Credit, Business Day
means any day other than a day on which commercial banks are authorized or required to close in the
domicility of the respective Issuing Bank and confirming bank.
Capital Lease
means a lease of (or other arrangement conveying the right to use)
real and/or personal Property, or a combination thereof, with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the incurrence of a Debt in
accordance with GAAP.
Capital Lease Obligations
means, as to any Person, all obligations of such Person as
lessee under any Capital Lease, which obligations are required to be classified and accounted for
as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP.
Change in Control
means the occurrence of one or more of the following events: (a)
UCLP ceases to own, directly or indirectly, 100% of the Equity Interests in the Borrower; (b)
-4-
the
adoption of a plan relating to the liquidation or dissolution of the Borrower; (c) the General
Partner ceases to be the sole general partner of UCLP; or (d) Holdings ceases to own, directly or
indirectly, a majority of the legal and beneficial ownership and majority voting control of the
General Partner.
Change in Law
means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement or (c)
compliance by any Lender or the Issuing Bank (or, for purposes of Section 5.01(b)), by any lending
office of such Lender or by such Lenders or the Issuing Banks holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
Code
means the Internal Revenue Code of 1986, as amended from time to time, and any
successor statute.
Collateral
means all Property of the Borrower and the Guarantors which is secured by
a Lien under the Security Instruments.
Commitment Fee
has the meaning assigned such term in Section 3.05(a).
Commitment Increase Certificate
has the meaning assigned to such term in Section
2.06(c)(ii)(E).
Compression Assets
means all or any portion of any Persons compression services
contracts, compression services customer relationships and compression equipment.
Consolidated Net Income
means for any period, the aggregate of the net income (or
loss) of UCLP and its Consolidated Subsidiaries after allowances for taxes for such period,
determined on a consolidated basis in accordance with GAAP;
provided
that there shall be
excluded from such net income (to the extent otherwise included therein) the following: (a) the
net income of any Person in which UCLP or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated with the net income
of UCLP and its Consolidated Subsidiaries in accordance with GAAP), except to the extent of the
amount of cash dividends or distributions actually paid in such period by such other Person to UCLP
or to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) of any
Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar
distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by
operation of the terms of its charter or any agreement, instrument or Governmental Requirement
applicable to such Consolidated Subsidiary, or is otherwise restricted or prohibited in each case
determined in accordance with GAAP;
provided
that upon the removal of such restriction, the
aggregate net income previously excluded within the last four (4) fiscal quarters shall be added to
the net income for the same quarters; (c) any extraordinary gains or losses, including gains or
losses attributable to Property sales not in the ordinary course of business; (d) the cumulative
effect of a change in accounting principles and any gains or losses attributable to writeups or
write downs of assets; (e) gains, losses or other charges as a result of the early retirement of
Debt; and (f) non-cash gains or losses as a result of foreign currency adjustments.
-5-
Consolidated Net Tangible Assets
means, with respect to UCLP as of any date, the sum
of the amounts that would appear on a consolidated balance sheet of UCLP and its Consolidated
Subsidiaries as the total assets of such Person and its Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP and after deducting therefrom, to the extent otherwise
included, unamortized debt discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses, organization or development
expenses and other intangible items.
Consolidated Subsidiaries
shall mean each Subsidiary of UCLP (whether now existing
or hereafter created or acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of UCLP in accordance with GAAP.
Credit Exposure
means at any time for any Lender (a) for the Revolving Credit
Facility, such Revolving Lenders Revolving Credit Exposure and (b) for the Term Loan Facility,
such Term Loan Lenders Term Credit Exposure.
DB
means Deutsche Bank Trust Company Americas and its successors.
Debt
means, for any Person the sum of the following (without duplication): (a) all
obligations of such Person (whether created or assumed) for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments; (b) all obligations of such Person (whether
contingent or otherwise) in respect of bankers acceptances, letters of credit, surety or other
bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase
price of Property or services (other than for borrowed money); (d) all Capital Lease Obligations in
respect of which such Person is liable (whether contingent or otherwise); (e) all Debt (as
described in the other clauses of this definition) and other obligations of others secured by a
Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (f) all Debt
(as described in the other clauses of this definition) and other obligations of others guaranteed
by such Person or in which such Person otherwise assures a creditor against loss of the debtor or
obligations of others; (g) all obligations or undertakings of such Person to maintain or cause to
be maintained the financial position or covenants of others or to purchase the Debt or Property of
others; (h) obligations to deliver goods or services in consideration of payments made more than 60
days in advance of the date such goods and services are due and in excess of the sum of (A)
$15,000,000 outstanding at any time and (B) up to an additional $15,000,000 outstanding at any time
if such amount is approved in writing by the Administrative Agent from time to time; (i)
obligations to pay for goods or services in the form of take-or-pay agreements or similar
arrangements whether or not such goods or services are actually received or utilized by such
Person; (j) any Equity Interests of such Person in which such Person has a mandatory obligation to
redeem such Equity Interests; (k) any Debt (as described in the other clauses of this definition)
of a Special Entity for which such Person is liable either by agreement or because of a
Governmental Requirement; and (l) all net mark-to-market obligations of such Person under Hedging
Agreements.
Default
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Disclosing Parties
shall have the meaning assigned such term in Section 12.11.
-6-
dollars
or $ refers to lawful money of the United States of America.
Domestic Subsidiary
shall mean each Restricted Subsidiary of UCLP which is not a
Foreign Subsidiary.
EBITDA
means, for any period, the sum of Consolidated Net Income for such period
plus the following consolidated expenses or charges to the extent deducted from Consolidated Net
Income in such period: Total Interest Expense, taxes, depreciation, amortization and non-cash
charges (excluding any Subsidiary EBITDA from the Unrestricted Subsidiaries);
provided
that
any cash actually paid with respect to such non-cash charges shall be deducted from EBITDA when
paid. EBITDA will be adjusted on a pro forma basis (determined by the Borrower and supported by
information in reasonable detail and approved by the Administrative Agent) for acquisitions and
divestitures with purchase prices in excess of $25,000,000, including projected synergies;
provided
that EBITDA will be deemed to be $8,900,000 for each of the fiscal quarters ending
December 31, 2005, March 30, 2006, June 30, 2006 and September 30, 2006. EBITDA attributable to
Compression Assets for the fiscal quarter ending December 31, 2006 shall be determined pro forma as
if UCLP and its Restricted Subsidiaries shall have owned the assets the entire quarter.
Effective Date
means the date on which the conditions specified in Section 6.01 are
satisfied (or waived in accordance with Section 12.02).
Environmental Laws
means any and all Governmental Requirements pertaining in any way
to health, safety the environment or the preservation or reclamation of natural resources, in
effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any
time has conducted business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990 (
OPA
), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of
1980 (
CERCLA
), as amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act
of 1976 (
RCRA
), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, and other environmental conservation or
Governmental Requirements. The term oil shall have the meaning specified in OPA, the terms
hazardous substance
and
release
(or
threatened release
) have the
meanings specified in CERCLA, the terms
solid waste
and
disposal
(or
disposed
) have the meanings specified in RCRA and the term
oil and gas waste
shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code
(
Section 91.1011
);
provided
,
however
, that (a) in the event either OPA,
CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of such amendment and
(b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower
or any Subsidiary is located establish a meaning for
oil
,
hazardous substance
,
release
,
solid waste
,
disposal
or
oil and gas waste
which
is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning
shall apply.
-7-
Equity Interests
means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights entitling the holder thereof to
purchase or acquire any such Equity Interests.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended from
time to time.
ERISA Affiliate
means any trade or business (whether or not incorporated) that,
together with UCLP or any Subsidiary, is treated as a single employer under Section 414(b) or (c)
of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated
as a single employer under Section 414 of the Code.
ERISA Event
means (a) any reportable event, as defined in Section 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day
notice period is waived); (b) the existence with respect to any Plan of an accumulated funding
deficiency (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived;
(c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application
for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by UCLP,
any Subsidiary or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect
to the termination of any Plan; (e) the receipt by UCLP, any Subsidiary or any ERISA Affiliate from
the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by UCLP, any Subsidiary or
any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by UCLP, any Subsidiary or any ERISA
Affiliate of any notice, or the receipt by any Multiemployer Plan from UCLP, any Subsidiary or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination
that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the
meaning of Title IV of ERISA.
Eurodollar
, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the LIBO Rate.
Event of Default
has the meaning assigned such term in Section 10.01.
Excepted Liens
means: (a) Liens for taxes, assessments or other governmental
charges or levies not yet due or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained; (b) Liens in connection with workmens
compensation, unemployment insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by appropriate action and for
which adequate reserves have been maintained in accordance with GAAP; (c) operators, vendors,
carriers, warehousemens, repairmens, mechanics, workmens, materialmens, construction or other
like Liens arising by operation of law in the ordinary course of business or statutory landlords
liens, each of which is in respect of obligations that have not been outstanding more than 90 days
or which are being contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP;
-8-
(d) any Liens reserved in leases for rent or
royalties and for compliance with the terms of the leases in the case of leasehold estates, to the
extent that any such Lien referred to in this clause does not materially impair the use of the
Property covered by such Lien for the purposes for which such Property is held by UCLP or any
Subsidiary or materially impair the value of such Property subject thereto; (e) encumbrances (other
than to secure the payment of borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any rights of way or other Property of UCLP or any Subsidiary for the purpose of
roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of
gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use
of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning
restrictions and deficiencies in title of any rights of way or other Property which in the
aggregate do not materially impair the use of such rights of way or other Property for the purposes
of which such rights of way and other Property are held by UCLP or any Subsidiary or materially
impair the value of such Property subject thereto; (f) deposits of cash or securities to secure the
performance of bids, trade contracts, leases, performance bonds, surety and appeal bonds, statutory
obligations and other obligations of a like nature incurred in the ordinary course of business; (g)
Liens permitted by the Security Instruments; (h) Liens arising out of fully bonded or insured
judgments; and (i) Liens for UCLPs or any Subsidiarys title to Property leased under Capital
Leases;
provided
that no intention to subordinate the first priority Lien granted in favor
of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted
existence of such Excepted Liens.
Exchange Act
means the Securities Exchange Act of 1934, as amended, or any successor
statute or statutes thereto.
Excluded Taxes
means, with respect to the Administrative Agent, any Lender, any
Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of
the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of America or such other
jurisdiction under the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its Applicable Lending Office is located, (b)
any branch profits taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Borrower or any Guarantor is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section
5.04(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time
such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is
attributable to such Foreign Lenders failure to comply with Section 5.03(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts with respect to such withholding
tax pursuant to Section 5.03(a) or Section 5.03(c).
Federal Funds Effective Rate
means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average (rounded upwards, if
-9-
necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
Fee Letter
means that certain letter agreement from Wachovia and DB to the Borrower
dated August 22, 2006, concerning certain fees in connection with this Agreement and any agreements
or instruments executed in connection therewith, as the same may be amended or replaced from time
to time.
Financial Officer
means, for any Person, the chief financial officer, vice president
of financial services, senior vice president, principal accounting officer, treasurer or controller
of such Person. Unless otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Borrower.
Financial Statements
means the most recent financial statement or statements of UCLP
referred to in Section 7.02 or delivered annually pursuant to Section 8.01(a)(i).
Foreign Credit Facility
shall mean any credit facility of a Foreign Subsidiary that
derives substantially all of its income from jurisdictions other than the United States of America.
Foreign Lender
means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
Foreign Subsidiary
shall mean each Restricted Subsidiary of UCLP that is
incorporated under the laws of any jurisdiction other than the United States of America, any State
thereof, or any territory thereof.
GAAP
means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in Section 1.05.
General Partner
means UCO General Partner, LP, a Delaware limited partnership and
the general partner of UCLP.
GP
means UCLP OLP GP LLC, a Delaware limited liability company and the general
partner of the Borrower.
Governmental Authority
means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government over UCLP, any Subsidiary, any of their Properties, any Agent, any Issuing
Bank or any Lender.
Governmental Requirement
means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other directive or requirement, whether now or hereinafter in effect,
-10-
including, without limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
Guarantors
means UCLP, the GP and each Significant Domestic Subsidiary that
guarantees the Indebtedness pursuant to Section 8.07.
Guaranty Agreement
shall mean that certain Guaranty Agreement in substantially the
form of
Exhibit F-2
that may be executed by the Guarantors in favor of the Administrative
Agent as required by Section 8.07(a), as amended, modified or restated from time to time.
Hedging Agreement
means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement, whether exchange traded, over-the-counter
or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities,
equity or debt instruments or securities, or economic, financial or pricing indices or measures of
economic, financial or pricing risk or value or any similar transaction or any combination of these
transactions;
provided
that no phantom stock or similar plan providing for payments only on
account of services provided by current or former directors, officers, employees or consultants of
UCLP or the Subsidiaries shall be a Hedging Agreement.
Highest Lawful Rate
means, with respect to each Lender, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such
Lender which are presently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
Holdings
means Universal Compression Holdings, Inc., a Delaware corporation.
Holdings ABS Facility
means that certain $225,000,000.00 asset backed securitization
facility evidenced by, among other documents, that certain Indenture dated October 28, 2005 between
UCO Compression 2005 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee,
as of the Effective Date.
Indebtedness
means any and all amounts owing or to be owing by the Borrower, any
Restricted Subsidiary or any Guarantor (whether direct or indirect (including those acquired by
assumption), absolute or contingent, due or to become due, now existing or hereafter arising): (a)
to the Administrative Agent, any Issuing Bank or any Lender under any Loan Document; (b) to any
Lender or any Affiliate of a Lender under any Hedging Agreement between UCLP or any Restricted
Subsidiary and such Lender or Affiliate of a Lender while such Person (or in the case of its
Affiliate, the Person affiliated therewith) is a Lender hereunder and permitted by the terms of
this Agreement, excluding any Hedging Agreements now or hereafter arising in connection with an ABS
Facility and (c) all renewals, extensions and/or rearrangements of any of the above.
Indemnified Taxes
means Taxes other than Excluded Taxes.
Indemnity Matters
shall mean any and all actions, suits, proceedings (including any
investigations, litigation or inquiries), claims, demands and causes of action made or threatened
against a Person and, in connection therewith, all losses, liabilities, damages (including, without
-11-
limitation, consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
Index Debt
means senior, unsecured, long-term indebtedness for borrowed money of
UCLP or the Borrower that is not guaranteed by any other Person (other than a Guarantor) or subject
to any other credit enhancement.
Information Memorandum
means the Confidential Information Memorandum dated August
2006 relating to the Borrower and the Transactions.
Interest Coverage Ratio
means the ratio of (a) EBITDA for the applicable Testing
Period to (b) Total Interest Expense for the applicable Testing Period.
Interest Election Request
means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.04.
Interest Payment Date
means (a) with respect to any ABR Loan, the last day of each
March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of
the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Borrowing with an Interest Period of more than three months duration, each day prior to
the last day of such Interest Period that occurs at intervals of three months duration after the
first day of such Interest Period.
Interest Period
means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or
twelve months) thereafter, as the Borrower may elect;
provided
, that (a) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next preceding Business Day,
(b) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business
Day of a calendar month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period (c) no Interest Period for a Revolving Borrowing may end
after the Revolving Credit Maturity Date, (d) no Interest Period for a Term Loan Borrowing may end
after the Term Loan Maturity Date, (e) no Interest Period for a Term Loan Borrowing shall be
selected which extends beyond any date upon which an installment of the Term Loan will be due if
such Term Loan Borrowing must be used to make such installment, (f) the first Interest Period
commencing on the Term Loan Funding Date shall be for a period from the Term Loan Funding Date
until the last day of that month and (g) the last Interest Period may be such shorter period as to
end on the Term Loan Maturity Date. For purposes hereof, the date of a Borrowing initially shall
be the date on which such Borrowing is made and thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
Investment
means, as applied to any Person, any direct or indirect (a) purchase or
other acquisition by such Person of any Equity Interests, Debt or other securities (including any
option,
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warrant or other right to acquire any of the foregoing) of any other Person, (b) loan or
advance made by such Person to any other Person, (c) guarantee, assumption or other incurrence of
liability by such Person of or for any Debt or other obligation of any other Person, (d) creation
of any Debt owed to such Person by any other Person, (e) capital contribution or other investment
by such Person in any other Person or (f) purchase or other acquisition (in one transaction or a
series of transactions) of any assets of any other Person constituting a business unit. The amount
of any Investment shall be the original cost of such Investment
plus
the cost of all
additions thereto, without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment or interest earned on such Investment.
Investment
shall exclude extensions of trade credit by UCLP and the Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the UCLP or such
Subsidiary, as the case may be.
IPO
means the public offering described in the S-1.
Issuing Bank
means Wachovia, DB or any other Lender agreed to by the Borrower, the
Administrative Agent and such Lender in its capacity as the issuer of Letters of Credit hereunder,
and its successors in such capacity as provided in Section 2.07(e). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term
Issuing Bank
shall include any such Affiliate with respect
to Letters of Credit issued by such Affiliate.
LC Disbursement
means a payment made by the Issuing Bank pursuant to a Letter of
Credit.
LC Exposure
means, at any time, the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Revolving Lender at any time shall be its Applicable Percentage of the total LC Exposure at
such time.
Lenders
has the meaning assigned such term in the introductory paragraph hereto,
including the Revolving Lenders and the Term Loan Lenders and any Person that shall have become a
party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be
a party hereto pursuant to an Assignment and Assumption, and any Person that shall have become a
party hereto as an Additional Lender pursuant to Section 2.06(c).
Letter of Credit
means any one of the letters of credit issued pursuant to this
Agreement and the reimbursement obligations pertaining thereto, and shall include Offshore Currency
Letters of Credit.
Letter of Credit Agreements
means all letter of credit applications and other
agreements (including any amendments, modifications or supplements thereto) submitted by the
Borrower, or entered into by the Borrower, with the Issuing Bank relating to any Letter of Credit.
LIBO
means the rate of interest determined on the basis of the rate for deposits in
dollars for a period equal to the applicable Interest Period commencing on the first day of such
Interest Period appearing on Bridge Telerate Service (formerly Dow Jones Market Service)
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Page 3750
as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable
Interest Period. In the event that such rate does not appear on Bridge Telerate Service (formerly
Dow Jones Market Service) Page 3750, LIBO shall be determined by the Administrative Agent to be
the rate per annum at which deposits in dollars are offered by leading reference banks in the
London interbank market to the Administrative Agent at approximately 11:00 a.m. (London time) two
(2) Business Days prior to the first day of the applicable Interest Period for a period equal to
such Interest Period and in an amount substantially equal to the amount of the applicable Loan.
LIBO Rate
means, with respect to any Eurodollar Borrowing for any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the
LIBO for such Interest Period multiplied by (b) the Statutory Reserve Rate.
Lien
means any interest in Property securing an obligation owed to, or a claim by, a
Person other than the owner of the Property, whether such interest is based on the common law,
statute or contract, and whether such obligation or claim is fixed or contingent, and including but
not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment for security
purposes. The term
Lien
shall include reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting Property. For the purposes of this Agreement, UCLP or any Subsidiary
shall be deemed to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other arrangement pursuant to
which title to the Property has been retained by or vested in some other Person in a transaction
intended to create a financing.
Loan Documents
means this Agreement, the Notes, the Letter of Credit Agreements, the
Letters of Credit and the Security Instruments.
Loans
means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
Majority Lenders
means, at any time while no Loans or LC Exposure is outstanding,
Lenders having at least a majority of the Aggregate Commitments; and at any time while any Loans or
LC Exposure is outstanding, Lenders holding at least a majority of the outstanding aggregate
principal amount of the Loans and participation interests in Letters of Credit (without regard to
any sale by a Lender of a participation in any Loan under Section 12.04).
Material Adverse Effect
means any material and adverse effect on (a) the assets,
liabilities, financial condition, business, operations or prospects of UCLP and its Restricted
Subsidiaries taken as a whole as reflected in the Financial Statements after eliminating the
financial condition and results of the Unrestricted Subsidiaries or (b) the ability of UCLP and its
Restricted Subsidiaries taken as a whole to perform their obligations under the Loan Documents on a
timely basis.
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Material Domestic Subsidiary
means any Domestic Subsidiary that generates Subsidiary
EBITDA exceeding five percent (5%) of the EBITDA of the UCLP Group for the most recent Testing
Period.
Material Foreign Subsidiary
means any Foreign Subsidiary that generates Subsidiary
EBITDA exceeding five percent (5%) of the EBITDA of the UCLP Group for the most recent Testing
Period.
Moodys
means Moodys Investors Service, Inc. and any successor thereto that is a
nationally recognized rating agency.
Multiemployer Plan
means a Plan which is a multiemployer plan as defined in section
3(37) or 4001 (a)(3) of ERISA.
Non-Recourse Debt
means Debt of any Subsidiary:
(a) as to which neither UCLP nor any Restricted Subsidiary (i) provides credit support of any
kind (including any guaranty, undertaking, agreement or instrument that would constitute Debt),
(ii) is directly or indirectly liable as a guarantor or otherwise or (iii) is the lender;
(b) no default with respect to which (including any rights that the holders thereof may have
to take an enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse
of time or both any holder of Debt of UCLP, the Borrower or any Restricted Subsidiary to declare a
default on such Debt or cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(c) as to which the lenders of such Non-Recourse Debt have been notified in writing that they
will not have any recourse to UCLP, the Borrower, any Restricted Subsidiary or any assets of any of
them.
Non-Recourse Foreign Debt
means Debt of any Foreign Subsidiary:
(a) as to which neither UCLP nor any Domestic Subsidiary (i) provides credit support of any
kind (including any guaranty, undertaking, agreement or instrument that would constitute Debt),
(ii) is directly or indirectly liable as a guarantor or otherwise or (iii) is the lender; and
(b) as to which the lenders of such Non-Recourse Foreign Debt have been notified in writing
that they will not have any recourse to UCLP, the Borrower, any Domestic Subsidiary or any assets
of any of them.
Notes
means the promissory notes of the Borrower described in Section 2.02(d) and
being substantially in the form of
Exhibit A
, together with all amendments, modifications,
replacements, extensions and rearrangements thereof.
Offshore Currency
means any lawful currency (other than dollars) that the relevant
Issuing Bank with respect to any Offshore Currency Letter of Credit, in its sole reasonable
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opinion, at any time determines to be (a) freely traded in the offshore interbank foreign exchange
markets, (b) freely transferable and (c) freely convertible into dollars.
Offshore Currency Letter of Credit
means any Letter of Credit denominated in an
Offshore Currency.
Omnibus Agreement
shall mean that certain Omnibus Agreement dated October ___, 2006
among Holdings, UCI, UCLP and any of its Consolidated Subsidiaries, as amended, modified,
supplemented or restated from time to time and all exhibits and schedules thereto.
OPA
shall have the meaning assigned such term in the definition of Environmental
Laws.
Organization Documents
means, (a) with respect to any corporation, the certificate
or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents
with respect to any non US jurisdiction); (b) with respect to any limited liability company, the
certificate or articles of formation or organization and operating agreement; and (c) with respect
to any partnership, joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or organization with
the applicable Governmental Authority in the jurisdiction of its formation or organization and, if
applicable, any certificate or articles of formation or organization of such entity.
Other Taxes
means any and all present or future stamp or documentary taxes or any
other excise or Property taxes, charges or similar levies arising from any payment made hereunder
or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and
any other Loan Document.
PBGC
means the Pension Benefit Guaranty Corporation, or any successor thereto.
Person
means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
Plan
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA,
and in respect of which UCLP, any Subsidiary or any ERISA Affiliate is (or, if such plan were
terminated, would under Section 4069 of ERISA be deemed to be) an employer as defined in Section
3(5) of ERISA.
Post-Default Rate
shall mean, in respect of any principal of any Loan or any other
amount payable by the Borrower under this Agreement or any other Loan Document, a rate per annum
during the period equal to 2% per annum above the LIBO Rate for Loans as in effect from time to
time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate;
provided
however
, for Eurodollar Loans, the
Post-Default Rate
for such
principal shall be, for the period commencing on the date of occurrence of an Event of Default and
ending on the earlier to occur of the last day of the Interest Period therefor or the date all
Events of
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Default are cured or waived, 2% per annum above the interest rate for such Loan as
provided in Section 3.02(a), but in no event to exceed the Highest Lawful Rate.
Prime Rate
means the rate of interest per annum publicly announced from time to time
by Wachovia
as its prime rate in effect at its principal office in Charlotte, North
Carolina; each change in the Prime Rate shall be effective from and including the date such change
is publicly announced as being effective. Such rate is set by the Administrative Agent as a
general reference rate of interest, taking into account such factors as the Administrative Agent
may deem appropriate; it being understood that many of the Administrative Agents commercial or
other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that the Administrative Agent may make various commercial or
other loans at rates of interest having no relationship to such rate.
Property
means any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and
contract rights.
Purchase Money Indebtedness
means debt, the proceeds of which are used to finance
the acquisition, construction or improvement of inventory, equipment or other property in the
ordinary course of business.
RCRA
has the meaning assigned such term in the definition of Environmental Laws.
Register
has the meaning assigned such term in Section 12.04(c).
Regulation D
means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
Related Fund
means, with respect to any Term Loan Lender that is a fund that invests
in bank loans, any other fund that invests in bank loans and is advised or managed by the same
investment advisor as such Term Loan Lender or by an Affiliate (as defined in clause (a) only of
the definition of Affiliate) of such investment advisor.
Related Parties
means, with respect to any specified Person, such Persons
Affiliates and the respective directors, officers, employees, agents and advisors (including
attorneys, accountants and experts) of such Person and such Persons Affiliates.
Responsible Officer
means, as to any Person, the Chief Executive Officer, the
President, any Financial Officer or any Vice President of such Person. Unless otherwise specified,
all references to a Responsible Officer herein means a Responsible Officer of the Borrower.
Restricted Person
has the meaning assigned such term in Section 12.11.
Restricted Subsidiaries
means all Subsidiaries that are not Unrestricted
Subsidiaries. The Borrower and each ABS Subsidiary will always be Restricted Subsidiaries of UCLP.
Revolving Borrowing
means a Borrowing comprised of Revolving Loans.
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Revolving Commitments
means, as to each Revolving Lender, the amount set forth
opposite such Lenders name under the caption Revolving Commitments on such documentation on file
with the Administrative Agent, as the same may be (a) reduced or terminated from time to time in
connection with a reduction or termination of the Aggregate Revolving Commitments pursuant to
Section 2.06(b), (b) increased from time to time pursuant to Section 2.06(c) or (c) modified from
time to time pursuant to any assignment permitted by Section 12.04.
Revolving Credit Exposure
means, at any time, the sum of the aggregate principal
amount of the Revolving Loans and LC Exposure outstanding at such time.
Revolving Credit Facility
means the Revolving Commitments, the Revolving Loans and
the LC Exposure.
Revolving Credit Maturity Date
means October [ ], 2011.
Revolving Lender
means a Lender with a Revolving Commitment or with outstanding
Revolving Credit Exposure.
Revolving Loans
means each senior secured revolving loan made pursuant to Section
2.01(a).
Revolving Notes
means Notes issued pursuant to Section 2.02(d) evidencing Loans
under the Revolving Credit Facility.
S-1
means that certain Amendment No. 2 to Form S-1 of UCLP as filed with the SEC on
September 20, 2006, as amended.
S&P
means Standard & Poors Ratings Group, a division of The McGraw-Hill Companies,
Inc., and any successor thereto that is a nationally recognized rating agency.
SEC
means the Securities and Exchange Commission or any successor Governmental
Authority.
Security Instruments
means the Fee Letter, the Letters of Credit, the Letter of
Credit Agreements, the Guaranty Agreement, mortgages, deeds of trust and other agreements,
instruments or certificates described or referred to in
Exhibit F-1
, and any and all other
agreements, instruments, consents or certificates now or hereafter executed and delivered by the
Borrower or any other Person (other than Hedging Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other lender or creditor
with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for
the payment or performance of the Indebtedness, the Notes, this Agreement, or reimbursement
obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented
or restated from time to time.
Significant Domestic Subsidiary
means each Wholly-Owned Domestic Subsidiary that
generates Subsidiary EBITDA exceeding seven and one-half percent (7
1
/
2
%) of the EBITDA of the UCLP
Group. If, in the aggregate, the Subsidiary EBITDA of the Wholly-Owned Domestic
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Subsidiaries that
are not Guarantors exceeds fifteen percent (15%) of the EBITDA of the UCLP Group, those
Wholly-Owned Domestic Subsidiaries representing a majority of such Subsidiary EBITDA shall each be
a Significant Domestic Subsidiary;
provided
that any Wholly-Owned Domestic Subsidiary that
guarantees any Debt shall be deemed a Significant Domestic Subsidiary. No ABS Subsidiary shall be
a Significant Domestic Subsidiary.
Special Entity
means any joint venture, limited liability company or partnership,
general or limited partnership or any other type of partnership or company other than a corporation
in which UCLP or one or more of its other Subsidiaries is a member, owner, partner or joint
venturer and owns, directly or indirectly, at least a majority of the equity of such entity or
controls such entity, but excluding any tax partnerships that are not classified as partnerships
under state law. For purposes of this definition, any Person which owns directly or indirectly an
equity investment in another Person which allows the first Person to manage or elect managers who
manage the normal activities of such second Person will be deemed to control such second Person
(
e.g.
a sole general partner controls a limited partnership).
Specified Acquisition
means any acquisition of assets (including, but not limited
to, purchase of Compression Assets from Holdings or its Subsidiaries) or entities or operating
lines or divisions for a purchase price of not less than $50,000,000.
Statutory Reserve Rate
means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as Eurocurrency Liabilities in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable regulation.
The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
Subsidiary
means: (a) any Person of which at least a majority of the outstanding
Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board
of directors, manager or other governing body of such Person (irrespective of whether or not at the
time Equity Interests of any other class or classes of such Person shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or indirectly owned or
controlled by another Person or one or more of its Subsidiaries or by such other Person and one or
more of its Subsidiaries and (b) any partnership of which such other Person or any of its
Subsidiaries is a general partner. Unless otherwise indicated herein, each reference to the term
Subsidiary
means a Subsidiary of UCLP.
Subsidiary EBITDA
means, for any Subsidiary for any period, gross revenues of such
Unrestricted Subsidiary for such period less the cost of sales (excluding depreciation expenses to
the extent such expenses were deducted) associated with such gross revenues.
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Taxes
means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
Term Commitments
means, as to each Term Loan Lender, the amount set forth opposite
such Term Loan Lenders name under the caption Term Commitments on such documentation on file
with the Administrative Agent, as the same may be increased from time to time pursuant to Section
2.06(c). All Term Commitments shall terminate immediately after the Term Loan Funding Date.
Term Credit Exposure
means, with respect to any Term Loan Lender at any time, the
principal amount of such Term Loan Lenders Term Loans.
Term Loan
means each senior secured term loan made pursuant to Section 2.01(b).
Term Loan Assumption Agreement
shall mean a Term Loan Assumption Agreement in form
and substance reasonably satisfactory to the Administrative Agent, among the Borrower, the
Guarantors, the Administrative Agent and one or more Term Loan Lenders.
Term Loan Borrowing
means a Borrowing comprised of Term Loans.
Term Loan Facility
means the Term Commitments and the Term Loans.
Term Loan Funding Date
means the date on which the Term Loan Lenders make a senior
secured term loan pursuant to Section 2.01(b).
Term Loan Lender
means a Lender with an outstanding Term Loan.
Term Loan Maturity Date
means the date as defined in the Term Loan Assumption
Agreement;
provided
such date is no sooner than the Revolving Credit Maturity Date.
Term Notes
means Notes issued pursuant to Section 2.02(d) evidencing Loans under the
Term Loan Facility.
Testing Period
means a single period consisting of the four consecutive fiscal
quarters of UCLP then last ended (whether or not such quarters are all within the same fiscal
year);
provided
,
however
, that if a particular provision of this Agreement
indicates that a Testing Period shall be a different specified duration, such Testing Period shall
consist of the particular fiscal quarter or quarters then last ended which are so indicated in such
provision.
Total Debt
means, at any time (without duplication), the sum of (a) 100% of the
long-term debt of UCLP and its Restricted Subsidiaries reflected on the consolidated balance sheet
of UCLP in accordance with GAAP, plus (b) any Debt that is not reflected on the consolidated
balance sheet of UCLP and its Restricted Subsidiaries which has been used to finance assets that
generate income included in EBITDA, plus (c) the current portion of the debt set forth in (a)
above, plus or minus (d) the mark-to-market obligations of UCLP and its Restricted Subsidiaries
under the Hedging Agreements.
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Total Interest Expense
means, for any period, the total consolidated interest
expense net of cash interest income of UCLP and its Restricted Subsidiaries for such period
(including, without limitation, the cash equivalent of the interest expense associated with Capital
Lease Obligations, but excluding (a) upfront fees paid in connection with this Agreement, an ABS
Facility or any debt facility where the fees are paid from the proceeds of such debt, (b) Debt or
lease issuance costs which have to be amortized, (c) lease payments on any office equipment or real
property, (d) any principal components paid on all lease payments and (e) gains, losses or other
charges as a result of the early retirement of Debt). Total Interest Expense will be deemed to be
$2,100,000 for each of the fiscal quarters ending December 31, 2005, March 30, 2006, June 30, 2006
and September 30, 2006. Total Interest Expense attributable to Debt of UCLP and its Restricted
Subsidiaries for the fiscal quarter ending December 31, 2006 shall be determined pro forma as if
such Debt of UCLP and its Restricted Subsidiaries would have been outstanding the entire quarter.
Total Leverage Ratio
means the ratio of Total Debt to EBITDA.
Transactions
means, with respect to (a) the Borrower, the execution, delivery and
performance by the Borrower of this Agreement, and each other Loan Document to which it is a party,
the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit
hereunder, and the grant of Liens by the Borrower on Collateral pursuant to the Security
Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of
each Loan Document to which it is a party, the guaranteeing of the Indebtedness and the other
obligations under the Guaranty Agreement by such Guarantor and such Guarantors grant of the
security interests and provision of collateral under the Security Instruments, and the grant of
Liens by such Guarantor on Collateral pursuant to the Security Instruments.
Type
, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Base Rate or the LIBO Rate.
UCI
means Universal Compression, Inc.
UCLP
shall mean Universal Compression Partners, L.P., a Delaware limited
partnership.
UCLP Group
shall mean UCLP and its Restricted Subsidiaries.
UCLP Partnership Agreement
means that certain Agreement of Limited Partnership of
UCLP dated as of June 16, 2006, as amended, modified, supplemented or restated from time to time.
US Dollar Equivalent
means, at any time of determination thereof, the amount of
dollars involved which could be purchased with the applicable amount of the Alternate Currency
involved computed at the spot rate of exchange as quoted or utilized by the Administrative Agent on
the date of determination thereof.
USA Patriot Act
has the meaning assigned such term in Section 12.16.
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Unrestricted Subsidiary
means any Subsidiary designated as an Unrestricted
Subsidiary in accordance with Section 9.14, and any of its Subsidiaries.
Wachovia
means Wachovia Bank, National Association and its successors.
Weighted Average Life to Maturity
means, when applied to any Debt at any date, the
number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the
amount of each then remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (ii) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and the making of such
payment, by (b) the then outstanding principal amount of such Debt.
Wholly-Owned Domestic Subsidiary
means any Domestic Subsidiary of which all of the
outstanding Equity Interests (other than any directors qualifying shares mandated by applicable
law), on a fully-diluted basis, are owned by UCLP or one or more of the Wholly-Owned Domestic
Subsidiaries or are owned by UCLP and one or more of the Wholly-Owned Domestic Subsidiaries.
Section 1.03
Types of Loans and Borrowings
. For purposes of this Agreement, Loans and
Borrowings, respectively, may be classified and referred to by Type (e.g., a
Eurodollar
Loan
or a
Eurodollar Borrowing
).
Section 1.04
Terms Generally; Rules of Construction
. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The
words include, includes and including shall be deemed to be followed by the phrase without
limitation. The word will shall be construed to have the same meaning and effect as the word
shall. Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications set forth in the Loan
Documents), (b) any reference herein to any law shall be construed as referring to such law as
amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c)
any reference herein to any Person shall be construed to include such Persons successors and
assigns (subject to the restrictions contained in the Loan Documents), (d) the words herein,
hereof and hereunder, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (e) with respect to the
determination of any time period, the word from means from and including and the word to
means to and including and (f) any reference herein to Articles, Sections, Annexes, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and
Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be
interpreted or construed against any Person solely because such Person or its legal representative
drafted such provision.
Section 1.05
Accounting Terms and Determinations; GAAP
. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial statements and
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certificates and
reports as to financial matters required to be furnished to the Administrative Agents or the
Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with
the audited financial statements of UCLP and its Consolidated Subsidiaries referred to in Section
8.01(a) (except for changes concurred with by UCLP and its Consolidated Subsidiaries independent
public accountants);
provided
that, if UCLP notifies the Administrative Agent that it
requests an amendment to any provision hereof to eliminate the effect of any change occurring after
the date hereof in GAAP (including but not limited to any Statement of Financial Accounting
Standards) affecting the calculation of any financial covenant (or if the Administrative Agent
notifies UCLP that the Majority Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such change in GAAP
affecting the calculation of any financial covenant, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended in accordance
herewith.
ARTICLE II
The Credits
Section 2.01
Commitments
.
(a)
Revolving Commitments
. Subject to the terms and conditions set forth herein, each
Revolving Lender agrees to make Revolving Loans to the Borrower during the Availability Period in
an aggregate principal amount that will not result in (i) such Revolving Lenders Revolving Credit
Exposure exceeding such Revolving Lenders Revolving Commitment and (ii) the total Revolving Credit
Exposure exceeding the Aggregate Revolving Commitments. Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, repay and reborrow the
Revolving Loans.
(b)
Term Commitments
. Subject to the terms and conditions set forth herein and in the
applicable Term Loan Assumption Agreement, each Term Loan Lender agrees to make Term Loans to the
Borrower on the Term Loan Funding Date in an aggregate principal amount that will not result in:
(i) such Term Loan Lenders Term Credit Exposure exceeding such Term Loan Lenders Term Commitment
and (ii) the total Term Credit Exposure exceeding the Aggregate Term Commitments. Once repaid or
prepaid, Term Loans may not be reborrowed.
Section 2.02
Loans and Borrowings
.
(a)
Borrowings; Several Obligations
. Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their respective Revolving
Commitments and Term Commitments. The failure of any Lender to make any Loan required to be made
by it shall not relieve any other Lender of its obligations hereunder;
provided
that the
Revolving Commitments and Term Commitments are several and no Lender shall be responsible for any
other Lenders failure to make Loans as required.
(b)
Types of Loans
. Subject to Section 3.03, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
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accordance herewith. Each
Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan;
provided
that any exercise of such option shall
not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c)
Minimum Amounts; Limitation on Number of Borrowings
. At the commencement of each
Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that
is an integral multiple of $500,000 and not less than $1,000,000. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $100,000;
provided
that an ABR Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the Aggregate Revolving Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.07(d).
Borrowings of more than one Type may be outstanding at the same time,
provided
that there
shall not at any time be more than a total of ten (10) Eurodollar Borrowings outstanding.
Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Revolving Credit Maturity Date or Term Loan Maturity Date, as
applicable.
(d)
Notes
. The Loans made by each Lender shall be evidenced by a single promissory
note of the Borrower in substantially the form of
Exhibit A
, dated, in the case of (i) any
Lender party hereto as of the date of this Agreement, as of the date of this Agreement, (ii) any
Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective
date of the Assignment and Assumption or (iii) any Lender that becomes a party hereto in connection
with an increase in the Aggregate Revolving Commitments or Aggregate Term Commitments pursuant to
Section 2.06(c), as of the effective date of such increase, payable to the order of such Lender in
a principal amount equal to its Revolving Commitment or Term Commitment as in effect on such date,
and otherwise duly completed. In the event that any Lenders Revolving Commitment or Term
Commitment increases or decreases for any reason (whether pursuant to Section 2.06, Section
12.04(c) or otherwise), the Borrower shall deliver or cause to be delivered on the effective date
of such increase or decrease, a new Note payable to the order of such Lender in a principal amount
equal to its Revolving Commitment or Term Commitment after giving effect to such increase or
decrease, and otherwise duly completed. The date, amount, Type, interest rate and, if applicable,
Interest Period of each Loan made by each Lender and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer,
may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or
on any separate record maintained by such Lender. Failure to make any such notation or to attach a
schedule shall not affect any Lenders or the Borrowers rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.03
Requests for Borrowings
. To request a Borrowing, the Borrower shall notify
the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing,
not later than 12:00 p.m., Eastern time, three (3) Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 p.m., Eastern time, on the
date of the proposed Borrowing;
provided
that no such notice shall be required for any
deemed request of an ABR Borrowing to finance the reimbursement of an LC Disbursement
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as provided
in Section 2.07(d). Each such telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery, telecopy or email to the Administrative Agent of a written
Borrowing Request in substantially the form of
Exhibit B
and signed by the Borrower. Each
such telephonic and written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable
thereto, which shall be a period contemplated by the definition of the term Interest Period;
(v) if a Revolving Borrowing is requested, the amount of the current total Revolving Credit
Exposures (without regard to the requested Revolving Borrowing) and the
pro forma
total Revolving
Credit Exposures (giving effect to the requested Revolving Borrowing); and
(vi) the location and number of the Borrowers account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an
ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar
Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one months
duration. Each Borrowing Request shall constitute a representation that the amount of the
requested Borrowing shall not cause (y) the total Revolving Credit Exposures to exceed the
Aggregate Revolving Commitments or (z) the total Term Credit Exposures to exceed the Aggregate Term
Commitments, as applicable.
Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the
Administrative Agent shall advise each Lender of the details thereof and of the amount of such
Lenders Loan to be made as part of the requested Borrowing.
Section 2.04
Interest Elections
.
(a)
Conversion and Continuance
. Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this
Section 2.04. The Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.
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(b)
Interest Election Requests
. To make an election pursuant to this Section 2.04,
the Borrower shall notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing
of the Type resulting from such election to be made on the effective date of such election. Each
such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by
hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in
substantially the form of
Exhibit C
and signed by the Borrower.
(c)
Information in Interest Election Requests
. Each telephonic and written Interest
Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options
are being elected with respect to different portions thereof, the portions thereof to be allocated
to each resulting Borrowing (in which case the information to be specified pursuant to Section
2.04(c)(iii) and (iv) shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which
shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period contemplated by
the definition of the term Interest Period.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
months duration.
(d)
Notice to Lenders by the Administrative Agent
. Promptly following receipt of an
Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof
and of such Lenders portion of each resulting Borrowing.
(e)
Effect of Failure to Deliver Timely Interest Election Request and Event of
Default
. If the Borrower fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing: (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion
of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be
ineffective) and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
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Section 2.05
Funding of Borrowings
.
(a)
Funding by Lenders
. Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., Eastern
time, to the account of the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by
promptly crediting the amounts so received, in like funds, to an account of the Borrower designated
by the Borrower in the applicable Borrowing Request;
provided
that ABR Loans made to
finance the reimbursement of an LC Disbursement as provided in Section 2.07(d) shall be remitted by
the Administrative Agent to the Issuing Bank. Nothing herein shall be deemed to obligate any
Lender to obtain the funds for its Loan in any particular place or manner or to constitute a
representation by any Lender that it has obtained or will obtain the funds for its Loan in any
particular place or manner.
(b)
Presumption of Funding by the Lenders
. Unless the Administrative Agent shall have
received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lenders share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available on such date in
accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the
applicable Borrowing available to the Administrative Agent, then the applicable Lender and the
Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i)
in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays
such amount to the Administrative Agent, then such amount shall constitute such Lenders Loan
included in such Borrowing.
Section 2.06
Termination, Reduction and Increase of Aggregate Commitments
.
(a)
Scheduled Termination of Commitments
.
(i) Unless previously terminated, the Revolving Commitments shall terminate on the Revolving
Credit Maturity Date. If at any time the Aggregate Revolving Commitments is terminated or reduced
to zero, then the Revolving Commitments shall terminate on the effective date of such termination
or reduction.
(ii) Unless previously terminated, the Term Commitments shall terminate on the Term Loan
Funding Date.
(b)
Optional Termination and Reduction of Aggregate Credit Amounts
.
(i) The Borrower may at any time terminate, or from time to time reduce, the Aggregate
Revolving Commitments;
provided
that (A) each reduction of the Aggregate Revolving
Commitments shall be in an amount that is an integral multiple of $500,000 and not less than
$1,000,000 and (B) the Borrower shall not terminate or reduce the
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Aggregate Revolving Commitments
if, after giving effect to any concurrent prepayment of the Loans in accordance with Section
3.04(c), the total Revolving Credit Exposures would exceed the Aggregate Revolving Commitments.
(ii) The Borrower shall notify the Administrative Agent of any election to terminate or reduce
the Aggregate Revolving Commitments under Section 2.06(b)(i) at least three (3) Business Days prior
to the effective date of such termination or reduction, specifying such election and the effective
date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section
2.06(b)(ii) shall be irrevocable. Any termination or reduction of the Aggregate Revolving
Commitments shall be permanent and may not be reinstated except pursuant to Section 2.06(c). Each
reduction of the Aggregate Revolving Commitments shall be made ratably among the Revolving Lenders
in accordance with each Revolving Lenders Applicable Percentage.
(c)
Optional Increase in Aggregate Commitments
.
(i) Subject to the conditions set forth in Section 2.06(c)(ii), the Borrower may increase the
Aggregate Revolving Commitments and/or the Aggregate Term Commitments then in effect with the prior
consent of the Administrative Agent by increasing the Revolving Commitment and/or Term Commitment
of a Lender or by causing a Person that at such time is not a Lender to become a Lender (an
Additional Lender
).
(ii) Any increase in the Aggregate Revolving Commitments and/or the Aggregate Term Commitments
shall be subject to the following additional conditions:
(A) such increase shall not be less than $25,000,000 and shall be in a whole multiple of
$5,000,000 in excess thereof unless the Administrative Agent otherwise consents, and no such
increase shall be permitted if after giving effect thereto the cumulative increases of the
Aggregate Commitments pursuant to this Section 2.06(c) would exceed $225,000,000;
(B) no Default shall have occurred and be continuing at the effective date of such increase;
(C) on the effective date of such increase, no Eurodollar Borrowings shall be outstanding or
if any Eurodollar Borrowings are outstanding, then the effective date of such increase shall be the
last day of the Interest Period in respect of such Eurodollar Borrowings unless the Borrower pays
compensation required by Section 5.02;
(D) no Lenders Revolving Commitment and/or Term Commitment may be increased without the
consent of such Lender;
(E) if the Borrower elects to increase the Aggregate Revolving Commitments by increasing the
Revolving Commitment of a Revolving Lender, the Borrower and such Lender shall execute and deliver
to the Administrative Agent a certificate substantially in the form of
Exhibit G-1
(a
Commitment Increase Certificate
), and, if requested, the Borrower shall deliver a new
Note payable to the order of such Revolving Lender in a principal
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amount equal to its Revolving
Commitment after giving effect to such increase, and otherwise duly completed; and
(F) If the Borrower elects to increase the Aggregate Revolving Commitments by causing an
Additional Lender to become a party to this Agreement, then the Borrower and such Additional Lender
shall execute and deliver to the Administrative Agent a certificate substantially in the form of
Exhibit G-2
(an
Additional Lender Certificate
), together with an Administrative
Questionnaire, and, if requested, the Borrower shall deliver a Note payable to the order of such
Additional Lender in a principal amount equal to its Revolving Commitment, and otherwise duly
completed.
(G) If the Borrower elects to increase the Aggregate Term Commitments, the Borrower and each
Term Loan Lender shall execute and deliver to the Administrative Agent a Term Loan Assumption
Agreement and such other documentation as the Administrative Agent shall reasonably specify to
evidence the Term Commitment of such Term Loan Lender. Each Term Loan Assumption Agreement shall
specify the Term Commitments, the Applicable Margins, the Term Loan Funding Date, and the Term Loan
Maturity Date and other terms of the Term Loans to be made thereunder;
provided
, that no
Term Loans shall be made unless (y) the conditions set forth in Section 6.03 shall be satisfied and
(z) the other closing certificates and documentation as required by the relevant Term Loan
Assumption Agreement shall be delivered. The Administrative Agent shall promptly notify each Term
Loan Lender as to the effectiveness of each Term Loan Assumption Agreement.
(iii) Subject to acceptance and recording thereof pursuant to Section 2.06(c)(iv), from and
after the effective date specified in the Commitment Increase Certificate or the Additional Lender
Certificate (or if any Eurodollar Borrowings are outstanding, then the last day of the Interest
Period in respect of such Eurodollar Borrowings, unless the Borrower has paid compensation required
by Section 5.02): (A) the amount of the Aggregate Revolving Commitments and/or Aggregate Term
Commitments shall be increased as set forth therein, and (B) in the case of an Additional Lender
Certificate, any Additional Lender party thereto shall be a party to this Agreement and the other
Loan Documents and have the rights and obligations of a Lender under this Agreement and the other
Loan Documents. In addition in connection with an increase of the Aggregate Revolving Commitments,
the Lender or the Additional Lender, as applicable, shall purchase a pro rata portion of the
outstanding Revolving Loans (and participation interests in Letters of Credit) of each of the other
Revolving Lenders (and such Lenders hereby agree to sell and to take all such further action to
effectuate such sale) such that each Revolving Lender (including any Additional Lender, if
applicable) shall hold its Applicable Percentage of the outstanding Revolving Loans (and
participation interests) after giving effect to the increase in the Aggregate Revolving
Commitments.
(iv) Upon its receipt of a duly completed Commitment Increase Certificate or an Additional
Lender Certificate, executed by the Borrower and the Lender or the Borrower and the Additional
Lender party thereto, as applicable, the Administrative Questionnaire referred to in Section
2.06(c)(ii), if applicable, the written consent of the Administrative Agent to such increase
required by Section 2.06(c)(i), and such documents and opinions reasonably requested by the
Administrative Agent, the Administrative Agent shall accept such Commitment Increase Certificate or
Additional Lender Certificate and record the
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information contained therein in the Register required
to be maintained by the Administrative Agent pursuant to Section 12.04(c). No increase in the
Aggregate Revolving Commitments and/or the Aggregate Term Commitments shall be effective for
purposes of this Agreement unless it has been recorded in the Register as provided in this Section
2.06(c)(iv).
Section 2.07
Letters of Credit
.
(a) During the period from and including the Effective Date to, but excluding, the 30th day
prior to the Revolving Credit Maturity Date, the Issuing Banks, as issuing bank for the Lenders,
agree to extend credit for the account of the Borrower at any time and from time to time by
issuing, renewing, extending or reissuing Letters of Credit;
provided
however
, the
LC Exposure at any one time outstanding shall not exceed $20,000,000. The Revolving Lenders shall
participate in such Letters of Credit according to their respective Applicable Percentage. Each of
the Letters of Credit shall (1) be issued by the Issuing Banks on a sight basis only, (2) contain
such terms and provisions as are reasonably required by the Issuing Banks, (3) be for the account
of the Borrower and (4) expire not later than (A) 30 days before the Revolving Credit Maturity
Date, with respect to commercial letters of credit, and (B) 10 days before the Revolving Credit
Maturity Date, with respect to standby letters of credit. The Borrower may request that one or
more Letters of Credit be issued in an Offshore Currency denomination as part of the LC Exposure.
The aggregate US Dollar Equivalent of all Offshore Currency Letters of Credit, as of the issuance
date of any such Offshore Currency Letter of Credit, shall not exceed $20,000,000. No Issuing Bank
shall be obligated to issue an Offshore Currency Letter of Credit if such Issuing Bank has
determined, in its sole discretion, that it is unable to fund obligations in the requested Offshore
Currency;
provided
,
however
, the Administrative Agent shall use its best efforts to
locate suitable issuers if no Issuing Banks are able to fund obligations in the requested Offshore
Currency. From and after the Effective Date, the Existing Letters of Credit shall be deemed to be
Letters of Credit issued pursuant to this Section 2.07.
Notwithstanding anything to the contrary contained in this Agreement, including, without
limitation, this Section 2.07, the expiration date of one or more Letters of Credit may extend
beyond the Revolving Credit Maturity Date;
provided
,
however
, it is hereby
expressly agreed and understood that:
(i) the aggregate face amount of all such Letters of Credit shall not at any time exceed
$10,000,000;
(ii) the expiration dates of such Letters of Credit shall not extend more than three (3) years
beyond the Revolving Credit Maturity Date;
(iii) the Borrower shall, not later than five (5) Business Days prior to the Revolving Credit
Maturity Date, deposit in an account with the Administrative Agent, in the name of the
Administrative Agent for the benefit of the Administrative Agent and the Issuing Banks, an amount
in cash equal to the aggregate face amount of all such Letters of Credit as of such date;
provided
that for all Offshore Currency Letters of Credit, the Borrower shall deposit an
amount in cash equal to 110% of the aggregate face amount of all such Offshore Currency Letters of
Credit
and will have a continuing obligation to maintain in such account at least an amount in cash
equal to 110% of the aggregate face amount of all such Offshore Currency Letters of Credit
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based on
the then US Dollar Equivalent, and the Administrative Agent shall have exclusive dominion and
control (including the exclusive right of withdrawal) over such account;
(iv) if the Issuing Banks make any disbursement in connection with a Letter of Credit after
the Revolving Credit Maturity Date, such disbursement shall be an advance on behalf of the Borrower
under this Agreement and shall be reimbursed to the Issuing Banks either (A) by the Administrative
Agent applying amounts in the cash collateral account referred to in clause (iii) above until
reimbursed in full, or (B) by the Borrower pursuant to Section 2.07(d) (except that the Borrower
shall not have the right to request that the Lenders make, and the Lenders shall not have any
obligation to make, a Loan under this Agreement after the Revolving Credit Maturity Date to fund
any such disbursement); and
(v) all such disbursements referred to in clause (iv) of this paragraph shall be secured only
by the cash collateral referred to in clause (iii) of this paragraph and the Borrower hereby
grants, and by each deposit of such cash collateral with the Administrative Agent grants, to the
Administrative Agent a first-priority security interest in all such cash collateral, without any
further action on the part of the Issuing Banks, the Borrower, the Administrative Agent, any Lender
or any other Person now or hereafter party hereto (other than any action the Administrative Agent
reasonably deems necessary to perfect such security interest, which action the Borrower hereby
authorizes the Administrative Agent to take), until same are reimbursed in full.
If, on the later of the Revolving Credit Maturity Date or the Term Loan Maturity Date (A) the
Revolving Commitments have been terminated, (B) the Loans, all interest thereon and all other
amounts payable by the Borrower hereunder or in connection herewith (other than the LC Exposure in
connection with any Letter of Credit having an expiration date extending beyond the Revolving
Credit Maturity Date as permitted by Section 2.07(a)) have been paid in full, and (C) the
conditions set forth in clause (iii) above have been fully satisfied, then from and after such date
the following provisions of this Agreement shall not be operative: Sections 8.01 (other than
Section 8.01(a), which shall remain operative), 8.02 (except as the same may affect a Letter of
Credit), 8.03(b), 8.04, 8.05, 8.07, 8.08, 9.01, 9.02 (except for cash collateral securing Letters
of Credit), 9.03, 9.04, 9.05, 9.06, 9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14 and 9.15.
(b) If, after payment in full of all Indebtedness of the Borrower under the Loan Documents
(including without limitation, reimbursement obligations with respect to Letters of Credit) and the
expiration or cancellation of all outstanding Letters of Credit, there remains any amount on
deposit in the cash collateral account referred to in clause (iii) above, the Administrative Agent
shall, within three (3) Business Days after all such Indebtedness is paid in full and all
outstanding Letters of Credit have expired or been cancelled, return such amount to the Borrower.
(c)
Participations
. In consideration and in furtherance of the foregoing, each
Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent,
for the account of the Issuing Bank, such Revolving Lenders Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as
provided in Section 2.07(d), or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Revolving Lender acknowledges and agrees that
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its obligation to
acquire participations pursuant to this Section 2.07(c) in respect of Letters of Credit is absolute
and unconditional and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a
Default, the reduction or termination of the Revolving Commitments, and that each such payment
shall be made without any offset, abatement, withholding or reduction whatsoever.
(d)
Reimbursement and Prepayment
.
(i) In connection with any Letter of Credit, the Borrower may make funds available for
disbursement by the Issuing Bank in connection with such Letter of Credit. In such cases, the
Issuing Bank shall use such funds which the Borrower has made available to fund such Letter of
Credit. In addition, the Borrower may give written instructions to the Issuing Bank and the
Administrative Agent to make a Loan under this Agreement to fund any Letters of Credit which may be
drawn. In all such cases, the Borrower shall give the appropriate notices required under this
Agreement for an ABR Loan or a Eurodollar Loan. If a disbursement by the Issuing Bank is made
under any Letter of Credit, in cases in which the Borrower has not either provided its own funds to
fund a draw on a Letter of Credit or given the Administrative Agent prior notice for a Loan under
this Agreement, then the Borrower shall pay to the Administrative Agent within two (2) Business
Days after notice of any such disbursement is received by the Borrower, the amount and, in the case
of any Offshore Currency Letters of Credit, the US Dollar Equivalent determined on the date of such
disbursement, of each such disbursement made by the Issuing Bank under the Letter of Credit (if
such payment is not sooner effected as may be required under this Section 2.07(d) or under other
provisions of the Letter of Credit), together with interest on the amount disbursed from and
including the date of disbursement until payment in full of such disbursed amount at a varying rate
per annum equal to (i) the then applicable interest rate for ABR Loans through the second Business
Day after notice of such disbursement is received by the Borrower and (ii) thereafter, the
Post-Default Rate for ABR Loans (but in no event to exceed the Highest Lawful Rate) for the period
from and including the third Business Day following the date of such disbursement to and including
the date of repayment in full of such disbursed amount. The obligations of the Borrower under this
Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable
and shall be paid or performed strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including, without limitation, but only to the fullest extent permitted
by applicable law, the following circumstances: (A) any lack of validity or enforceability of this
Agreement, any Letter of Credit or any of the Security Instruments; (B) any amendment or waiver of
(including any default), or any consent to departure from this Agreement (except to the extent
permitted by any amendment or waiver), any Letter of Credit or any of the Security Instruments; (C)
the existence of any claim, set-off, defense or other rights which the Borrower may have at any
time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or
any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank,
the Administrative Agent, any Lender or any other Person, whether in connection with this
Agreement, any Letter of Credit, the Security Instruments, the Transactions or any unrelated
transaction; (D) any statement, certificate, draft, notice or any other document presented under
any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect
or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (E)
payment by the Issuing Bank under any Letter of Credit against
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presentation of a draft or
certificate which appears on its face to comply, but does not comply, with the terms of such Letter
of Credit; and (F) any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing.
Notwithstanding anything in this Agreement to the contrary, the Borrower will not be liable for
payment or performance that results from the gross negligence or willful misconduct of the Issuing
Bank or its officers, employees, agents or representatives, except where the Borrower or any
Restricted Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any payment
made by the Issuing Bank in connection with such gross negligence or willful misconduct, except for
reasonable costs and expenses associated with such recovery.
(ii) In the event of the occurrence of any Event of Default, a payment or prepayment pursuant
to Section 3.04(c) or the maturity of the Notes, whether by acceleration or otherwise, an amount
equal to the LC Exposure, except for all Offshore Currency Letters of Credit which shall equal an
amount equal to 110% of the aggregate face amount of all such Offshore Currency Letters of Credit
based on the then US Dollar Equivalent, shall be deemed to be forthwith due and owing by the
Borrower to the Issuing Bank, the Administrative Agent and the Lenders as of the date of any such
occurrence; and the Borrowers obligation to pay such amount shall be absolute and unconditional,
without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down
all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent
permitted by applicable law, shall not be subject to any defense or be affected by a right of
set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such
beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any
reason whatsoever. The Borrower will have a continuing obligation to maintain in such account at
least an amount in cash equal to 110% of the aggregate face amount of all such Offshore Currency
Letters of Credit based on the then US Dollar Equivalent. Such payments shall be held by the
Issuing Bank on behalf of the Lenders as cash collateral securing the LC Exposure in an account or
accounts at their principal office; and the Borrower hereby grants to, and by its deposit with the
Administrative Agent grants to, the Administrative Agent a security interest in such cash
collateral. In the event of any such payment by the Borrower of amounts contingently owing under
outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment
complying with the terms of such Letters of Credit are not made prior to the respective expiration
dates thereof, the Administrative Agent agrees, if no Event of Default has occurred and is
continuing or if no other amounts are outstanding under this Agreement, the Notes or the Security
Instruments, to remit to the Borrower (i) amounts for which the contingent obligations evidenced by
the Letters of Credit have ceased and (ii) amounts on deposit as cash collateral for Letters of
Credit.
(iii) Each Revolving Lender severally and unconditionally agrees that it shall promptly
reimburse the Issuing Bank in dollars an amount equal to such Revolving Lenders participation in
any Letter of Credit as provided in Section 2.07(a) of any disbursement made by the Issuing Bank
under any Letter of Credit that is not reimbursed according to this Section 2.07 and such
obligation to reimburse is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence
and continuance of a Default or reduction or termination of the Aggregate Revolving Commitments,
and that each such payment shall be made without any offset, abatement, withholding or reduction
whatsoever. If the Borrower fails to make such
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payment when due, the Administrative Agent shall
notify each Revolving Lender of the applicable disbursement, the payment then due from the Borrower
in respect thereof and such Revolving Lenders Applicable Percentage thereof. Promptly following
receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable
Percentage of the payment then due from the Borrower, in the same manner as provided in Section
2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply,
mutatis mutandis
, to
the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the
Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt
by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the
Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that
Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then
to such Revolving Lenders and the Issuing Bank as their interests may appear. Any payment made by
a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any disbursement
shall constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such
disbursement.
(iv) If no Event of Default has occurred and is continuing, and subject to availability under
the Revolving Commitments (after reduction for the LC Exposure), to the extent the Borrower has not
reimbursed the Issuing Bank for any drawn upon Letter of Credit within one (1) Business Day after
notice of such disbursement has been received by the Borrower, the amount of such Letter of Credit
reimbursement obligation shall automatically be funded by the Lenders as a Loan hereunder and used
by such Lenders to pay such Letter of Credit reimbursement obligation in the percentages referenced
in clause (iii) above. If an Event of Default has occurred and is continuing, or if the funding of
such Letter of Credit reimbursement obligation as a Loan would cause the aggregate amount of all
Loans outstanding to exceed the Revolving Commitments (after reduction for the LC Exposure), such
Letter of Credit reimbursement obligation shall not be funded as a Loan, but instead shall accrue
interest as provided in Section 2.07(d)(i) and be subject to reimbursement under Section
2.07(d)(iii).
(e)
Replacement of the Issuing Bank
. The Issuing Bank may be replaced at any time by
written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the
successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement
of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall
pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section
3.05(a). From and after the effective date of any such replacement, (i) the successor Issuing Bank
shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term Issuing Bank
shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the replacement of the Issuing
Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have
all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of
Credit issued by it prior to such replacement, but shall not be required to issue additional
Letters of Credit.
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ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
Section 3.01
Repayment of Loans
.
(a)
Revolving Loans
. On the Revolving Credit Maturity Date, the Borrower shall pay to
the Administrative Agent, for the account of each Revolving Lender, the outstanding aggregate
principal amount and accrued and unpaid interest under the Revolving Loans.
(b)
Term Loans
. On the Term Loan Maturity Date, the Borrower shall pay to the
Administrative Agent, for the account of each Term Loan Lender, the outstanding aggregate principal
amount and accrued and unpaid interest under the Term Loan.
Section 3.02
Interest
.
(a)
ABR Loans
. The Loans comprising each ABR Borrowing shall bear interest at the
Base Rate plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate.
(b)
Eurodollar Loans
. The Loans comprising each Eurodollar Borrowing shall bear
interest at the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable
Margin, but in no event to exceed the Highest Lawful Rate.
(c)
Post-Default Rate
. Notwithstanding the foregoing, the Borrower will pay to the
Administrative Agent, for the account of each Lender, interest at the applicable Post-Default Rate
on any principal amount of any Loan made by such Lender, and (to the fullest extent permitted by
law) on any other amount payable by the Borrower hereunder, under any Loan Document or under any
Note held by such Lender to or for account of such Lender, for the period commencing on the date of
an Event of Default until the same is paid in full or all Events of Default are cured or waived.
(d)
Interest Payment Dates
. Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan;
provided
that (i) interest accrued pursuant to
Section 3.02(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any
Loan (other than an optional prepayment of an ABR Loan prior to the Revolving Credit Maturity Date
or Term Loan Maturity Date, as applicable), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued
interest on such Loan shall be payable on the effective date of such conversion. Any accrued and
unpaid interest on the Revolving Loans shall be paid on the Revolving Credit Maturity Date. Any
accrued and unpaid interest on the Term Loans shall be paid on the Term Loan Maturity Date.
(e)
Interest Rate Computations
. All interest with respect to Eurodollar Loans
hereunder shall be computed on the basis of a year of 360 days, unless such computation would
exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of
days elapsed (including the first day but excluding the last day). All interest with respect to
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ABR Loans hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Base Rate, LIBO Rate or LIBO shall be determined
by the Administrative Agent, and such determination shall be conclusive absent manifest error, and
be binding upon the parties hereto.
Section 3.03
Alternate Rate of Interest
. If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate or
the LIBO for such Interest Period; or
(b) the Administrative Agent is advised by the Majority Lenders that the LIBO Rate or LIBO, as
applicable, for such Interest Period will not adequately and fairly reflect the cost to such
Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any
Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR
Borrowing.
Section 3.04
Prepayments
.
(a)
Optional Prepayments
. The Borrower shall have the right at any time and from time
to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with
Section 3.04(b).
(b)
Notice and Terms of Optional Prepayment
. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 12:00 p.m., Eastern time, three (3)
Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing,
not later than 12:00 p.m., Eastern time, on the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid (which shall be in integral multiples of $100,000 for ABR Borrowings
or the remaining aggregate principal balance outstanding on the applicable Notes for ABR Borrowings
and in an amount equal to all of the Eurodollar Borrowings for the Interest Period prepaid for
Eurodollar Borrowings). Promptly following receipt of any such notice relating to a Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of
any Borrowing shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the
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prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 3.02.
(c)
Mandatory Prepayments
.
(i) If, after giving effect to any termination or reduction of the Aggregate Revolving
Commitments pursuant to Section 2.06(b), the total Revolving Credit Exposure exceeds the Aggregate
Revolving Commitments, then the Borrower shall (A) prepay the Borrowings on the date of such
termination or reduction in an aggregate principal amount equal to such excess, and (B) if any
excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash
collateral as provided in Section 2.07(d)(ii).
(ii) Each prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first,
ratably to any ABR Borrowings then outstanding, and, second, to any Eurodollar Borrowings then
outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar
Borrowing in order of priority beginning with the Eurodollar Borrowing with the least number of
days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing
with the most number of days remaining in the Interest Period applicable thereto.
(iii) Prepayments pursuant to this Section 3.04(c) shall be accompanied by accrued interest to
the extent required by Section 3.02. Any prepayments on the Term Loans may not be reborrowed.
(d)
No Premium or Penalty
. Prepayments permitted or required under this Section 3.04
shall be without premium or penalty, except as required under Section 5.02.
Section 3.05
Fees
.
(a)
Commitment Fees
. The Borrower agrees to pay to the Administrative Agent for the
account of each Revolving Lender a commitment fee, which shall accrue at the Applicable Margin (the
Commitment Fee
) on the average daily amount of the unused amount (after deducting any LC
Exposure) of the Revolving Commitment of such Lender during the period from and including the
Effective Date to but excluding the Revolving Credit Maturity Date. Accrued Commitment Fees shall
be payable in arrears on the last day of March, June, September and December of each year and on
the Revolving Credit Maturity Date, commencing on the first such date to occur after the date
hereof. All Commitment Fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b)
Letter of Credit Fees
. The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Lender a participation fee with respect to its participations in Letters of
Credit, which shall accrue at the same Applicable Margin used to determine the interest rate
applicable to Eurodollar Loans on the average daily amount of such Lenders LC Exposure (excluding
any portion thereof attributable to unreimbursed LC
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Disbursements and including the US Dollar
Equivalent of the face amount of the outstanding Offshore Currency Letter of Credit) during the
period from and including the date of this Agreement to but excluding the later of the date on
which such Lenders Revolving Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of
0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and including the date of
this Agreement to but excluding the later of the date of termination of the Aggregate Revolving
Commitments and the date on which there ceases to be any LC Exposure and (iii) to the Issuing Bank,
for its own account, its standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder. Participation fees and
fronting fees accrued through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day, commencing on the
first such date to occur after the date of this Agreement;
provided
that all such fees
shall be payable on the Revolving Credit Maturity Date and any such fees accruing after the
Revolving Credit Maturity Date shall be payable on demand. Any other fees payable to the Issuing
Bank pursuant to this Section 3.05(a) shall be payable within 10 days after demand. All
participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless
such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on
the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(c)
Administrative Agent Fees
. The Borrower agrees to pay to the Administrative
Agent, for its own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(d)
Other Fees
. The Borrower shall pay to the Administrative Agent for its own
account such other fees as are set forth in the Fee Letter on the dates specified therein to the
extent not paid prior to the Effective Date.
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
Section 4.01
Payments Generally; Pro Rata Treatment; Sharing of Set-offs
.
(a)
Payments by the Borrower
. The Borrower shall make each payment required to be
made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00
p.m., Eastern time, on the date when due, in immediately available funds, without defense,
deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and shall
not be refundable under any circumstances. Any amounts received after such time on any date may,
in the discretion of the Administrative Agent, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon. All such payments shall be
made to the Administrative Agent as specified in Section 12.01, except payments to be made directly
to the Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled
thereto. The Administrative Agent shall distribute any such
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payments received by it for the
account of any other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall
be extended to the next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments hereunder shall
be made in dollars.
(b)
Application of Insufficient Payments
. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest and fees then due to such parties and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c)
Sharing of Payments by Lenders
. If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on
any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements
and accrued interest thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value) participations in the
Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Loans and participations
in LC Disbursements;
provided
that (i) if any such participations are purchased and all or
any portion of the payment giving rise thereto is recovered, such participations shall be rescinded
and the purchase price restored to the extent of such recovery, without interest and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the
Borrower pursuant to and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of
its Loans or participations in LC Disbursements to any assignee or participant, other than to the
Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c)
shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing
arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
Section 4.02
Presumption of Payment by the Borrower
. Unless the Administrative Agent shall
have received notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank that the Borrower will not
make such payment, the Administrative Agent may assume that the Borrower has made such payment on
such date in accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower
has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may
be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender or Issuing Bank with interest
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thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by
the Administrative Agent in accordance with banking industry rules on interbank compensation.
Section 4.03
Certain Deductions by the Administrative Agent
. If any Lender shall fail to
make any payment required to be made by it pursuant to Section 2.05(b), Section 2.07(c), Section
2.07(d) or Section 4.02 then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for
the account of such Lender to satisfy such Lenders obligations under such Sections until all such
unsatisfied obligations are fully paid.
Section 4.04
Disposition of Proceeds
. The Security Instruments contain an assignment by
the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the benefit of
the Lenders of all of the Borrowers or each Guarantors interest in and to production and all
proceeds attributable thereto which may be produced from or allocated to the Property. The
Security Instruments further provide in general for the application of such proceeds to the
satisfaction of the Indebtedness and other obligations described therein and secured thereby.
Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an
Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify
the purchaser or purchasers of such production nor take any other action to cause such proceeds to
be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such
proceeds to be paid to the Borrower and its Subsidiaries and (b) the Lenders hereby authorize the
Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to
the Borrower and/or such Subsidiaries.
ARTICLE V
Increased Costs; Break Funding Payments; Taxes; Illegality
Section 5.01
Increased Costs
.
(a)
Eurodollar Changes in Law
. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by, any Lender (except
any such reserve requirement reflected in the LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
reduce the amount of any sum received or receivable by such Lender (whether of principal, interest
or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
(b)
Capital Requirements
. If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of reducing the
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rate of
return on such Lenders or the Issuing Banks capital or on the capital of such Lenders or the
Issuing Banks holding company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lenders or the
Issuing Banks holding company could have achieved but for such Change in Law (taking into
consideration such Lenders or the Issuing Banks policies and the policies of such Lenders or the
Issuing Banks holding company with respect to capital adequacy), then from time to time the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Lender or the Issuing Bank or such Lenders or the Issuing Banks
holding company for any such reduction suffered.
(c)
Certificates
. A certificate of a Lender or the Issuing Bank setting forth in
reasonable detail the amount or amounts necessary to compensate such Lender or the Issuing Bank or
its holding company, as the case may be, as specified in Section 5.01(a) or (b) shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender
or the Issuing Bank, as the case may be, the amount shown as due on any such certificate within
thirty (30) days after receipt thereof.
(d)
Effect of Failure or Delay in Requesting Compensation
. Failure or delay on the
part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 5.01 shall
not constitute a waiver of such Lenders or the Issuing Banks right to demand such compensation.
Section 5.02
Break Funding Payments
. In the event of (a) the payment of any principal of
any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including
as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto, or (d) the assignment of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section
5.04(b), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense
to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if
any, of (i) the amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the LIBO Rate that would have been applicable to such Loan, for the
period from the date of such event to the last day of the then current Interest Period therefor
(or, in the case of a failure to borrow, convert or continue, for the period that would have been
the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would bid were it to bid,
at the commencement of such period, for dollar deposits of a comparable amount and period from
other banks in the eurodollar market.
A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section 5.02 shall be delivered to the Borrower and shall be conclusive
absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within ten (10) days after receipt thereof.
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Section 5.03
Taxes
.
(a)
Payments Free of Taxes
. Any and all payments by or on account of any obligation
of the Borrower or any Guarantor under any Loan Document shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes;
provided
that if the Borrower
or any Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable under this Section
5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such
Guarantor shall make such deductions and (iii) the Borrower or such Guarantor shall pay the full
amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b)
Payment of Other Taxes by the Borrower
. The Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c)
Indemnification by the Borrower
. The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within ten (10) days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such
Lender or the Issuing Bank, as the case may be, on or with respect to any payment by or on account
of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 5.03) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate of the Administrative Agent, a Lender or the Issuing Bank as to the
amount of such payment or liability under this Section 5.03 shall be delivered to the Borrower and
shall be conclusive absent manifest error.
(d)
Evidence of Payments
. As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower or a Guarantor to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a receipt issued by such
Governmental Authority evidencing such payment, a copy of the return reporting such payment or
other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)
Foreign Lenders
. Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or
any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or
any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at
the time or times prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by the Borrower as will permit such payments
to be made without withholding or at a reduced rate.
(f)
Tax Refunds
. If the Administrative Agent or a Lender determines, in its sole
discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been
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indemnified by the Borrower or with respect to which the Borrower has paid additional amounts
pursuant to this Section 5.03, it shall pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section
5.03 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent or such Lender and without interest (other than any interest
paid by the relevant Governmental Authority with respect to such refund);
provided
, that
the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the
amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Administrative Agent or such Lender in the event the
Administrative Agent or such Lender is required to repay such refund to such Governmental
Authority. This Section 5.03 shall not be construed to require the Administrative Agent or any
Lender to make available its tax returns (or any other information relating to its taxes which it
deems confidential) to the Borrower or any other Person.
Section 5.04
Mitigation Obligations; Replacement of Lenders
.
(a)
Designation of Different Lending Office
. If any Lender requests compensation
under Section 5.01, or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lender
shall use reasonable efforts to designate a different lending office for funding or booking its
Loans hereunder or to assign its rights and obligations hereunder to another of its offices,
branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i)
would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case may
be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such designation or
assignment.
(b)
Replacement of Lenders
. If any Lender requests compensation under Section 5.01,
or if the Borrower is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 5.03, or if any Lender defaults in its
obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon
notice to such Lender and the Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained in Section
12.04(c)), all its interests, rights and obligations under this Agreement to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender accepts such
assignment);
provided
that (i) the Borrower shall have received the prior written consent
of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender
shall have received payment of an amount equal to the outstanding principal of its Loans and
participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any
such assignment resulting from a claim for compensation under Section 5.01 or payments required to
be made pursuant to Section 5.03, such assignment will result in a reduction in such compensation
or payments. A Lender shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
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Section 5.05
Illegality
. Notwithstanding any other provision of this Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its
obligation to make or maintain Eurodollar Loans either generally or having a particular Interest
Period hereunder, then (a) such Lender shall promptly notify the Borrower and the Administrative
Agent thereof and such Lenders obligation to make such Eurodollar Loans shall be suspended (the
Affected Loans
) until such time as such Lender may again make and maintain such
Eurodollar Loans and (b) all Affected Loans which would otherwise be made by such Lender shall be
made instead as ABR Loans (and, if such Lender so requests by notice to the Borrower and the
Administrative Agent, all Affected Loans of such Lender then outstanding shall be automatically
converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent
that Affected Loans are so made as (or converted into) ABR Loans, all payments of principal which
would otherwise be applied to such Lenders Affected Loans shall be applied instead to its ABR
Loans.
ARTICLE VI
Conditions Precedent
Section 6.01
Effective Date
. The effectiveness of this Agreement and the obligation of the
Revolving Lenders to make Loans and of the Issuing Banks to issue Letters of Credit hereunder are
subject to the receipt by the Administrative Agent and the Revolving Lenders of all fees payable
pursuant to Section 3.05 on or before the Effective Date and the receipt by the Administrative
Agent of the following documents and satisfaction of the other conditions provided in this Section
6.01 (or waived in accordance with Section 12.02), each of which shall be satisfactory to the
Administrative Agent in form and substance:
(a) A certificate of the Secretary or an Assistant Secretary (or its equivalent) of each of
the Borrower, UCLP and each Subsidiary party to a Loan Document, setting forth (i) resolutions of
its board of directors (or its equivalent) with respect to the authorization of such party to
execute and deliver the Loan Documents to which it is a party and to enter into the Transactions
contemplated in those documents, (ii) the officers (or its equivalent) of such party (A) who are
authorized to sign the Loan Documents to which such party is a party and (B) who will, until
replaced by another officer or officers (or its equivalent) duly authorized for that purpose, act
as its representative for the purposes of signing documents and giving notices and other
communications in connection with this Agreement and the Transactions contemplated hereby, (iii)
specimen signatures of the authorized officers (or its equivalent), and (iv) the Organization
Documents, certified as being true and complete. The Administrative Agent and the Lenders may
conclusively rely on such certificate until the Administrative Agent receives notice in writing
from such party to the contrary.
(b) Certificates of the appropriate state agencies with respect to the existence,
qualification and good standing of UCLP, the Borrower and each Subsidiary party to a Loan Document.
(c) A compliance certificate which shall be substantially in the form of
Exhibit D-1
,
duly and properly executed by a Responsible Officer of the Borrower and dated as of the Effective
Date.
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(d) (i) A counterpart of this Agreement signed on behalf of each party hereto or (ii) written
evidence satisfactory to the Administrative Agent (which may include telecopy or electronic
transmission of a signed signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(e) The Notes duly completed and executed for each Lender that has requested a Note.
(f) The Security Instruments, including those described on
Exhibit F-1
, duly completed
and executed in sufficient number of counterparts for recording, if necessary.
(g) An opinion of Gardere Wynne Sewell LLP, counsel to UCLP, the Borrower and the Subsidiaries
party to a Loan Document, in form and substance satisfactory to the Administrative Agent, as to
such matters incident to the Transactions herein contemplated and as the Administrative Agent may
reasonably request.
(h) A summary of insurance coverage of the Borrower evidencing that the Borrower is carrying
insurance in accordance with Section 7.18.
(i) Copies of Requests for Information or Copies (Form UCC-11) or equivalent commercially
obtained reports, listing all effective financing statements which name any of UCLP, the Borrower
or any Subsidiary party to a Loan Document (under their present names and any previous names) as
debtor and which are filed in all jurisdictions in which such Persons are organized, together with
copies of such financing statements.
(j) A Borrowing Request in the form of
Exhibit B
as applicable duly completed and
executed by the Borrower.
(k) A Letter of Credit Agreement pertaining to each new Letter of Credit to be issued on the
Effective Date, if any, duly completed and executed by the Borrower.
(l) All costs, fees, expenses (including, without limitation, reasonable legal fees and
expenses and recording taxes and fees) and other compensation contemplated by this Agreement and
the other Loan Documents, and for which statements or invoices have been submitted to the Borrower,
payable to the Lenders through the Effective Date shall have been paid.
(m) Except as set forth on
Schedule 6.01(m)
, all Property in which the Administrative
Agent shall, at such time, be entitled to have a Lien pursuant to this Agreement or any other
Security Instrument shall have been physically delivered to the possession of the Administrative
Agent or any bailee accepted by the Administrative Agent to the extent that such possession is
necessary for the purpose of perfecting the Administrative Agents Lien in such Collateral.
(n) Each document (including any Uniform Commercial Code financing statement) required by this
Agreement or under law or reasonably requested by the Administrative Agent to be filed, registered
or recorded in order to create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any
other Person (other than Permitted Liens), shall be in proper form for filing, registration or
recordation.
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(o) The closing of the IPO shall have occurred.
(p) Such other documents as the Administrative Agent or any Lender or special counsel to the
Administrative Agent may reasonably request, and in reasonable detail, the basis and amount of its
request for compensation.
The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and
such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section
12.02) at or prior to 2:00 p.m., Eastern time, on December 31, 2006 (and, in the event such
conditions are not so satisfied or waived, the Aggregate Revolving Commitments shall terminate at
such time).
Section 6.02
Each Credit Event
. The obligation of each Lender to make a Loan on the
occasion of any Borrowing (including the initial funding), and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:
(a) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.
(b) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no event, development or
circumstance has occurred or shall then exist that has resulted in, or could reasonably be expected
to have, a Material Adverse Effect.
(c) The representations and warranties of UCLP, the Borrower and the Guarantors set forth in
this Agreement and in the other Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit,
as applicable, except to the extent any such representations and warranties are expressly limited
to an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, such representations and
warranties shall continue to be true and correct as of such specified earlier date.
(d) The making of such Loan or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, would not conflict with, or cause any Lender or the Issuing Bank to violate
or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and
no litigation shall be pending or threatened, which does or, with respect to any threatened
litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the
issuance, amendment, renewal, extension or repayment of any Letter of Credit or any participations
therein or the consummation of the Transactions contemplated by this Agreement or any other Loan
Document.
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(e) The receipt by the Administrative Agent of a Borrowing Request in accordance with Section
2.03 or a request for a Letter of Credit in accordance with Section 2.07, as applicable.
Each request for a Borrowing and each request for the issuance, amendment, renewal or
extension of any Letter of Credit shall be deemed to constitute a representation and warranty by
the Borrower on the date thereof as to the matters specified in Section 6.02(a) through (e).
Section 6.03
Conditions Precedent to the Term Loans and Commitment Increases
. The
obligation of the Term Loan Lenders to make Term Loans and the Revolving Lenders to make increases
in the Revolving Commitments under this Agreement is subject to the receipt by the Administrative
Agent, the Term Loan Lenders and the Revolving Lenders of all fees payable by written agreement
among the Borrower and the Administrative Agent on or before the applicable Term Loan Funding Date
or the date on which any increase in the Revolving Commitments shall be effective, as applicable,
and the receipt by the Administrative Agent of the following documents and satisfaction of the
other conditions provided in this Section 6.03, each of which shall be reasonably satisfactory to
the Administrative Agent in form and substance:
(a) All reasonable costs, fees, expenses (including, without limitation, legal fees and
expenses and recording taxes and fees) and other compensation contemplated by this Agreement and
the other Loan Documents payable to the Term Loan Lenders through the Term Loan Funding Date and to
the Revolving Lenders through the effective date of any increase in the Revolving Commitments, as
applicable, to the extent invoices and statements have been received, shall have been paid.
(b) The Notes duly completed and executed for each Lender that has requested a Term Note or a
Revolving Note.
(c) Each document (including any Uniform Commercial Code financing statement) required by the
Security Instruments then in effect or under law or reasonably requested by the Administrative
Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent,
for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and
superior in right to any other Person (other than Permitted Liens), all of which shall be in proper
form for filing, registration or recordation.
(d) All conditions required by Section 6.01(a), (b), (c), (g), (j) and (l) as they relate to
the new Term Loan and any increases in the Revolving Commitments shall be repeated as if set forth
herein.
(e) Such other documents as the Administrative Agent or any Lender or special counsel to the
Administrative Agent may reasonably request.
ARTICLE VII
Representations and Warranties
Each of UCLP, the Borrower and each Guarantor by its execution of a Guaranty Agreement,
represents and warrants with respect to itself, as applicable, to the Administrative Agent, the
Issuing Bank and the Lenders (each representation and warranty herein is given as of
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the Effective
Date and shall be deemed repeated and reaffirmed on the dates of each Borrowing and issuance,
renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02):
Section 7.01
Legal Existence
. With respect to itself and each of its Material Domestic
Subsidiaries: (a) is a legal entity duly organized, legally existing and in good standing (if
applicable) under the laws of the jurisdiction of its current organization, except as permitted by
Section 9.06; (b) has all requisite power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on its business as now
being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in
which the nature of the business conducted by it makes such qualification necessary and where
failure so to qualify would result in a Material Adverse Effect.
Section 7.02
Financial Condition
. There has been no change or event having a Material
Adverse Effect from the financial condition of UCLP and its Consolidated Subsidiaries set forth on
the pro forma balance sheet dated as of June 30, 2006 in the S-1.
Section 7.03
Litigation
. Except as disclosed to the Lenders in
Schedule 7.03
hereto, at the Effective Date there is no litigation, legal, administrative or arbitral proceeding,
investigation or other action of any nature pending or, to its knowledge threatened against or
affecting it or any of its Subsidiaries which involves the possibility of any judgment or liability
against it or any of its Subsidiaries which would reasonably be expected to have a Material Adverse
Effect.
Section 7.04
No Breach
. Neither the execution and delivery of the Loan Documents, nor
compliance with the terms and provisions hereof will conflict with or result in a breach of, or
require any consent which has not been obtained as of the Effective Date under, the respective
charter or by-laws of it or any of its Restricted Subsidiaries, or any Governmental Requirement or
any agreement or instrument to which it or any of its Restricted Subsidiaries is a party or by
which it is bound or to which it or its Properties are subject, or constitute a default under any
such agreement or instrument, or result in the creation or imposition of any Lien upon any of the
revenues or assets of it or any of its Restricted Subsidiaries pursuant to the terms of any such
agreement or instrument other than the Liens created by the Loan Documents.
Section 7.05
Authority
. It and each of its Restricted Subsidiaries have all necessary
power and authority to execute, deliver and perform its obligations under the Loan Documents to
which it is a party; and the execution, delivery and performance by it and each Restricted
Subsidiary of the Loan Documents to which it is a party, have been duly authorized by all necessary
action on its part; and the Loan Documents constitute the legal, valid and binding obligations of
it and each of its Restricted Subsidiaries, enforceable in accordance with their terms, except to
the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors rights and by
equitable principles (regardless of whether enforcement is sought in equity or at law).
Section 7.06
Approvals
. No authorizations, approvals or consents of, and no filings or
registrations with, any Governmental Authority are necessary for the execution, delivery or
performance by it or any of its Restricted Subsidiaries of the Loan Documents or for the validity
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or enforceability thereof, except for the recording and filing of the Security Instruments as
required by this Agreement.
Section 7.07
Use of Loans and Letters of Credit
.
(a)
Revolving Loans and Letters of Credit
. The Borrower will use the proceeds of the
Loans and Letters of Credit for acquisitions permitted hereunder, to repay debt which is assumed in
connection with such acquisitions, to pay distributions, for working capital, and other general
corporate purposes not in contravention of any Governmental Requirement or of any Loan Document.
(b)
Term Loans
. The Borrower will use the proceeds of the Term Loans for acquisitions
permitted hereunder, to repay debt which is assumed in connection with such acquisitions, to pay
distributions, for working capital, and other general corporate purposes not in contravention of
any Governmental Requirement or of any Loan Document.
(c)
Margin Stock
. The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan hereunder
will be used to buy or carry any margin stock.
Section 7.08
ERISA
. No ERISA Event has occurred or is reasonably expected to occur
that, when taken together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to result in a Material Adverse Effect. The
present value of all accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the
most recent financial statements reflecting such amounts, exceed by more than $100,000 the fair
market value of the assets of such Plan, and the present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000 the fair market value of the
assets of all such underfunded Plans.
Section 7.09
Taxes
. Except as set out in
Schedule 7.09
, it and its Domestic
Subsidiaries have filed all United States Federal income tax returns and all other tax returns
which are required to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by it or any of its Domestic Subsidiaries, except where the
failure to file such tax returns and pay such taxes would not result in a liability in excess of
$5,000,000 in the aggregate. The charges, accruals and reserves on the books of it and its
Domestic Subsidiaries in respect of taxes and other governmental charges are, in the opinion of it,
adequate. No tax lien has been filed and, to the knowledge of it, no claim is being asserted with
respect to any such tax, fee or other charge which would result in a liability in excess of
$5,000,000 in the aggregate.
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Section 7.10
Titles, Etc
.
(a) Except as set out in
Schedule 7.10
, it and its Restricted Subsidiaries have good
and marketable title to their material Properties, (i) except in cases where the failure to have
said good and marketable title would not result in a Material Adverse Effect and (ii) free and
clear of all Liens, except Liens permitted by Section 9.02.
(b) All leases and agreements necessary for the conduct of the business of it and its
Restricted Subsidiaries are valid and subsisting, in full force and effect and there exists no
default or event or circumstance which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or agreement and which default, event or
circumstance would result in a Material Adverse Effect.
Section 7.11
No Material Misstatements
. No written information, statement, exhibit,
certificate, document or report furnished to the Administrative Agent and the Lenders (or any of
them) by it or any of its Restricted Subsidiaries in connection with the negotiation of this
Agreement, including the Information Memorandum, or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material misstatement of fact or omits
to state a material fact necessary to make the statements contained therein not materially
misleading in the light of the circumstances in which made and with respect to it and its
Restricted Subsidiaries taken as a whole. To its knowledge, there is no fact peculiar to it or any
of its Restricted Subsidiaries which has a Material Adverse Effect and which has not been set forth
in this Agreement or the other documents, certificates and statements furnished to the
Administrative Agent by or on behalf of it or any of its Restricted Subsidiaries or otherwise prior
to, or on, the Effective Date in connection with the Transactions contemplated hereby.
Section 7.12
Investment Company Act
. Neither UCLP nor any of its Subsidiaries is an
investment company or a company controlled by an investment company, within the meaning of
the Investment Company Act of 1940, as amended.
Section 7.13
Subsidiaries
. Except as set out in
Schedule 7.13
, as of the Effective
Date, UCLP has no Subsidiaries.
Section 7.14
Location of Business and Offices
. The Borrowers principal place of business
and chief executive office is located at the addresses stated on its signature page of this
Agreement.
Section 7.15
Defaults
. Neither it nor any of its Restricted Subsidiaries is in material
default nor has any event or circumstance occurred which, but for the expiration of any applicable
grace period or the giving of notice, or both, would constitute a material default under any
material agreement or instrument to which it or any of its Restricted Subsidiaries is a party or by
which it or any of its Restricted Subsidiaries is bound, which default would result in a Material
Adverse Effect. No Default hereunder has occurred and is continuing.
Section 7.16
Environmental Matters
. Except (a) as provided in a notice to all Lenders or
(b) as would not have a Material Adverse Effect:
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(i) Neither any Property of it or any of its Subsidiaries nor the operations conducted thereon
violate any order or requirement of any court or Governmental Authority or any Environmental Laws;
(ii) Without limitation of clause (i) above, no Property of it or any of its Subsidiaries nor
the operations currently conducted thereon or, to the best knowledge of it, by any prior owner or
operator of such Property or operation, are in violation of or subject to any existing, pending or
threatened action, suit, investigation, inquiry or proceeding by or before any court or
Governmental Authority or to any remedial obligations under Environmental Laws;
(iii) All notices, permits, licenses or similar authorizations, if any, required to be
obtained or filed in connection with the operation or use of any and all Property of it and each of
its Subsidiaries, including without limitation, past or present treatment, storage, disposal or
release of a hazardous substance or solid waste into the environment, have been duly obtained or
filed, and it and each of its Subsidiaries are in compliance with the terms and conditions of all
such notices, permits, licenses and similar authorizations;
(iv) All hazardous substances, solid waste, and oil and gas exploration and production wastes,
if any, generated at any and all Property of it or any of its Subsidiaries have in the past been
transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or welfare or the environment, and, to the
best knowledge of it, all such transport carriers and treatment and disposal facilities have been
and are operating in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment, and are not the subject of
any existing, pending or threatened action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws;
(v) It has taken all steps reasonably necessary to determine and has determined that no
hazardous substances, solid waste, or oil and gas exploration and production wastes, have been
disposed of or otherwise released and there has been no threatened release of any hazardous
substances on or to any Property of it or any of its Subsidiaries except in compliance with
Environmental Laws and so as not to pose an imminent and substantial endangerment to public health
or welfare or the environment;
(vi) To the extent applicable, all Property of it and each of its Subsidiaries currently
satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of
the Effective Date to be imposed by OPA during the term of this Agreement, and it does not have any
reason to believe that such Property, to the extent subject to OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement; and
(vii) Neither it nor any of its Subsidiaries has any known contingent liability in connection
with any release or threatened release of any oil, hazardous substance or solid waste into the
environment.
Section 7.17
Compliance with the Law
. Neither it nor any of its Subsidiaries has violated
any Governmental Requirement or failed to obtain any license, permit, franchise or other
governmental authorization necessary for the ownership of any of its Properties or the
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conduct of
its business, which violation or failure would (in the event such violation or failure were
asserted by any Person through appropriate action) result in a Material Adverse Effect.
Section 7.18
Insurance
. The notice provided to all Lenders contains an accurate
description of all material policies of fire, liability, workmens compensation and other forms of
insurance owned or held by UCLP and each Material Domestic Subsidiary and Material Foreign
Subsidiary. All such policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Effective Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and of all agreements to which UCLP or any
Material Domestic Subsidiary is a party; are valid, outstanding and enforceable policies; provide
adequate insurance coverage in at least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business for the assets and operations of UCLP and each Material
Domestic Subsidiary; will remain in full force and effect through the respective dates set forth in
the binders for said insurance without the payment of additional premiums; and will not in any way
be affected by, or terminate or lapse by reason of, the Transactions contemplated by this
Agreement. Neither UCLP nor any Material Domestic Subsidiary has been refused any insurance with
respect to its assets or operations, nor has its coverage been limited below usual and customary
policy limits, by an insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last three years.
Section 7.19
Hedging Agreements
.
Schedule 7.19
sets out, as of the Effective Date,
a true and complete list of all Hedging Agreements (including commodity price swap agreements,
forward agreements or contracts of sale which provide for prepayment for deferred shipment or
delivery of oil, gas or other commodities) of it and each of its Restricted Subsidiaries, the
material terms thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net mark-to-market value thereof, all credit support agreements relating
thereto (including any margin required or supplied), and the counter party to each such agreement.
Section 7.20
Restriction on Liens
. Except as set out in
Schedule 7.20
, neither it
nor any of its Restricted Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which
either restricts or purports to restrict its ability to grant Liens pursuant to this Agreement and
the Security Instruments to other Persons on or in respect of its material Properties.
ARTICLE VIII
Affirmative Covenants
Each of UCLP, the Borrower and each Guarantor by its execution of a Guaranty Agreement,
covenants and agrees that, so long as any of the Aggregate Commitments are in effect and until
payment in full of all Loans hereunder, all interest thereon and all other amounts payable by the
Borrower hereunder:
Section 8.01
Reporting Requirements
. The Borrower shall deliver, or shall cause to be
delivered, to the Administrative Agent:
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(a)
Financial Statements
. (i) Within 30 days after the same is required to be filed
with the SEC or any successor agency (but in any event within 90 days of the end of each fiscal
year of UCLP), a copy of each annual report and any amendment to a report filed by UCLP with the
SEC or any successor agency pursuant to Section 13 or 15(d) of the Exchange Act (currently Form
10-K), as the same may be amended from time to time, (ii) within 30 days after the same is required
to be filed by UCLP with the SEC or any successor agency (but in any event within 60 days after the
end of each of the first three fiscal quarters of UCLP), a copy of each quarterly report and any
amendment to any quarterly report filed with the SEC or any successor agency pursuant to Section 13
or 15(d) of the Exchange Act (currently Form 10-Q), as the same may be amended, from time to time
and (iii) promptly after the same become available, but in any event within 15 days following the
date the same are required to be filed with the SEC, all other reports, notices, proxy statements
or other documents that are distributed by UCLP to its unitholders and all regular and periodic
final reports (including, without limitation, reports on Form 8-K) filed by UCLP with the SEC,
which are publicly available;
provided
, however, that UCLP shall be deemed to have
furnished the information required by this Section 8.01(a) if UCLP shall have timely made the same
available on EDGAR and/or on its home page on the worldwide web (at the date of this Agreement
located at
http://www.universalcompression.com
);
provided
,
further
,
however
, that if the Administrative Agent is unable to access EDGAR or UCLPs home page on
the worldwide web, UCLP agrees to provide the Administrative Agent with paper copies of the
information required to be furnished pursuant to this Section 8.01(a) promptly following notice
from the Administrative Agent.
(b)
Budget, Projections
. Within 90 days following the end of each fiscal year of
UCLP, a copy of the projections of the operating budget and cash flow budget of UCLP and its
Restricted Subsidiaries prepared on a consolidated basis for the succeeding fiscal year, such
projections to be accompanied by a certificate of a Responsible Officer to the effect that such
projections have been prepared on the basis of reasonable assumptions and that such Responsible
Officer has no reason to believe they are incorrect or misleading in any material respect.
(c)
Notice of Default, Etc
. Promptly after either UCLP or the Borrower knows that any
Default or Material Adverse Effect has occurred, a notice of such Default or Material Adverse
Effect, describing the same in reasonable detail and the action UCLP or the Borrower proposes to
take with respect thereto, and at the Administrative Agents option, a copy of the notice of such
Default or Material Adverse Effect.
(d)
Management Letters
. Promptly after it or any Material Domestic Subsidiarys
receipt thereof, a copy of any management letter addressed to the board of directors of it or
such Material Domestic Subsidiary from its certified public accountants and any internal control
memoranda relating thereto.
(e)
Other Matters
. From time to time such other information regarding the business,
affairs or financial condition of it or any Material Domestic Subsidiary (including, without
limitation, any Plan or Multiemployer Plan and any reports or other information required to be
filed under ERISA) as the Administrative Agent may reasonably request.
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(f)
Labor Disputes
. Promptly upon becoming aware of any labor dispute which would
result in a Material Adverse Effect, a notice of such dispute describing same in detail and the
action the Borrower proposes to take with respect thereto.
(g)
Compliance Certificate
. The Borrower, within ten (10) Business Days of any deemed
delivery of any annual report or quarterly report pursuant to paragraph (a) above, will furnish to
the Administrative Agent (i) a certificate substantially in the form of
Exhibit D-2
executed by a Responsible Officer of it (A) certifying as to the matters set forth therein and
stating that no Default has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail) and (B) setting forth in reasonable detail
the computations necessary to determine whether UCLP is in compliance with Section 9.10(a) and (b)
as of the end of the respective fiscal quarter or fiscal year; and (ii) a report, in form and
substance satisfactory to the Administrative Agent, setting forth as of such quarterly date a true
and complete list of all Hedging Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of
oil, gas or other commodities) of it, each of its Restricted Subsidiaries, the material terms
thereof (including the type, term, effective date, termination date and notional amounts or
volumes), the net mark to market value therefor, any new credit support agreements relating thereto
not listed in
Schedule 7.19
, any margin required or supplied under any credit support
document, and the counter party to each such agreement.
(h)
Consolidating Financials
. With the delivery or deemed delivery of the financial
statements required by Section 8.01(a), UCLP shall deliver consolidating information with respect
to such Unrestricted Subsidiaries, if any.
Section 8.02
Litigation
. It shall promptly give to the Administrative Agent notice of any
litigation or governmental investigation or proceeding pending against it or any of its
Subsidiaries which would result in a Material Adverse Effect.
Section 8.03
Maintenance, Etc
.
(a)
Generally
. Except as otherwise permitted by Section 9.06, it shall and shall
cause each Material Domestic Subsidiary to: preserve and maintain its legal entity existence and
all of its material rights, privileges, franchises, patents, trademarks, copyrights and licenses;
keep books of record and account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities; comply with all Governmental
Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay
and discharge all taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves are being maintained in
accordance with GAAP; upon reasonable notice, permit representatives of the Administrative Agent,
during normal business hours, to examine, copy and make extracts from its books and records, to
inspect its Properties, and to discuss its business and affairs with its officers, all to the
extent reasonably requested by the Administrative Agent.
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(b)
Proof of Insurance
. UCLP shall and shall cause each Material Domestic Subsidiary
to maintain, with financially sound and reputable insurance companies, insurance policies which (i)
are sufficient for compliance with all requirements of law and of all agreements to which UCLP or
any Material Domestic Subsidiary is a party; (ii) are valid, outstanding and enforceable policies;
and (iii) provide adequate insurance coverage in at least such amounts and against at least such
risks (but including in any event public liability) as are usually insured against in the same
general area by companies engaged in the same or a similar business for the assets and operations
of UCLP and each Material Domestic Subsidiary. Within 90 days of the end of each fiscal year, UCLP
will furnish or cause to be furnished to the Administrative Agent a certificate of insurance
coverage from the insurer in form and substance satisfactory to the Administrative Agent and, if
requested, will furnish the Administrative Agent copies of the applicable policies. The loss
payable clauses or provisions in said insurance policy or policies insuring any of the Collateral
shall be endorsed in favor of and made payable to the Administrative Agent as its interests may
appear and such policies shall name the Administrative Agent and the Lenders as additional
insureds and provide that the insurer will endeavor to give at least 30 days prior notice of any
cancellation to the Administrative Agent.
(c)
Operation of Properties
. It will and will cause each of its Restricted
Subsidiaries to operate its Properties or cause such Properties to be operated in a careful and
efficient manner (i) in compliance with the practices of the industry, (ii) in compliance with all
applicable contracts and agreements and (iii) in compliance in all material respects with all
Governmental Requirements, except where the noncompliance therewith would not result in a Material
Adverse Effect.
Section 8.04
Environmental Matters
.
(a)
Establishment of Procedures
. It will and will cause each of its Subsidiaries to
establish and implement such procedures as may be reasonably necessary to continuously determine
and assure that any failure of the following does not have a Material Adverse Effect: (i) all
Property of it and its Subsidiaries and the operations conducted thereon and other activities of it
and its Subsidiaries are in compliance with and do not violate the requirements of any
Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise
released on or to any Property owned by any such party except in compliance with Environmental
Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal
to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv)
no oil, oil and gas exploration and production wastes or hazardous substance is released on or to
any such Property so as to pose an imminent and substantial endangerment to public health or
welfare or the environment.
(b)
Notice of Action
. It will promptly notify the Administrative Agent in writing of
any threatened action, investigation or inquiry by any Governmental Authority of which it has
knowledge in connection with any Environmental Laws, which would result in a Material Adverse
Effect.
Section 8.05
Further Assurances
. It will and will cause each of its Restricted
Subsidiaries to cure promptly any defects in the creation and issuance of the Notes and the
execution and delivery of the Security Instruments and this Agreement. It at its expense will and
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will cause each of its Restricted Subsidiaries to promptly execute and deliver to the
Administrative Agent upon request all such other documents, agreements and instruments to comply
with or accomplish the covenants and agreements of it or any of its Restricted Subsidiaries, as the
case may be, in the Security Instruments and this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Notes, or to correct any omissions in the
Security Instruments, or to state more fully the security obligations set out herein or in any of
the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of
the Security Instruments, or to make any recordings, to file any notices or obtain any consents,
all as may be reasonably necessary or appropriate in connection therewith.
Section 8.06
Performance of Obligations
. The Borrower will pay its Notes according to the
reading, tenor and effect thereof; and UCLP will and will cause each of its Subsidiaries to do and
perform every act and discharge all of the obligations to be performed and discharged by them under
the Security Instruments and this Agreement, at the time or times and in the manner specified.
Section 8.07
Collateral
.
(a)
Guarantees and Collateral
. UCLP shall and it shall cause the Borrower and each
Guarantor to grant a Lien pursuant to the Security Instruments on substantially all of its
Properties located in the United States now owned or at any time hereafter acquired by it, the
Borrower or a Guarantor, including, without limitation, all Equipment, Accounts, Chattel Paper,
Documents, General Intangibles, Instruments, and Inventory;
provided
that the foregoing
shall not require the creation or perfection of pledges of, security interests in or mortgages on,
with respect to (A) any real property that has a value of less than $7,500,000, (B) any Property as
provided on
Schedule 8.07
or (C) any Property that in the judgment of the Administrative
Agent, the cost of creating or perfecting such pledges, security interests or mortgages on such
Property would be excessive in view of the benefits to be obtained by the Lenders therefrom,
provided
further
that UCLP, the Borrower and any Guarantor will have ninety (90)
days to perfect Liens on Property acquired in an acquisition. UCLP shall, and it shall promptly
cause the GP and each Significant Domestic Subsidiary now existing or hereafter formed or acquired
to, guarantee the Indebtedness pursuant to the execution and delivery of the Guaranty Agreement or
a supplement thereto. UCLP shall cause to be pledged by the appropriate Person (i) all of the
Equity Interests of each Domestic Subsidiary (including, without limitation, to the extent
certificated, delivery of original stock certificates or other certificates evidencing the capital
stock of such entity, together with an appropriate undated stock power for each certificate duly
executed in blank by the registered owner thereof), (ii) 65% of the capital stock of each first
tier Foreign Subsidiary (including, without limitation, to the extent certificated, delivery of
original stock certificates or other certificates evidencing the capital stock of such Domestic
Subsidiary or 65% of the capital stock of such Foreign Subsidiary, together with an appropriate
undated stock power for each certificate duly executed in blank by the registered owner thereof)
and (iii) and execute and deliver such other additional documents and certificates as shall
reasonably be requested by the Administrative Agent. If there are no adverse tax consequences to
UCLP, to UCLPs partners or to any of its Restricted Subsidiaries, the Collateral described above
(and subject to the same limitations set forth above) will include Property located in
jurisdictions outside the United States, Foreign Subsidiaries will be included as Guarantors, and
all of the Equity Interest of Foreign Subsidiaries will be pledged.
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(b)
Releases
. The Borrower and the Guarantors are authorized to release any
Collateral that is sold, leased, assigned, conveyed, transferred or otherwise disposed of in
compliance with Sections 9.06, 9.08 and 9.11. All Collateral shall be released upon either the
Borrowers or UCLPs Index Debt receiving (i) an investment grade rating from Moodys or S&P and a
rating no lower than one notch below investment grade from the other agency and (ii) a stable
outlook or better from both Moodys and S&P.
Section 8.08
Notice of an ERISA Event
. It will promptly furnish to the Administrative
Agent written notice of the occurrence of any ERISA Event that, alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in liability of it and its
Subsidiaries in an aggregate amount exceeding $100,000.
ARTICLE IX
Negative Covenants
Each of UCLP, the Borrower and each Guarantor by its execution of a Guaranty Agreement,
covenants and agrees that, so long as any of the Aggregate Commitments are in effect and until
payment in full of Loans hereunder, all interest thereon and all other amounts payable by the
Borrower hereunder, without the prior written consent of the Majority Lenders:
Section 9.01
Debt
. Neither it nor any of its Restricted Subsidiaries will incur, create,
assume or permit to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or suretyship arrangement for the Notes
or other Indebtedness;
(b) Debt (including unfunded commitments) existing on the Effective Date which is disclosed in
Schedule 9.01
, and any renewals, extensions, refinancings and modifications (but not
increases) thereof with financial covenants no more restrictive than those existing on the
Effective Date;
(c) accounts payable (for the deferred purchase price of Property or services) from time to
time incurred in the ordinary course of business which, if greater than 60 days past due, are being
contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been
established therefor;
(d) Debt under Hedging Agreements which are for bona fide business purposes and are not
speculative;
(e) Debt with respect to an ABS Facility subject to an intercreditor agreement similar to the
form that currently exists under the Holdings ABS Facility in existence as of the Effective Date;
provided
that (A) at the time of the incurrence of such Debt, all such Debt outstanding
after giving pro forma effect to the incurrence of such Debt shall not exceed two times the EBITDA
for the UCLP Group for the most recent Testing Period, (B) that neither UCLP, the Borrower nor any
Subsidiary other than any ABS Subsidiary is liable for such Debt and (C) no Default or Event of
Default (both before and after giving pro forma effect to the incurrence of such Debt) exists and
is continuing;
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(f) other Debt of UCLP, the Borrower and any Significant Domestic Subsidiaries;
provided
that (A) no Default or Event of Default (both before and after giving pro forma
effect to the incurrence of such Debt) exists and is continuing, (B) the maturity of such Debt is
at least six (6) months after the Revolving Credit Maturity Date and the Term Loan Maturity Date
(C) the Weighted Average Life to Maturity of such Debt is greater than the number of years
(calculated to the nearest one-twelfth) to the after the Revolving Credit Maturity Date and the
Term Loan Maturity Date and (D) such Debt has terms substantially similar to those customary in
high-yield facilities;
(g) Debt evidenced by Capital Lease Obligations and Purchase Money Indebtedness;
provided
that in no event shall the aggregate principal amount of Capital Lease Obligations
and Purchase Money Indebtedness permitted by this clause (g) exceed an amount equal to five percent
(5%) of the Aggregate Commitments;
(h) Debt with respect to surety bonds, appeal bonds or customs bonds required in the ordinary
course of business or in connection with the enforcement of rights or claims of UCLP, UCI or any of
its Restricted Subsidiaries or in connection with judgments that do not result in a Default or an
Event of Default,
provided
that the aggregate outstanding amount of all cash surety bonds,
appeal bonds and custom bonds permitted by this clause (h) shall not at any time exceed an amount
equal to five percent (5%) of the Aggregate Commitments;
(i) Debt for borrowed money meeting the qualifications set forth in Section 9.01(f) assumed by
UCLP or one of its Restricted Subsidiaries, or of a Restricted Subsidiary of UCLP acquired,
pursuant to an acquisition or merger permitted pursuant to the terms of this Agreement other than
from UCI and its Subsidiaries;
provided
that up to $25,000,000 of such Debt outstanding at
any time does not need to meet the qualifications of Section 9.01(f)(B), (C) and (D);
(j) Debt for borrowed money assumed by UCLP or one of its Restricted Subsidiaries, or of a
Restricted Subsidiary of UCLP acquired, pursuant to an asset acquisition from Holdings or one of
its Subsidiaries (other than UCLP and its Subsidiaries);
(k) other Debt not to exceed $15,000,000 in the aggregate;
(l) Debt of it owed to any Restricted Subsidiary and any Debt owed by a Restricted Subsidiary
to it or to any other Restricted Subsidiary
provided
that such Debt shall be unsecured and
subordinate to the Indebtedness on terms reasonably satisfactory to the Administrative Agent; and
(m) Non-Recourse Foreign Debt used for such Foreign Subsidiarys and/or its Foreign
Subsidiaries working capital and general business purposes.
Section 9.02
Liens
. Neither it nor any of its Restricted Subsidiaries will create, incur,
assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired),
except (herein referred to as
Permitted Liens
):
(a) Liens arising under the Security Instruments securing the payment of any Indebtedness;
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(b) Liens disclosed in
Schedule 9.02
;
(c) Excepted Liens;
(d) Liens on Property held or pledged in connection with an ABS Facility,
provided
that such Liens do not extend to or cover any Property of UCLP or any of its Subsidiaries other
than the Property of ABS Subsidiaries involved in an ABS Facility;
(e) Liens relating to Debt permitted under Sections 9.01(f), (g), (i) or (k),
provided
that the aggregate amount of Debt secured by such Liens shall not exceed in the aggregate ten
percent (10%) of Consolidated Net Tangible Assets;
provided
further
that such Liens
securing Debt permitted under Section 9.01(i) do not extend to or cover any Property other than the
Property that secured such Debt prior to the time it was acquired or assumed;
provided
further
that the Liens securing the Capital Lease Obligations and Purchase Money
Indebtedness must only encumber the Property under lease or purchased;
(f) Liens relating to Debt permitted under Section 9.01(i);
provided
that the
aggregate amount of Debt secured by such Liens may not exceed $25,000,000;
provided
further
that such Liens securing Debt permitted under Section 9.01(i) do not extend to or
cover any Property other than the Property that secured such Debt prior to the time it was acquired
or assumed; and
(g) Liens on assets of Foreign Subsidiaries under Foreign Credit Facilities.
Section 9.03
Investments
. Neither it nor any of its Restricted Subsidiaries will make any
Investments in any Person, except that, so long as no Event of Default has occurred and is
continuing, the foregoing restriction shall not apply to:
(a) Investments in connection with any acquisition of wholly-owned assets, business units or
companies;
provided
,
however
, that (A) such wholly-owned assets, business units or
companies shall not be materially different than the lines of business of Holdings and its
Subsidiaries on the Effective Date, (B) such acquisition shall not be a hostile take over of a
company and (C) both before and after giving pro forma effect to such acquisition and the Debt
incurred to make such acquisition, no Default or Event of Default shall exist and be continuing;
(b) Investments reflected in the financial statements described in Section 7.02 or which are
disclosed to the Lenders in
Schedule 9.03
;
(c) accounts receivable arising in the ordinary course of business;
(d) direct obligations of the United States, Canada or any agency thereof, or obligations
guaranteed by the United States, Canada or any agency thereof, in each case maturing within one
year from the date of creation thereof;
(e) commercial paper maturing within one year from the date of creation thereof rated no lower
than A2 or P2 as such rating is set forth by S&P or Moodys, respectively;
(f) deposits maturing within one year from the date of creation thereof with, including
certificates of deposit issued by, any Lender or any office located in the United States
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of any
other bank or trust company which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as
of the date of such Lenders or bank or trust companys most recent financial reports) and has
a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to
time, by S&P or Moodys, respectively;
(g) deposits in money market funds which invest 95% or more of its funds in Investments
described in Sections 9.03(d), 9.03(e) or 9.03(f);
(h) Investments by it or by any of its Restricted Subsidiaries in any other Restricted
Subsidiary or in it;
(i) Investments otherwise permitted by Sections 9.01 or 9.11;
(j) other Investments not to exceed in the aggregate an amount equal to two and one-half
percent (2.5%) of Consolidated Net Tangible Assets; and
(k) Investments in Unrestricted Subsidiaries not to exceed in the aggregate an amount equal to
fifteen (15%) of Consolidated Net Tangible Assets.
Section 9.04
Dividends, Distributions and Redemptions
. It will not declare or pay any
dividend, purchase, redeem or otherwise acquire for value any of its Equity Interests now or
hereafter outstanding, return any capital to its unitholders or other holders of its Equity
Interests or make any distribution of their assets to its unitholders or such other holders; except
that so long as there shall exist no Default or Event of Default (both before and after giving
effect to the payment thereof), it will be permitted to make distributions as set forth in the UCLP
Partnership Agreement.
Section 9.05
Nature of Business
. Neither it nor any Material Domestic Subsidiary will
allow any material change to be made in the character of its business as compared to Holdings and
any of its Subsidiaries as a whole as of the Effective Date.
Section 9.06
Mergers, Etc.
Neither it nor any of its Restricted Subsidiaries will merge
into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially all of its Property or
Equity Interests of any of its Restricted Subsidiaries to any other Person except that (a) any
Restricted Subsidiary may be merged into or consolidated with or sell, lease or otherwise dispose
of all or substantially all of its Property to (i) the Borrower or it, so long as the Borrower or
it is the surviving business entity, or (ii) another Restricted Subsidiary, (b) it or the Borrower,
as applicable may merge into or consolidate with any Person
provided
, in each case (i)
immediately thereafter and giving effect thereto, no event shall occur and be continuing which
constitutes a Default or Event of Default and (ii) it or the Borrower, as applicable is the
surviving business entity and (c) any Restricted Subsidiary of it may liquidate, dissolve or sell
so long as it determines in good faith that such liquidation, dissolution or sale is in the best
interest of it.
Section 9.07
Proceeds of Notes; Letters of Credit
. The Borrower will not permit the
proceeds of the Notes or Letters of Credit to be used for any purpose other than those permitted by
Section 7.07. Neither the Borrower nor any Person acting on behalf of the Borrower has
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taken or
will take any action which might cause any of the Loan Documents to violate Regulation T, U or X or
any other regulation of the Board of Governors of the Federal Reserve System or to violate Section
7 of the Exchange Act or any rule or regulation thereunder, in each case as now in effect or as the
same may hereinafter be in effect.
Section 9.08
Sale or Discount of Receivables
. Neither it nor any of its Restricted
Subsidiaries will discount or sell (with or without recourse) any of its notes receivable or
accounts receivable, except in the ordinary course of business.
Section 9.09
Fiscal Year Change
. It will not permit any change in its fiscal year.
Section 9.10
Certain Financial Covenants
.
(a)
Interest Coverage Ratio
. UCLP will not permit its Interest Coverage Ratio as of
the last day of any Testing Period to be less than 2.50 to 1.00.
(b)
Total Leverage Ratio
. UCLP will not permit its Total Leverage Ratio to be greater
than 5.00 to 1.00;
provided
that UCLP may increase its Total Leverage Ratio to be no
greater than 5.50 to 1.0 for up to two (2) fiscal quarters after the fiscal quarter in which a
Specified Acquisition occurs.
Section 9.11
Sale of Properties
. It will not, and will not permit any of its Restricted
Subsidiaries to, sell, assign, convey or otherwise transfer (excluding the granting of a Lien) any
Property to any Person other than to it or to any of its Restricted Subsidiaries, except it and any
of its Restricted Subsidiaries:
(a) may sell or otherwise dispose of any Property which, in the reasonable judgment of such
Person, is obsolete, worn out or otherwise no longer useful in the conduct of such Persons
business;
(b) may sell or lease inventory or equipment in the ordinary course of business;
(c) may sell, lease, assign, exchange, convey or otherwise transfer Compression Assets to an
ABS Subsidiary so that it may become collateral for an ABS Facility;
(d) may sell, lease, assign, exchange, convey or otherwise transfer Compression Assets to UCI
or any of UCIs Subsidiaries pursuant to the Omnibus Agreement; and
(e) so long as no Event of Default has occurred and is continuing, may sell or otherwise
dispose of Property having a value of up to 10% of the book value of the total tangible assets of
it on a consolidated basis in any fiscal year.
provided
that with respect to (c) and (e) above, (i) the fair market value is received, and
(ii) no Default or Event of Default will occur after giving effect to such sale on a pro forma
basis.
Section 9.12
Environmental Matters
. Neither it nor any of its Subsidiaries will cause or
permit any of its Property to be in violation of, or do anything or permit anything to be done
which will subject any such Property to any remedial obligations under any Environmental
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Laws,
assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or remedial obligations
would have a Material Adverse Effect.
Section 9.13
Transactions with Affiliates
. Except as set out in
Schedule 9.13
,
neither it nor any of its Restricted Subsidiaries will enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of Property or the rendering of any
service, with any Affiliate unless such transactions are otherwise permitted under this Agreement,
are in the ordinary course of its business and are upon fair and reasonable terms no less favorable
to it than it would obtain in a comparable arms length transaction with a Person not an Affiliate;
provided
that UCLP may enter into transactions with Affiliates if such transactions have
been approved by UCLPs conflicts committee pursuant to the procedures set forth in the UCLP
Partnership Agreement.
Section 9.14
Subsidiaries
.
(a) It shall not, and shall not permit any of its Restricted Subsidiaries to, create any
additional Subsidiaries except for (i) Restricted Subsidiaries resulting from future mergers or
acquisitions permitted hereunder, (ii) new Subsidiaries created by it in compliance with Section
9.03 and (iii) Restricted Subsidiaries created in connection with the reorganization of it or any
Restricted Subsidiary. Upon the creation of any new Restricted Subsidiaries, the Equity Interests
(to the extent certificated) shall be pledged as Collateral for this Agreement (subject to the 65%
limitation for first-tier Foreign Subsidiaries and excluding any Equity Interests in an ABS
Subsidiary); and
(b) It shall not designate any Subsidiary as an Unrestricted Subsidiary, unless:
(i) neither such Subsidiary nor any of its Subsidiaries has any Debt except Non-Recourse Debt;
(ii) neither such Subsidiary nor any of its Subsidiaries is a party to any agreement,
arrangement, understanding or other transaction with UCLP or any Restricted Subsidiary, except
those agreements and other transactions entered into in writing in the ordinary
course of business at prices and on terms and conditions not less favorable to UCLP and each
Restricted Subsidiary than could be obtained on an arms-length basis from unrelated third parties;
(iii) neither such Subsidiary nor any of its Subsidiaries is a Guarantor or has any
outstanding Letter of Credit issued for its account;
(iv) at the time of such designation and immediately after giving effect thereto, no Default
shall have occurred and be continuing;
(v) it would have been in compliance with Section 9.10 on the last day of the most recently
ended fiscal quarter of it had such Subsidiary been an Unrestricted Subsidiary on such day;
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(vi) neither such Subsidiary nor any of its Subsidiaries owns any Debt (excluding any accounts
payable in the ordinary course of business) or Equity Interest of, or is the beneficiary of any
Lien on any property of, UCLP or any Restricted Subsidiary; and
(vii) at or immediately prior to such designation, it delivers a certificate to the Lenders
certifying (y) the names of such Subsidiary and all of its Subsidiaries, and (z) that all
requirements of this Section 9.14(c) have been met for such designation.
Section 9.15
Negative Pledge Agreements
. Except as permitted by this Agreement, neither it
nor any of its Restricted Subsidiaries will create, incur, assume or permit to exist any contract
or agreement (other than this Agreement and the Security Instruments) which in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of its Property as may
be required in connection with this Agreement or restricts any of its Restricted Subsidiaries from
paying dividends to the Borrower, or which requires the consent of or notice to other Persons in
connection therewith, except for any such contract or agreement existing as of the Effective Date
and any extensions, renewals or replacements of any contracts or agreements permitted hereunder;
provided
that such prohibitive terms of such contract or agreement are no more restrictive
than the terms reflected in such contract or agreement existing as of the Effective Date.
ARTICLE X
Events of Default; Remedies
Section 10.01
Events of Default
. One or more of the following events which continue beyond
any applicable cure period shall constitute an
Event of Default
:
(a) the Borrower shall default in the payment or prepayment when due of any principal of or
interest on any Loan, or any reimbursement obligation for a disbursement made under any Letter of
Credit, or any fees or other amount payable by it hereunder or under any Security Instrument and
such default, other than a default of a payment or prepayment of
principal (which shall have no cure period), shall continue unremedied for a period of five
(5) Business Days; or
(b) UCLP or any Restricted Subsidiary shall default in the payment when due of any principal
of or interest on any of its other Debt aggregating $10,000,000 or more, or any event or condition
occurs that results in such Debt becoming due prior to its scheduled maturity or that enables or
permits (with the giving of any notice, the lapse of time or both) the holder or holders of such
Debt or any trustee or agent on its or their behalf to cause such Debt to become due prior to its
scheduled maturity; or
(c) any representation, warranty or certification made or deemed made herein or in any
Security Instrument by UCLP or any Subsidiary, or any certificate furnished to any Lender or the
Administrative Agent pursuant to the provisions hereof or any Security Instrument, shall prove to
have been false or misleading as of the time made or furnished in any material respect; or
(d) UCLP, the Borrower or any Guarantor shall default in the performance of any of their
obligations under this Agreement other than under Section 9.14 or ARTICLE VIII; or
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UCLP or any
Restricted Subsidiary shall default in the performance of any of its obligations under Section 9.14
or ARTICLE VIII or any Security Instrument (other than the payment of amounts due which shall be
governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty
(30) days after the earlier to occur of (i) notice thereof to the Borrower by the Administrative
Agent or any Lender (through the Administrative Agent), or (ii) the Borrower otherwise becoming
aware of such default; or
(e) UCLP, any Material Domestic Subsidiary or any Material Foreign Subsidiary shall admit in
writing its inability to, or be generally unable to, pay its debts as such debts become due; or
(f) UCLP, any Material Domestic Subsidiary or any Material Foreign Subsidiary shall (i) apply
for or consent to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its Property, (ii) make a
general assignment for the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the application or consent of UCLP, any
Material Domestic Subsidiary or any Material Foreign Subsidiary, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of UCLP, any Material Domestic Subsidiary or any Material Foreign Subsidiary
of all or any substantial part of its assets, or (iii) similar relief in respect of UCLP, any
Material Domestic Subsidiary or any Material Foreign Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order, judgment or decree approving
or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period
of 60 days; or (iv) an order for relief against UCLP, any Material Domestic Subsidiary or any
Material Foreign Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess of insurance coverage
aggregating $10,000,000 or more at any one time outstanding shall be rendered by a court against
UCLP or any Restricted Subsidiary and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30)
days from the date of entry thereof and UCLP or such Restricted Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such appeal; or
(i) the Loan Documents after delivery thereof shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms, or, with respect to the Security Instruments, shall
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cease to create a valid and perfected Lien of the priority required thereby on any of the
Collateral purported to be covered thereby, except to the extent permitted by the terms of this
Agreement, or UCLP or any Restricted Subsidiary shall so state in writing; or
(j) a Change in Control shall occur; or
(k) an ERISA Event shall have occurred that, in the opinion of the Majority Lenders, when
taken together with all other ERISA Events that have occurred, could reasonably be expected to
result in liability of UCLP and any of its Restricted Subsidiaries in an aggregate amount exceeding
$5,000,000 for all periods.
Section 10.02
Remedies
.
(a) In the case of an Event of Default other than one referred to in clauses (f) or (g) of
Section 10.01, the Administrative Agent, upon request of the Majority Lenders, shall, by notice to
the Borrower, cancel the Aggregate Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder
and under the Notes (including without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.07(d)(ii)) to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand, protest, notice of intent
to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default referred to in clauses (f) or (g) of
Section 10.01, the Aggregate Commitments shall be automatically canceled and the principal amount
then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Notes (including without limitation, the payment of cash
collateral to secure the LC Exposure as provided in Section 2.07(d)(ii)) shall
become automatically immediately due and payable without presentment, demand, protest, notice
of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
(c) Hedging Agreements between UCLP, the Borrower and any of its Subsidiaries and the
Administrative Agent or a Lender and/or any Lender Affiliate are secured by the Security
Instruments
pari passu
with all other Indebtedness. As such, proceeds from Security Instruments
shall be shared pro rata on all Indebtedness. All proceeds applicable to the Loans and other
obligations under this Agreement and the other Loan Documents shall be applied, first to
reimbursement of expenses and indemnities provided for in this Agreement and the other Loan
Documents; second to accrued interest on the Loans; third to fees; fourth pro rata to principal
outstanding on the Loans and other Indebtedness and to serve as cash collateral to be held by the
Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as
otherwise required by any Governmental Requirement.
(d) Acceleration and termination of all Hedging Agreements involving the Administrative Agent
or Lenders or the Lender Affiliates shall be governed by the terms of the Hedging Agreements.
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ARTICLE XI
The Agents
Section 11.01
Appointment; Powers
. Each of the Lenders and the Issuing Bank hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent
to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof and the other Loan Documents, together with such actions
and powers as are reasonably incidental thereto.
Section 11.02
Duties and Obligations of Administrative Agent
. The Administrative Agent
shall not have any duties or obligations except those expressly set forth in the Loan Documents.
Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has occurred and is
continuing (the use of the term agent herein and in the other Loan Documents with reference to
the Administrative Agent is not intended to connote any fiduciary or other implied (or express)
obligations arising under agency doctrine of any applicable law; rather, such term is used merely
as a matter of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative Agent shall have no
duty to take any discretionary action or exercise any discretionary powers, except as provided in
Section 11.03, and (c) except as expressly set forth herein, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose, any information
relating to UCLP or any of its Subsidiaries that is communicated to or obtained by the bank serving
as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall
be deemed not to have knowledge of any Default unless and until written notice thereof is given to
the Administrative Agent by the
Borrower or a Lender, and shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made in or in connection with this Agreement or
any other Loan Document, (ii) the contents of any certificate, report or other document delivered
hereunder or under any other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set
forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in ARTICLE VI or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the Administrative Agent or
as to those conditions precedent expressly required to be to the Administrative Agents
satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the
financial or other condition of UCLP and its Subsidiaries or any other obligor or guarantor, or
(vii) any failure by UCLP, the Borrower or any other Person (other than itself) to perform any of
its obligations hereunder or under any other Loan Document or the performance or observance of any
covenants, agreements or other terms or conditions set forth herein or therein. For purposes of
determining compliance with the conditions specified in ARTICLE VI, each Lender shall be deemed to
have consented to, approved or accepted or to be satisfied with, each document or other matter
required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender
unless the Administrative Agent shall have received written notice from such Lender prior to the
proposed closing date specifying its objection thereto.
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Section 11.03
Action by Administrative Agent
. The Administrative Agent shall have no duty
to take any discretionary action or exercise any discretionary powers, except discretionary rights
and powers expressly contemplated hereby or by the other Loan Documents that the Administrative
Agent is required to exercise in writing as directed by the Majority Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as provided in Section
12.02) and in all cases the Administrative Agent shall be fully justified in failing or refusing to
act hereunder or under any other Loan Documents unless it shall (a) receive written instructions
from the Majority Lenders or the Lenders, as applicable, (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the
action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all
liability and expenses which may be incurred by it by reason of taking or continuing to take any
such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto
by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and
is continuing, then the Administrative Agent shall take such action with respect to such Default as
shall be directed by the requisite Lenders in the written instructions (with indemnities) described
in this Section 11.03,
provided
that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default as it shall deem advisable
in the best interests of the Lenders. In no event, however, shall the Administrative Agent be
required to take any action which exposes the Administrative Agent to personal liability or which
is contrary to this Agreement, the Loan Documents or applicable law. If a Default has occurred and
is continuing, neither the Syndication Agent nor the Co-Documentation Agents shall have any
obligation to perform any act in respect thereof. The Administrative Agent shall not be
liable for any action taken or not taken by it with the consent or at the request of the Majority
Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 12.02), and otherwise the Administrative Agent shall
not be liable for any action taken or not taken by it hereunder or under any other Loan Document or
under any other document or instrument referred to or provided for herein or therein or in
connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross
negligence or willful misconduct.
Section 11.04
Reliance by Administrative Agent
. The Administrative Agent shall be entitled
to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be genuine and to have
been signed or sent by the proper Person. The Administrative Agent also may rely upon any
statement made to it orally or by telephone and believed by it to be made by the proper Person, and
shall not incur any liability for relying thereon and each of UCLP, the Borrower, the Lenders and
the Issuing Bank hereby waives the right to dispute the Administrative Agents record of such
statement, except in the case of gross negligence or willful misconduct by the Administrative
Agent. The Administrative Agent may consult with legal counsel (who may be counsel for UCLP or the
Borrower), independent accountants and other experts selected by it, and shall not be liable for
any action taken or not taken by it in accordance with the advice of any such counsel, accountants
or experts. The Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the assignment or transfer
thereof permitted hereunder shall have been filed with the Administrative Agent.
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Section 11.05
Subagents
. The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its
duties and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding Sections of this ARTICLE XI shall apply to any such
sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall
apply to their respective activities in connection with the syndication of the credit facilities
provided for herein as well as activities as Administrative Agent.
Section 11.06
Resignation or Removal of Administrative Agent
. Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this Section 11.06, the
Administrative Agent may resign at any time by notifying the Lenders, the Issuing Bank and the
Borrower, and the Administrative Agent may be removed at any time with or without cause by the
Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right,
in consultation with the Borrower, to appoint a successor. If no successor shall have been so
appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation or removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Agent. Upon the
acceptance of its appointment as Agent
hereunder by a successor, such successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. The fees payable by UCLP and the Borrower to a
successor Agent shall be the same as those payable to its predecessor unless otherwise agreed
between UCLP or the Borrower and such successor. After the Agents resignation hereunder, the
provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Agent.
Section 11.07
Agents as Lenders
. Each bank serving as an Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as
though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money
to and generally engage in any kind of business with UCLP or any Subsidiary or other Affiliate
thereof as if it were not an Agent hereunder.
Section 11.08
No Reliance
. Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent, any other Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement and each other Loan Document to which it is a party. Each Lender also
acknowledges that it will, independently and without reliance upon the Administrative Agent, any
other Agent or any other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not taking action under
or based upon this Agreement, any other Loan Document, any related agreement or any document
furnished hereunder or thereunder. The Agents shall not be required to keep themselves informed as
to the performance or observance by UCLP or any of its Subsidiaries of this Agreement, the Loan
Documents or any other document referred to or provided for herein or to inspect the Properties or
books of UCLP or its Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the
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Lenders by the Administrative Agent hereunder, no Agent
or the Joint Lead Arrangers shall have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or business of UCLP or the
Borrower (or any of their Affiliates) which may come into the possession of such Agent or any of
its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in
this transaction as special counsel to the Administrative Agent only, except to the extent
otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will
consult with its own legal counsel to the extent that it deems necessary in connection with the
Loan Documents and the matters contemplated therein.
Section 11.09
Administrative Agent May File Proofs of Claim
.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to UCLP or any of its
Subsidiaries, the Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans and all other Indebtedness that are owing and unpaid and to file
such other documents as may be necessary or advisable in order to have the claims of the Lenders
and the Administrative Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their respective agents
and counsel and all other amounts due the Lenders and the Administrative Agent under Section 12.03)
allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Lender to make such payments to the
Administrative Agent and, in the event that the Administrative Agent shall consent to the making of
such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its
agents and counsel, and any other amounts due the Administrative Agent under Section 12.03.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize
the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
Section 11.10
Authority of Administrative Agent to Release Collateral and Liens
. Each
Lender and the Issuing Bank hereby authorizes the Administrative Agent to release any collateral
that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender
and the Issuing Bank hereby authorizes the Administrative Agent to execute and deliver
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to the
Borrower, at the Borrowers sole cost and expense, any and all releases of Liens, termination
statements, assignments or other documents reasonably requested by the Borrower in connection with
any sale or other disposition of Property to the extent such sale or other disposition is permitted
by the terms of Section 9.11 or is otherwise authorized by the terms of the Loan Documents.
Section 11.11
The Joint Lead Arrangers, the Syndication Agent and the Co-Documentation
Agents
. The Joint Lead Arrangers, the Syndication Agent and the Co-Documentation Agents shall have no
duties, responsibilities or liabilities under this Agreement and the other Loan Documents other
than their duties, responsibilities and liabilities in their capacity as Lenders hereunder.
ARTICLE XII
Miscellaneous
Section 12.01
Notices
. All notices and other communications provided for herein and in the
other Loan Documents (including, without limitation, any modifications of, or waivers or consents
under, this Agreement or the other Loan Documents) shall be given or made by telex, telecopy,
courier, U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the intended
recipient at the Address for Notices specified below its name on the signature pages hereof or in
the other Loan Documents, except that for notices and other communications to the Administrative
Agent other than payment of money, the Borrower need only send such notices and communications to
the Administrative Agent care of the Houston address of Wachovia; or, as to any party, at such
other address as shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement or in the other Loan Documents, all such communications shall
be deemed to have been duly given when transmitted, if transmitted before 1:00 p.m. local time on a
Business Day (otherwise on the next succeeding Business Day) by telex or telecopier and evidence or
confirmation of receipt is obtained, or personally delivered or, in the case of a mailed notice,
three (3) Business Days after the date deposited in the mails, postage prepaid, in each case given
or addressed as aforesaid.
Section 12.02
Waivers; Amendments
.
(a) No failure on the part of the Administrative Agent, any other Agent, the Issuing Bank or
any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any
right, power or privilege, or any abandonment or discontinuance of steps to enforce such right,
power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies of the Administrative Agent, any other Agent, the Issuing Bank
and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive
of any rights or remedies that they would otherwise have. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by UCLP or the Borrower therefrom
shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then
such waiver or consent shall be effective only in the specific instance and for the purpose for
which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of
a Letter of Credit shall not be construed as a
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waiver of any Default, regardless of whether the
Administrative Agent, any other Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof nor any Security Instrument nor any
provision thereof may be amended, modified or waived except with the Borrowers and the Majority
Lenders prior written consent or by the Borrower and the Administrative Agents consent with the
consent of the Majority Lenders;
provided
that (i) no amendment, modification or waiver
that forgives or reduces the principal amount of any Indebtedness or Letter of Credit reimbursement
obligation outstanding under this Agreement, releases all or substantially all of the Collateral
(excluding sales of Properties permitted hereunder) or the Guarantors, affects Sections 4.01,
10.02(c), 12.02 or 12.04 or permits an Interest Period with a duration in excess of six months or
modifies the definition of
Majority Lenders
shall be effective without consent of all
Lenders; (ii) no amendment, modification or waiver which extends any scheduled payment date or the
final maturity of the Term Loans, reduces the interest rate applicable to the Term Loans or the
fees payable to the Term Loan Lenders or extends the time for payment of such interest or fees
shall be effective without the consent of all the Term Loan Lenders (in lieu of the consent of the
Majority Lenders); (iii) no amendment, modification or waiver which extends any scheduled payment
date or the Revolving Credit Maturity Date, reduces the interest rate applicable to the Revolving
Loans or the fees payable to the Revolving Lenders or extends the time for payment of such interest
or fees shall be effective without the consent of all the Revolving Lenders (in lieu of the consent
of the Majority Lenders); (iv) no amendment, modification or waiver which increases the Revolving
Commitment or the Term Commitment of any Lender shall be effective without the consent of such
Lender; and (v) no amendment, modification or waiver which modifies the rights, duties or
obligations of the Administrative Agent shall be effective without the consent of the
Administrative Agent.
Section 12.03
Expenses, Indemnity; Damage Waiver
.
(a) The Borrower agrees:
(i) whether or not the Transactions hereby contemplated are consummated, to pay all reasonable
expenses of the Administrative Agent in the administration (both before and after the execution
hereof and including advice of counsel as to the rights and duties of the Administrative Agent and
the Lenders with respect thereto) of, and in connection with the negotiation, syndication,
investigation, preparation, execution and delivery of, recording or filing of, preservation of
rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan
Documents and any amendment, waiver or consent, whether or not effective, relating thereto
(including, without limitation, travel, photocopy, mailing, courier, telephone and other similar
expenses of the Administrative Agent, ongoing Collateral monitoring and protection, Collateral
releases and workout matters, the cost of environmental audits, surveys and appraisals, the
reasonable fees and disbursements of counsel and other outside consultants for the Administrative
Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for the
Administrative Agent and any of the Lenders); and promptly reimburse the Administrative Agent for
all amounts expended, advanced or incurred by the Administrative Agent or the Lenders to satisfy
any obligation of the Borrower under this Agreement or any Security Instrument, including without
limitation, all costs and expenses of foreclosure;
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(ii)
to indemnify the Administrative Agent and each Lender and each Lender
Affiliate and each of their officers, directors, employees, representatives, Administrative Agent,
attorneys, accountants, investment advisors, agents, trustees and experts (
Indemnified
Parties
) from, hold each of them harmless against and promptly upon demand pay or reimburse
each of them for, the Indemnity Matters which may be incurred by or asserted against or involve any
of them (whether or not any of them is designated a party thereto) as a result of, arising out of
or in any way related to (a) any actual or proposed use by the Borrower of the proceeds of any of
the Loans or Letters of Credit, (b) the execution, delivery and performance of the Loan Documents,
(c) the operations of the business of UCLP, the Borrower and its Subsidiaries, (d) the failure of
UCLP, the Borrower or any Subsidiary to comply with the terms of any Security Instrument or this
Agreement, or with any Governmental Requirement, (e) any inaccuracy of any representation or any
breach of any warranty of UCLP or the Borrower set forth in any of the Loan Documents, (f) the
issuance, execution and delivery or transfer of or payment or failure to pay under any Letter of
Credit, (g) the payment of a drawing under any Letter of Credit notwithstanding the non-compliance,
non-delivery or other improper presentation of the manually executed draft(s) and certification(s),
(h) any assertion that the Lenders were not entitled to receive the proceeds received pursuant to
the Security Instruments or (i) any other aspect of the Loan Documents, including, without
limitation, the reasonable fees and disbursements of counsel and all other expenses incurred in
connection with investigating, defending or preparing to defend any such action, suit, proceeding
(including any investigations, litigation or inquiries) or claim and including all Indemnity
Matters arising by reason of the ordinary negligence of any Indemnified Party, but excluding all
Indemnity Matters arising solely by reason of claims between the Lenders or any Lender and the
Administrative Agent or a Lenders shareholders against the Administrative Agent or Lender or by
reason of the gross negligence or willful misconduct on the part of such Indemnified Party;
and
(iii)
to indemnify and hold harmless from time to time the Indemnified Parties
from and against any and all losses, claims, cost recovery actions, administrative orders or
proceedings, damages and liabilities to which any such Person may become subject (a) under any
Environmental Law applicable to UCLP, the Borrower or any Subsidiary or any of their Properties,
including without limitation, the treatment or disposal of hazardous substances on any of their
Properties, (b) as a result of the breach or non-compliance by UCLP, the Borrower or any Subsidiary
with any Environmental Law applicable to UCLP, the Borrower or any Subsidiary, (c) due to past
ownership by UCLP, the Borrower or any Subsidiary of any of their Properties or past activity on
any of their Properties which, though lawful and fully permissible at the time, could result in
present liability, (d) the presence, use, release, storage, treatment or disposal of hazardous
substances on or at any of the Properties owned or operated by UCLP, the Borrower or any
Subsidiary, or (e) any other environmental, health or safety condition in connection with the Loan
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Documents;
provided
,
however
, no indemnity shall be afforded under this
Section 12.03(
a
)(
iii
) in respect of any Property for any occurrence arising from
the acts or omissions of any Indemnified Party after the date which UCLP, the Borrower or any
Subsidiary is divested of ownership of such Property (whether by foreclosure or deed in lieu of
foreclosure, as mortgagee-in-possession or otherwise).
(b) To the extent that the Borrower fails to pay any amount required to be paid by it to any
Agent, any Joint Lead Arranger or the Issuing Bank under Section 12.03(a), but without affecting
such payment obligations of the Borrower, each Revolving Lender severally agrees to pay to such
Agent, Joint Lead Arranger or the Issuing Bank, as the case may be, such Revolving Lenders
Applicable Percentage (determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount;
provided
that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred
by or asserted against such Agent, Joint Lead Arranger or the Issuing Bank in its capacity as such.
(c) No Indemnified Party may settle any claim to be indemnified without the consent of the
indemnitor, such consent not to be unreasonably withheld;
provided
, that the indemnitor may
not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the
indemnitor does not have the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including the maximum potential claims against the Indemnified
Party to be indemnified pursuant to this Section 12.03.
(d) In the case of any indemnification hereunder, the Administrative Agent or Lender, as
appropriate shall give notice to the Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the non-exclusive right to join in the defense
against any such claim or demand
provided
that if the Borrower provides a defense, the
Indemnified Party shall bear its own cost of defense unless there is a conflict between the
Borrower and such Indemnified Party.
(e)
The foregoing indemnities shall extend to the Indemnified Parties
notwithstanding the sole or concurrent negligence of every kind or character whatsoever, whether
active or passive, whether an affirmative act or an omission, including without limitation, all
types of negligent conduct identified in the restatement (second) of torts of one or more of the
Indemnified Parties or by reason of strict liability imposed without fault on any one or more of
the Indemnified Parties. To the extent that an Indemnified Party is found to have committed an act
of gross negligence or willful misconduct, this contractual obligation of indemnification shall
continue but shall only extend to the portion of the claim that is deemed to have occurred by
reason of events other than the gross negligence or willful misconduct of the Indemnified
Party.
(f) The Borrowers obligations under this Section 12.03 shall be its joint and several
obligations and shall survive any termination of this Agreement and the payment of the Notes and
shall continue thereafter in full force and effect.
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(g) The Borrower shall pay any amounts due under this Section 12.03 within thirty (30) days of
the receipt by the Borrower of notice of the amount due.
Section 12.04
Successors and Assigns
.
(a) This Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
(b) Neither UCLP nor the Borrower may assign its rights or obligations hereunder or under the
Notes or any Letters of Credit without the prior consent of all of the Lenders and the
Administrative Agent.
(c) Any Term Loan Lender may assign all or a portion of its Term Loan to a Related Fund,
Affiliate (as defined in clause (a) of the definition of Affiliate) or existing Term Loan Lender,
and, any Lender may assign to one or more assignees, all or a portion of its rights and obligations
under this Agreement pursuant to an Assignment and Assumption substantially in the form of
Exhibit E
upon the written consent (which consent shall not be unreasonably withheld) of
(x) the Administrative Agent,
provided
that no such consent shall be required for an
assignment to an assignee that is a Lender immediately prior to giving effect to such assignment,
(y) the Issuing Banks (with respect to the Revolving Credit Facility only) and (z) the Borrower,
provided
that no consent of the Borrower shall be required for an assignment to a Lender,
an Affiliate of a Lender, a Related Fund, or if an Event of Default has occurred and is continuing,
any other assignee;
provided
,
however
, that (i) any such assignment shall be in the
amount of at least $5,000,000 with respect to the Revolving Credit Facility and at least $1,000,000
with respect to the Term Loan Facility or such lesser amount to which such Borrower has consented,
with Related Funds treated as one assignee for purposes of determining compliance with such minimum
assignment amount; (ii) the assignee or assignor shall pay to the Administrative Agent a processing
and recordation fee of $3,500 for each assignment;
provided
that only $3,500 shall be
payable in connection with simultaneous assignments to or by two or more Related Funds; (iii) any
assignee shall not be a competitor of UCLP or any of its Subsidiaries in any of the lines of
business permitted under Section 9.05; and (iv) notwithstanding anything to the contrary contained
in this Agreement, if such assignment is made at a time when an Event of Default has occurred and
is continuing, (A) the written consent of the Borrower to such assignment shall not be required and
(B) the Borrower shall have the right to withhold all Taxes required by law to be withheld from
payments made hereunder, and shall pay such Taxes to the relevant taxing authority or other
Governmental Authority in accordance with applicable law. Any such assignment will become
effective upon the execution and delivery to the Administrative Agent of the Assignment and
Assumption and the consent, if required above, of the Administrative Agent, the Issuing Banks and,
unless an Event of Default has occurred and is continuing, the Borrower. Promptly after receipt of
an executed Assignment and Assumption, the Administrative Agent shall send to the Borrower a copy
of such executed Assignment and Assumption. Upon receipt of such executed Assignment and
Assumption, the Borrower, will, at its own expense, execute and deliver new Notes to the assignor
and/or assignee, as appropriate, in accordance with their respective interests as they appear.
Upon the effectiveness of any assignment pursuant to this Section 12.04(c), the assignee will
become a Lender, if not already
a Lender, for all purposes of this Agreement and the Security Instruments. The assignor
shall be relieved of its obligations hereunder to the extent of such assignment (and if the
assigning
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Lender no longer holds any rights or obligations under this Agreement, such assigning
Lender shall cease to be a Lender hereunder except that its rights under Sections 5.01, 5.02,
5.03 and 12.03 shall not be affected). The Administrative Agent, acting as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered
to it and a register for the recordation of the names and addresses of the Lenders, and the
principal amount of the Loans and LC Exposure owing to, each Lender pursuant to the terms hereof
from time to time (the
Register
). No assignment shall be effective for purposes of this
Agreement unless it has been recorded in the Register.
(d) Each Lender may transfer, grant or assign participations in all or any part of such
Lenders interests hereunder pursuant to this Section 12.04(d) to any Person that satisfies the
requirements of Section 12.04(c)(iii),
provided
that: (i) such Lender shall remain a
Lender for all purposes of this Agreement and the transferee of such participation shall not
constitute a Lender hereunder; and (ii) no participant under any such participation shall have
rights to approve any amendment to or waiver of any of the Loan Documents;
provided
that
such participation agreement may provide that such Lender will not, without the consent of the
participant, agree to any amendment, modification or waiver described in clauses (i), (ii) or (iii)
of the proviso to Section 12.02(b) that affects such participant, and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had not sold such participation,
provided
that such participant shall be entitled to receive additional amounts under
ARTICLE V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it
were a Lender. In addition, each agreement creating any participation must include an agreement by
the participant to be bound by the provisions of Section 12.11.
(e) The Lenders may furnish any information concerning the Borrower in the possession of the
Lenders from time to time to assignees and participants (including prospective assignees and
participants);
provided
that, such Persons agree to be bound by the provisions of Section
12.11.
(f) Notwithstanding anything in this Section 12.04 to the contrary, any Lender may at any time
pledge or assign a security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including, without limitation, any pledge or assignment to
secure obligations to a Federal Reserve Bank;
provided
that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder or substitute any
such pledgee or assignee for such Lender as a party hereto.
(g) Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of
the interests or obligations of any Lender or any grant of participations therein shall be
permitted if such transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the Blue Sky laws of any state.
Section 12.05
Survival; Revival; Reinstatement
.
(a) All covenants, agreements, representations and warranties made by the Borrower herein and
in the certificates or other instruments delivered in connection with or pursuant to this Agreement
or any other Loan Document shall be considered to have been relied
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upon by the other parties hereto
and shall survive the execution and delivery of this Agreement and the making of any Loans and
issuance of any Letters of Credit, regardless of any investigation made by any such other party or
on its behalf and notwithstanding that the Administrative Agent, any other Agent, the Issuing Bank
or any Lender may have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Aggregate Commitments have not expired or terminated. The provisions of ARTICLE V,
ARTICLE XI and Section 12.03 shall survive and remain in full force and effect regardless of the
consummation of the Transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Aggregate Commitments or the termination of this
Agreement, any other Loan Document or any provision hereof or thereof.
(b) To the extent that any payments on the Indebtedness or proceeds of any collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be
repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law,
common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived
and continue as if such payment or proceeds had not been received and the Administrative Agents
and the Lenders Liens, security interests, rights, powers and remedies under this Agreement and
each Loan Document shall continue in full force and effect. In such event, each Loan Document
shall be automatically reinstated and UCLP and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement.
Section 12.06
Counterparts; Integration; Effectiveness
.
(a) This Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute one and the same instrument.
(b)
This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent embody the entire agreement and
understanding among the parties relating to the subject matter hereof and thereof and supersede any
and all previous agreements and understandings, oral or written, relating to the subject matter
hereof and thereof. This Agreement and the other Loan Documents represent the final agreement
among the parties hereto and thereto and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties.
(c) Except as provided in Section 6.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed
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counterpart of a signature
page of this Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
Section 12.07
Severability
. Any provision of this Agreement or any other Loan Document
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability without affecting the
validity, legality and enforceability of the remaining provisions hereof or thereof; and the
invalidity of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
Section 12.08
Right of Setoff
. The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers lien or counterclaim a Lender may otherwise have,
each Lender shall have the right and be entitled (after consultation with the Administrative
Agent), at its option, to offset balances held by it or by any of its Affiliates for account of the
Borrower at any of its offices, in dollars or in any other currency, against any principal of or
interest on any of such Lenders Loans, or any other amount payable to such Lender hereunder, which
is not paid when due (including applicable grace periods) (regardless of whether such balances are
then due to the Borrower), in which case it shall promptly notify the Borrower and the
Administrative Agent thereof,
provided
that such Lenders failure to give such notice shall
not affect the validity thereof. Notwithstanding anything to the contrary contained in this
Agreement, the Lenders hereby agree that they shall not set off any funds in any lock boxes
whatsoever in connection with this Agreement, except for such lock boxes which may be established
in connection with this Agreement.
Section 12.09
Governing Law; Jurisdiction; Consent to Service of
Process
.
(a)
This Agreement and the Notes shall be governed by, and construed in
accordance with, the laws of the State of Texas except to the extent that United States federal law
permits any Lender to charge interest at the rate allowed by the laws of the state where such
Lender is located. Ch. 346 of the Texas Finance Code (which regulates certain revolving credit
loan accounts and revolving tri-party accounts) shall not apply to this Agreement or the
Notes.
(b)
Any legal action or proceeding with respect to the Loan Documents shall be
brought in the courts of the State of Texas or of the United States of America for the Southern
District of Texas, and, by execution and delivery of this Agreement, each of UCLP and the Borrower
hereby accepts for itself and (to the extent permitted by law) in respect of its Property,
generally and unconditionally, the jurisdiction of the aforesaid courts. Each of UCLP and the
Borrower hereby irrevocably waives any objection, including, without limitation, any objection to
the laying of venue or based on the grounds of
forum non conveniens
, which it may now or hereafter
have to the bringing of any such action or proceeding in such respective jurisdictions. This
submission to jurisdiction is non-exclusive and does not preclude the Administrative Agent or any
Lender from obtaining jurisdiction over UCLP or the Borrower in any court otherwise having
jurisdiction.
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(c)
Each of UCLP and the Borrower irrevocably consents to the service of process
of any of the aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to UCLP and the Borrower at its address
located on the signature page hereto or as updated from time to time, such service to become
effective thirty (30) days after such mailing.
(d)
Nothing herein shall affect the right of the Administrative Agent or any
Lender or any holder of a Note to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against UCLP or the Borrower in any other jurisdiction.
(e)
Each of UCLP, the Borrower and each Lender hereby (
i
) irrevocably
and unconditionally waive, to the fullest extent permitted by law, trial by jury in any legal
action or proceeding relating to this Agreement or any other Loan Document and for any counterclaim
therein; (
ii
) irrevocably waive, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any such litigation any special, exemplary, punitive or
consequential damages, or damages other than, or in addition to, actual damages; (
iii
)
certify that no party hereto nor any representative of the Administrative Agent or counsel for any
party hereto has represented, expressly or otherwise, or implied that such party would not, in the
event of litigation, seek to enforce the foregoing waivers, and (
iv
) acknowledge that it
has been induced to enter into this Agreement, the other Loan Documents and the transactions
contemplated hereby and thereby by, among other things, the mutual waivers and certifications
contained in this Section 12.09.
Section 12.10
Headings
. Article and Section headings and the Table of Contents used herein
are for convenience of reference only, are not part of this Agreement and shall not affect the
construction of, or be taken into consideration in interpreting, this Agreement.
Section 12.11
Confidentiality
. For the purposes of this Section 12.11,
Confidential
Information
means information about UCLP or the Borrower furnished by UCLP or the Borrower or
their Affiliates (collectively, the
Disclosing Parties
) to the Administrative Agent or
any of the Lenders, including, but not limited to, any actual or pending agreement, business plans,
budgets, projections, ecological data and accounting records, financial statements, or other
financial data of any kind, any title documents, reports or other information relating to matters
of title, any projects or plans, whether actual or prospective, and any other documents or items
embodying any such Confidential Information;
provided
that such term does not include
information that (a) was publicly known or otherwise known prior to the time of such disclosure,
(b) subsequently becomes publicly known through no act or omission by the Administrative Agent or
the Lenders or any Person acting on behalf thereof, (c) otherwise becomes known to the
Administrative Agent or Lenders other than through disclosure by the Disclosing Parties or a party
known to be subject to a confidentiality agreement or (d) constitutes financial statements
delivered to the Administrative Agent and the Lenders under Section 8.01(a) that are otherwise
publicly available. The Administrative Agent and the Lenders will maintain the confidentiality of
such Confidential Information delivered to (i) such Person,
provided
that each such Person
(a
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Restricted Person
) may deliver or disclose Confidential Information to such Restricted
Persons directors, officers, employees, agents, attorneys investment advisors, trustees and
Affiliates, who agree to hold confidential the Confidential Information substantially in accordance
with the terms of this Section 12.11, (ii) such Restricted Persons financial advisors and other
professional advisors who agree to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 12.11, (iii) any other Lender, (iv) any pledgee referred
to in Section 12.04, any potential assignee or any assignee to which such Restricted Person sells
or offers to sell its Note or any part thereof or any participation potential participation therein
(if such Person has agreed in writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 12.11), (v) any Person from which such Restricted Person
offers to purchase any security of the Borrower (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this Section 12.11), (vi)
any Governmental Authority having jurisdiction or any self-regulatory body claiming to have
authority over such Restricted Person, (vii) the National Association of Insurance Commissioners or
any similar organization, or any nationally recognized rating agency that requires access to
information about such Restricted Persons investment portfolio, or (viii) any other Person to
which such delivery or disclosure may be necessary or appropriate (A) to effect compliance with any
Governmental Requirement applicable to such Restricted Person, (B) in response to any subpoena or
other legal process, (C) in connection with any litigation to which such Restricted Person is a
party or (D) if an Event of Default has occurred and is continuing, to the extent such Restricted
Person may reasonably determine such delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of its rights and remedies under the Notes and this Agreement.
Each Lender, by its acceptance of a Note or a participation agreement, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 12.11 as though it were a
party to this Agreement. On reasonable request by UCLP or the Borrower in connection with the
delivery to any Lender of information required to be delivered to such Lender under this Agreement
or requested by such Lender (other than a Lender that is a party to this Agreement or its
nominee), such Lender will enter into an agreement with UCLP or the Borrower embodying the
provisions of this Section 12.11. UCLP
and the Borrower waive (on their own behalf and on behalf of their Subsidiaries) any and all other
rights they (or their Subsidiaries) may have to confidentiality as against the Administrative Agent
and the Lenders arising by or under any contract, agreement, statute or law except as expressly
stated in this Section 12.11.
Section 12.12
Interest Rate Limitation
. It is the intention of the parties hereto that
each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the
Transactions contemplated hereby would be usurious as to any Lender under laws applicable to it
(including the laws of the United States of America and the State of Texas or any other
jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as security for the
Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest
under law applicable to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on
the principal amount of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an
election of the holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal
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amount of the Indebtedness shall have been
or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or
agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall,
to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and
spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that
the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such
Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation
period the amount of interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then
the amount of interest payable to such Lender in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the
total amount of interest payable to such Lender shall equal the total amount of interest which
would have been payable to such Lender if the total amount of interest had been computed without
giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is
relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender
elects to determine the applicable rate ceiling under such Chapter by the weekly ceiling from time
to time
in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrowers obligations
hereunder.
Section 12.13
Exculpation Provisions
. Each of the parties hereto specifically
agrees that it has a duty to read this Agreement and the other Loan Documents and agrees that it is
charged with notice and knowledge of the terms of this Agreement and the other Loan Documents; that
it has in fact read this Agreement and is fully informed and has full notice and knowledge of the
terms, conditions and effects of this Agreement; that it has been represented by independent legal
counsel of its choice throughout the negotiations preceding its execution of this Agreement and the
other Loan Documents; and has received the advice of its attorney in entering into this Agreement
and the other Loan Documents; and that it recognizes that certain of the terms of this Agreement
and the other Loan Documents result in one party assuming the liability inherent in some aspects of
the transaction and relieving the other party of its responsibility for such liability. Each party
hereto agrees and covenants that it will not contest the validity or enforceability of any
exculpatory provision of this Agreement and the other Loan Documents on the basis that the party
had no notice or knowledge of such provision or that the provision is not conspicuous.
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Section 12.14
Collateral Matters; Hedging Agreements
. Notwithstanding anything to the
contrary contained herein, the terms and provisions of this Agreement shall not apply to any
Hedging Agreements, except to the extent necessary for all Hedging Agreements with Lenders and/or
their Lender Affiliate to be secured by the Security Instruments on a
pari passu
basis with other
Indebtedness and for the proceeds from the Security Instruments to be applied as set forth in
Section 10.02(c) hereof. No Lender or any Lender Affiliate shall have any voting rights under any
Loan Document as a result of the existence of obligations owed to it under any such Hedging
Agreements.
Section 12.15
No Third Party Beneficiaries
. This Agreement, the other Loan Documents, and
the agreement of the Lenders to make Loans and the Issuing Bank to issue, amend, renew or extend
Letters of Credit hereunder are solely for the benefit of the Borrower, and no other Person
(including, without limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges
hereunder or under any other Loan Document against the Administrative Agent, any other Agent, the
Issuing Bank or any Lender for any reason whatsoever. There are no third party beneficiaries.
Section 12.16
USA Patriot Act Notice
. Each Lender hereby notifies UCLP and the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the
USA Patriot Act
), it is required to obtain, verify and record
information that identifies UCLP and its Subsidiaries, which information includes the name and
address of UCLP and such Subsidiaries
and other information that will allow such Lender to identify UCLP and such Subsidiaries in
accordance with the USA Patriot Act.
Section 12.17
No General Partners Liability
. The Lenders agree that no claim arising
against either UCLP, the Borrower or any Restricted Subsidiary under any Loan Document shall be
asserted against the General Partner (in its individual capacity) and no judgment, order or
execution entered in any suit, action or proceeding, whether legal or equitable, on this Agreement
or any of the other Loan Documents shall be obtained or enforced against the General Partner (in
its individual capacity) or its assets for the purpose of obtaining satisfaction and payment of the
Indebtedness or any claims arising under this Agreement or any other Loan Document, any right to
proceed against the General Partner individually or its respective assets being hereby expressly
waived by the Lenders. Nothing in this Section 12.17, however, shall be construed so as to prevent
the Administrative Agent or any Lender from commencing any action, suit or proceeding with respect
to or causing legal papers to be served upon the General Partner for the purpose of (i) obtaining
jurisdiction over UCLP, the Borrower or any Restricted Subsidiary or (ii) obtaining judgment, order
or execution against the General Partner arising out of any fraud or intentional misrepresentation
by the General Partner in connection with the Loan Documents or of recovery of moneys received by
the General Partner in violation of the terms of this Agreement.
[SIGNATURES BEGIN NEXT PAGE]
-81-
Exhibit 10.6
OMNIBUS AGREEMENT
AMONG
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION, INC.
UCI LEASING HOLDING GP LLC
UCI COMPRESSOR HOLDING, L.P.
UCO GP, LLC
UCO GENERAL PARTNER, LP
UNIVERSAL COMPRESSION PARTNERS, L.P.
UCLP OLP GP LLC
UC OPERATING PARTNERSHIP, L.P.
UCLP LEASING GP LLC
AND
UCLP LEASING, L.P.
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS
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1
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1.1 Definitions
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1
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ARTICLE II NON-COMPETITION AND BUSINESS OPPORTUNITIES
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9
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2.1 UCH Restricted Business
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9
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2.2 Partnership Restricted Business
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9
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2.3 Permitted Exceptions
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9
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2.4 Restricted Business Procedures.
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11
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2.5 Scope of the Prohibition
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13
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2.6 New Customers
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13
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2.7 Enforcement
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14
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2.8 Termination
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14
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ARTICLE III SERVICES
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14
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3.1 Provision, Allocation and Reimbursement for Services
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14
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3.2 Limitations on Reimbursement.
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15
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ARTICLE IV COMPRESSION EQUIPMENT TRANSFERS
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16
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4.1 Transfer Mechanics
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16
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4.2 Settlement; Appraised Value
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18
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4.3 Appraisal
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19
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4.4 Like-Kind Exchange Treatment
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20
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4.5 Other Sales Permitted
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20
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4.6 Termination
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20
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ARTICLE V NEWLY FABRICATED COMPRESSION EQUIPMENT PURCHASES
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20
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ARTICLE VI LICENSE
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21
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6.1 Grant of License
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21
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6.2 Restrictions on Marks
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21
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6.3 Ownership
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21
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6.4 Confidentiality
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21
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6.5 Estoppel
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21
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6.6 Warranties; Disclaimers.
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22
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6.7 In the Event of Termination
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22
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ARTICLE VII INDEMNIFICATION
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22
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7.1 Environmental Indemnification.
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22
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7.2 Additional Indemnification.
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23
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7.3 Limitations Regarding Indemnification.
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24
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7.4 Indemnification Procedures
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24
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ARTICLE VIII MISCELLANEOUS
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26
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8.1 Choice of Law; Submission to Jurisdiction
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26
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8.2 Notice
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26
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8.3 Entire Agreement
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26
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8.4 Termination
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27
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8.5 Effect of Waiver or Consent
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27
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8.6 Amendment or Modification
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27
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8.7 Assignment; Third Party Beneficiaries
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27
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8.8 Counterparts
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27
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8.9 Severability
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27
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8.10 Gender, Parts, Articles and Sections
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27
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8.11 Further Assurances
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28
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8.12 Withholding or Granting of Consent
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28
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8.13 Laws and Regulations
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28
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8.14
Negation of Rights of Limited Partners, Assignees and Third Parties
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28
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8.15 No Recourse Against Officers or Directors
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28
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EXHIBITS AND SCHEDULES
Exhibit A Form Bill of Sale
Exhibit B Form Compression Equipment Lease Agreement
Schedule 1.1 Fixed Margin Percentage
Schedule 3.1(a) Services
Schedule 3.1(b) Excluded Services
Schedule 6.1 Marks
-2-
OMNIBUS AGREEMENT
THIS OMNIBUS AGREEMENT is entered into on, and effective as of, the Closing Date (as defined
herein), and is by and among Universal Compression Holdings, Inc., a Delaware corporation (
UCH
),
Universal Compression, Inc., a Texas corporation (
UCI
), UCI Leasing Holding GP LLC, a Delaware
limited liability company, UCI Compressor Holding, L.P., a Delaware limited partnership, UCO GP,
LLC, a Delaware limited liability company (
UCO LLC
), UCO General Partner, L.P., a Delaware
limited partnership (the
General Partner
), Universal Compression Partners, L.P., a Delaware
limited partnership (the
Partnership
), UCLP OLP GP LLC, a Delaware limited liability company
(
OLP GP
)
, UC Operating Partnership, L.P. (the
OLP
), UCLP Leasing GP LLC, a Delaware limited
liability company, and UCLP Leasing, L.P. The above-named entities are sometimes referred to in
this Agreement each as a
Party
and collectively as the
Parties
.
RECITALS:
The Parties desire by their execution of this Agreement to evidence their understanding, (i)
as more fully set forth in Article II, with respect to (a) those business opportunities that the
UCH Entities (as defined herein) will not pursue and (b) those business opportunities that the
Partnership Group (as defined herein) will not pursue, (ii) as more fully set forth in Article III,
with respect to certain reimbursement obligations of the Partnership Group, (iii) as more fully set
forth in Articles IV and V, with respect to certain opportunities for the Parties to purchase,
sell, transfer and lease Compression Equipment (as defined herein) among the Parties, and (iv) as
more fully set forth in Article VI, with respect to grants of intellectual property from the
Licensor (as defined herein) to the Licensees (as defined herein).
In consideration of the premises and the covenants, conditions, and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions
(a) Capitalized terms used herein but not defined shall have the meanings given them in the
Partnership Agreement.
(b) As used in this Agreement, the following terms shall have the respective meanings set
forth below:
Acquired Partnership Restricted Business
has the meaning given such term in Section
2.3(g).
Acquired UCH Restricted Business
has the meaning given such term in Section 2.3(h).
Acquiring Party
has the meaning given such term in Section 2.4(a).
Affiliate
has the meaning given to such term in the Partnership Agreement.
Agreement
means this Omnibus Agreement, as it may be amended, modified or
supplemented from time to time in accordance with the terms hereof.
Appraiser
means any of [Standard & Poors Corporate Value Consulting, Valuation
Research Corporation and Marshall and Stevens] as selected by UCH, with the consent of the
General Partner, which consent shall not be unreasonably withheld, or any other appraiser
that is independent with respect to the UCH Entities and the Partnership Entities and their
respective affiliates within the meaning of the code of professional ethics of the American
Society of Appraisers as selected by mutual consent of UCH and the General Partner.
Appraisal
means an appraisal of Compression Equipment prepared by an Appraiser in
conformity with, and subject to, the requirements of the code of professional ethics and
standards of professional conduct of the American Society of Appraisers. The Appraisal
shall specify value based upon the cost or income approach or a combination thereof for the
Compression Equipment appraised.
Appraised Value
means an amount equal to (A) either (i) the most recent Appraisal
with respect to a particular piece of Compression Equipment owned by the DCCSB or the
Partnership Group at the time of the Appraisal or (ii) with respect to a particular piece
of Compression Equipment for which an Appraisal has not been conducted, the Appraised Value
of substantially similar Compression Equipment, plus (B) any costs incurred by the
Transferor pursuant to Section 4.1(a)(iv) to the extent such costs include overhauls,
modifications or retrofittings that are not reflected in the value assigned to the
Compression Equipment pursuant to clause (A) above.
Average Horsepower
means, with respect to a particular fiscal quarter, the quotient
of (i) the sum of the aggregate amount of Compression Equipment horsepower owned or leased
by the Partnership Group that was working and not idle on the last day of the month
immediately preceding such quarter and on the last day of each of the three months during
such quarter, divided by (ii) four.
Business Day
means any day other than a Saturday, a Sunday or a day on which banking
institutions in Houston, Texas are authorized or are obligated by law, executive order or
governmental decree to be closed.
Cause
has the meaning ascribed thereto in the Partnership Agreement.
CCSB
means the DCCSB and the international contract compression services business of
the UCH Entities, collectively.
Change of Control
means, with respect to any Person (the
Applicable Person
), any of
the following events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the Applicable Persons
assets to any other Person, unless immediately following such sale, lease, exchange or other
transfer such assets are owned, directly or indirectly, by the
-2-
Applicable Person; (ii) the dissolution or liquidation of the Applicable Person; (iii)
the consolidation or merger of the Applicable Person with or into another Person, other than
any such transaction where (a) the outstanding Voting Securities of the Applicable Person
are changed into or exchanged for Voting Securities of the surviving Person or its parent
and (b) the holders of the Voting Securities of the Applicable Person immediately prior to
such transaction own, directly or indirectly, not less than a majority of the outstanding
Voting Securities of the surviving Person or its parent immediately after such transaction;
and (iv) a person or group (within the meaning of Sections 13(d) or 14(d)(2) of the
Exchange Act) being or becoming the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) of more than 50% of all of the then outstanding Voting Securities of
the Applicable Person, except in a merger or consolidation which would not constitute a
Change of Control under clause (iii) above.
Closing Date
means the date of the closing of the initial public offering of Common
Units.
Code
means the Internal Revenue Code of 1986, as amended.
Common Unit
has the meaning given such term in the Partnership Agreement.
Compression Equipment
means natural gas compressor units, together with any tangible
components thereof, all related appliances, parts, accessories, appurtenances, accessions,
additions, improvements and replacements thereto, all other equipment or components of any
nature from time to time incorporated or installed therein and all substitutions for any of
the foregoing.
Competitive Services
means the provision by a Person of natural gas contract
compression services to a third-party customer whether pursuant to the Form Compression
Services Agreement or any other compression services agreement, a lease arrangement pursuant
to which such Person leases Compression Equipment to a third-party customer and is required
to provide other compression services to such customer (whether as part of one agreement or
pursuant to a lease agreement and related services agreement) or otherwise;
provided
,
however
, that, for the avoidance of doubt, Competitive Services do not include the
fabrication of Compression Equipment by such Person, the sale by such Person of Compression
Equipment to a third-party customer, the sale by such Person of materials, parts or
equipment that are components of or used in the operation of Compression Equipment, the
leasing by such Person of Compression Equipment without the provision of any related
services or the operation, maintenance, service, repair or overhaul by such Person of
Compression Equipment owned by a third party customer.
Conflicts Committee
has the meaning given such term in the Partnership Agreement.
Contribution Agreement
means that certain Contribution, Conveyance and Assumption
Agreement, dated as of the Closing Date, among UCI, UCO LLC, the General Partner, the
Partnership and the other parties named thereto, together with the
-3-
additional conveyance documents and instruments contemplated or referenced thereunder,
as such may be amended, supplemented or restated from time to time.
Conversion Condition
has the meaning given such term in Section 2.4(b).
Cost of Sales
means any costs incurred of the type included in the Cost of sales
(excluding depreciation expense) line item in the consolidated statement of operations of
the Partnership prepared in accordance with GAAP.
Cost of Sales Limit
has the meaning given such term in Section 3.2(a).
Covered Environmental Losses
is defined in Section 7.1.
DCCSB
means the domestic contract compression services business of the UCH Entities
conducted through UCHs Domestic Contract Compression Segment, excluding the business of the
Partnership Entities.
DCCSB Horsepower
means, with respect to a particular fiscal quarter, the quotient of
(i) the sum of the aggregate amount of Compression Equipment horsepower owned by DCCSB
(excluding units designated for sale only by UCH), regardless of whether such Compression
Equipment is working or idle, on the last day of the month immediately preceding such
quarter and on the last day of each of the three months during such quarter, divided by (ii)
four.
Direct Compression Equipment Costs and Expenses
means those costs and expenses
directly attributable to the transportation, operation, maintenance or repair of any
Compression Equipment owned by the Partnership Group.
Effective Time
has the meaning given such term in Section 4.1(b).
Environmental Laws
means all federal, state, and local laws, statutes, rules,
regulations, orders and ordinances, legally enforceable requirements and rules of common law
relating to protection of the environment including, without limitation, the federal
Comprehensive Environmental Response, Compensation, and Liability Act, the Superfund
Amendments Reauthorization Act, the Resource Conservation and Recovery Act, the Clean Air
Act, the Federal Water Pollution Control Act, the Toxic Substances Control Act, the Oil
Pollution Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act and
other environmental conservation and protection laws, each as amended through the Closing
Date.
Exchange Act
means the Securities Exchange Act of 1934, as amended.
Fabricated Cost
means the total costs (other than any allocations of general and
administrative expenses) incurred in fabricating a particular item of Compression Equipment,
as determined by the books and records of UCH, prepared in accordance with GAAP
.
-4-
Fixed Margin Amount
means the amount resulting from the product of (i) the Fabricated
Cost and (ii) the percentage, expressed as a decimal, set forth on
Schedule 1.1
to
this Agreement, which Schedule may be amended from time to time with the approval of the
Conflicts Committee.
Form Bill of Sale
means the form of Bill of Sale attached hereto as Exhibit A.
Form Compression Services Agreement
means the standard form of agreement pursuant to
which members of the Partnership Group provides Competitive Services to Partnership
Customers as of the date hereof.
Form Lease Agreement
means the form of Compression Equipment Lease Agreement attached
hereto as Exhibit B, which Exhibit may be amended or replaced with a new form of Compression
Equipment Lease Agreement from time to time with the approval of UCH and the Conflicts
Committee.
GAAP
means generally accepted accounting principles in the United States,
consistently applied
General Partner
has the meaning given such term in the introduction to this
Agreement.
Hazardous Substance
means (a) any substance that is designated, defined or classified
as a hazardous waste, hazardous material, pollutant, contaminant or toxic or hazardous
substance, or that is otherwise regulated under any Environmental Law, including, without
limitation, any hazardous substance as such term is defined under the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, and (b) petroleum,
petroleum products, crude oil, gasoline, fuel oil, motor oil, waste oil, diesel fuel, jet
fuel and other petroleum hydrocarbons whether refined or unrefined and (c) asbestos, whether
in a friable or a non-friable condition, and polychlorinated biphenyls.
Indemnified Party
means either the Partnership Group or UCH, as the case may be, each
in its capacity as a party entitled to indemnification in accordance with Article VII.
Indemnifying Party
means either the Partnership Group or UCH, as the case may be,
each in its capacity as a party from whom indemnification may be required in accordance with
Article VII.
Licensees
means, for purposes of Article VI hereof, the Partnership Entities.
Licensor
means, for purposes of Article VI hereof, UCH or UCI, as applicable.
Liens
means any mortgages, pledges, security interests, liens, charges, claims,
restrictions, easements or other encumbrances of any nature.
-5-
Limit Period
means the period commencing on the Closing Date and ending on the last
day of the fiscal quarter in which the second anniversary of the Closing Date occurs.
Marks
means all trademarks, trade names, logos and/or service marks identified on
Schedule 6.1
attached hereto, which Schedule may be amended from time to time with
the approval of UCH and the Conflicts Committee.
New Customer
means any Person that is not a UCH Customer or a Partnership Customer
and that informs any of the Parties hereto of a need for Competitive Services.
Non-Qualifying Business
has the meaning given to such term in Section 2.4(b).
Offer
has the meaning given such term in Section 2.4(a).
Offer Period
has the meaning given such term in Section 2.4(b)(ii)(A).
Offered Assets
has the meaning given such term in Section 2.4(a).
Offeree
has the meaning given such term in Section 2.4(a).
OLP
has the meaning given such term in the introduction to this Agreement.
OLP GP
has the meaning given such term in the introduction to this Agreement.
Organizational Documents
means certificates or articles of incorporation, by-laws,
certificates of formation, limited liability company operating agreements, certificates of
limited partnership or limited partnership agreements or other formation or governing
documents of a particular entity.
Other Losses
is defined in 7.2(a).
Partnership
has the meaning given such term in the introduction to this Agreement.
Partnership Agreement
means the First Amended and Restated Agreement of Limited
Partnership of the Partnership, dated as of the Closing Date, as such agreement is in effect
on the Closing Date, to which reference is hereby made for all purposes of this Agreement.
An amendment or modification to the Partnership Agreement subsequent to the Closing Date
shall be given effect for the purposes of this Agreement only if it has received the
approval of the Conflicts Committee that would be required, if any, pursuant to Section 8.6
hereof if such amendment or modification were an amendment or modification of this
Agreement.
Partnership Assets
means the compression services contracts, compression services
customer relationships and Compression Equipment, directly or indirectly
-6-
conveyed, contributed or otherwise transferred to the Partnership Group as of the
Closing Date pursuant to the Contribution Agreement.
Partnership Customers
means the customers of the Partnership Group as of the date of this Agreement, together with any New Customer that enters
into an agreement with a member of the Partnership Group pursuant to which such member of
the Partnership Group agrees to provide Competitive Services to such New Customer.
Partnership Customers shall not include any Released Partnership Customers.
Partnership Entities
means UCO LLC, the General Partner and each member of the
Partnership Group; and
Partnership Entity
means any of the Partnership Entities.
Partnership Group
means the Partnership, the OLP and any Subsidiary of the
Partnership or the OLP.
Partnership Horsepower
means, with respect to a particular fiscal quarter, the
quotient of (i) the sum of the aggregate amount of Compression Equipment horsepower owned or
leased by the Partnership Group, regardless of whether such Compression Equipment is working
or idle, on the last day of the month immediately preceding such quarter and on the last day
of each of the three months during such quarter, divided by (ii) four.
Partnership Restricted Business
has the meaning given such term in Section 2.2.
Party
or
Parties
have the meaning given such terms in the introduction to this
Agreement.
Percentage Interest
means, with respect to a particular fiscal quarter, the value
(expressed as a percentage) obtained by multiplying (i) 100 by (ii) the quotient of (x) the
Partnership Horsepower divided by (y) the Total Domestic Horsepower.
Person
has the meaning given such term in the Partnership Agreement.
Purchase Agreement
has the meaning given such term in Section 2.4(a).
Qualifying Business
has the meaning given such term in Section 2.4(b).
Released Partnership Customers
means those customers of the Partnership Group that
are designated as Released Partnership Customers pursuant to Section 2.3(g).
Released UCH
Customers means those customers of the UCH Entities that are designated
as Released UCH Customers pursuant to Section 2.3(h).
-7-
Retained Assets
means the assets and investments owned by UCH and any of its
Affiliates that were not conveyed, contributed or otherwise transferred to the Partnership
Group pursuant to the Contribution Agreement.
Services
has the meaning given such term in Section 3.1(a).
Site
means the geographic site at which a particular item of Compression Equipment
engaged in Competitive Services is fixed, as further specified by the customer contract, or
any schedule there, pursuant to which such Competitive Services are being provided.
Subsidiary
has the meaning given such term in the Partnership Agreement.
Total Domestic Horsepower
means, with respect to a particular fiscal quarter, the sum
of the DCCSB Horsepower and the Partnership Horsepower.
Transferee
means a transferee of Compression Equipment pursuant to Article IV.
Transferor
means a transferor of Compression Equipment pursuant to Article IV.
UCH
has the meaning given such term in the introduction to this Agreement.
UCH Customers
means the customers of the UCH Entities as of date of this Agreement, together with any New Customer that enters into an agreement
with a UCH Entity pursuant to which such UCH Entity agrees to provide Competitive Services
to such New Customer. UCH Customers shall not include any Released UCH Customers.
UCH Entities
means UCH and any Person (other than the Partnership Entities)
controlled, directly or indirectly, by UCH; and
UCH Entity
means any of the UCH Entities.
UCH Restricted Business
has the meaning given such term in Section 2.1.
UCI
has the meaning given such term in the introduction to this Agreement.
UCO LLC
has the meaning given such term in the introduction to this Agreement.
Voluntary Cleanup Program
means a program of the United States or a state of the
United States enacted pursuant to Environmental Laws which provides for a mechanism for the
written approval of, or authorization to conduct, voluntary remedial action for the
clean-up, removal or remediation of contamination that exceeds actionable levels established
pursuant to Environmental Laws.
-8-
Voting Securities
of a Person means securities of any class of such Person entitling
the holders thereof to vote in the election of, or to appoint, members of the board of
directors or other similar governing body of the Person;
provided
, that if such Person is a
limited partnership, Voting Securities of such Person shall be the general partner interest
in such Person.
ARTICLE II
NON-COMPETITION AND BUSINESS OPPORTUNITIES
2.1
UCH Restricted Business
. Subject to Section 2.8 and except as permitted by Section 2.3,
each of the UCH Entities shall be prohibited from providing (whether directly or through the
acquisition of or investment in equity or debt securities in any Person) Competitive Services to
any Partnership Customer, in any state or territory of the United States (other than on behalf of a
member of the Partnership Group) (the
UCH Restricted Business
).
2.2
Partnership Restricted Business
. Subject to Section 2.8 and except as permitted by
Section 2.3, each of the Partnership Entities shall be prohibited from providing (whether directly
or through the acquisition of or investment in equity or debt securities in any Person) Competitive
Services to any UCH Customer, in any state or territory of the United States (the
Partnership
Restricted Business
).
2.3
Permitted Exceptions
. Notwithstanding any provision of Sections 2.1 or 2.2 to the
contrary, the Parties may engage in any of the following activities to the extent permitted below:
(a) The UCH Entities may engage in any UCH Restricted Business with the prior written
approval of the Conflicts Committee.
(b) The UCH Entities may own securities of any class of any member of the Partnership
Group.
(c) The Partnership Entities may engage in any Partnership Restricted Business with the
prior written approval of UCH.
(d) The UCH Entities may purchase and own in the aggregate not more than five percent
of any class of securities of any entity engaged in any UCH Restricted Business (but without
otherwise participating in, managing or directing the activities of such entity).
(e) The Partnership Entities may purchase and own in the aggregate not more than five
percent of any class of securities of any entity engaged in any Partnership Restricted
Business (but without otherwise participating, managing or directing the activities of such
entity).
(f) If a Partnership Customer (or that customers applicable business), on the one
hand, and a UCH Customer (or that customers applicable business), on the other hand, merge,
consolidate, amalgamate or are otherwise combined, each of the Partnership Entities and the
UCH Entities may continue to provide Competitive Services to the
-9-
applicable combined entity
or business. Upon such an occurrence, UCH and the Conflicts Committee shall negotiate in
good faith, if and to the extent determined in the good faith of UCH and the Conflicts
Committee to be necessary, to implement procedures or such other arrangements to protect the
value to each of the Partnership Entities, on the one hand, and the UCH Entities, on the
other hand, of their respective businesses of providing Competitive Services to each such
customer or its applicable business, as applicable.
(g) The UCH Entities may purchase and own (i) any class of securities in any entity
engaged (in whole or in part) in any UCH Restricted Business or (ii) any business or assets
otherwise engaged or deployed in any UCH Restricted Business;
provided
, (x) in the good
faith judgment of the Board of Directors of UCH, the aggregate value of the UCH Restricted
Business owned by such entity or otherwise to be acquired by the UCH Entities shall be less
than 50% of the aggregate value of the business and assets owned by such entity or otherwise
to be acquired by the UCH Entities and (y) the Partnership Group is offered the opportunity
to acquire the UCH Restricted Business owned by such entity or otherwise acquired by the UCH
Entities (in each case, the
Acquired UCH Restricted Business
) in accordance with Section
2.4. During the pendency of the procedures described in Section 2.4, the UCH Entities shall
be entitled to own and operate the Acquired UCH Restricted Business. In the event that the
General Partner (with the approval of the Conflicts Committee) elects not to purchase such
Acquired UCH Restricted Business whether pursuant to Section 2.4(b)(i) or Section
2.4(b)(ii)(B)(2), the UCH Entities shall be entitled to continue to own and operate the
Acquired UCH Restricted Business and the Competitive Services customers of the Acquired UCH
Restricted Business at the time of the consummation of such acquisition shall no longer be
Partnership Customers for purposes of this Agreement, but rather shall be designated
Released Partnership Customers. Without the prior written approval of the Conflicts
Committee, subject to Section 2.8, the UCH Entities shall be prohibited from providing
(whether directly or through the acquisition of or investment in equity or debt securities
of any Person) Competitive Services to a particular Released Partnership Customer at the
particular Site at which the Partnership Group was providing Competitive Services to such
Released Partnership Customer on the date of the acquisition by the UCH Entities of the
applicable UCH Restricted Business pursuant to which such customer was designated a Released
Partnership Customer.
(h) The Partnership Entities may purchase and own (i) any class of securities in any
entity engaged (in whole or in part) in any Partnership Restricted Business or (ii) any
business or assets otherwise engaged or deployed in any Partnership Restricted Business;
provided
, (i) in the good faith judgment of the Conflicts Committee, the aggregate value of
the Partnership Restricted Business owned by such entity or otherwise to be acquired by the
Partnership Entities shall be less than 50% of the aggregate value of the business and
assets owned by such entity or otherwise to be acquired by the Partnership Entities and (ii)
UCH is offered the opportunity to acquire the Partnership Restricted Business owned by such entity or otherwise acquired by the Partnership
Entities (in each case, the
Acquired Partnership Restricted Business
) in accordance with
Section 2.4. During the pendency of the procedures described in Section 2.4, the
Partnership Entities shall be entitled to own and operate the Acquired Partnership
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Restricted Business. In the event that UCH elects not to purchase such Acquired Partnership
Restricted Businesses whether pursuant to Section 2.4(b)(i) or Section 2.4(b)(ii)(B)(2), the
Partnership Entities shall be entitled to continue to own and operate the Acquired
Partnership Restricted Business and the Competitive Services customers of the Acquired
Partnership Restricted Business at the time of the consummation of such acquisition shall no
longer be UCH Customers for purposes of this Agreement, but rather shall be designated
Released UCH Customers. Without the prior written approval of UCH, subject to Section
2.8, the members of the Partnership Group shall be prohibited from providing (whether
directly or through the acquisition of or investment in equity or debt securities of any
Person) Competitive Services to a particular Released UCH Customer at the particular Site at
which UCH Entities were providing Competitive Services to such Released UCH Customer on the
date of the acquisition by the Partnership Group of the applicable Partnership Restricted
Business pursuant to which such customer was designated a Released UCH Customer.
2.4
Restricted Business Procedures.
(a) Within 30 days following the consummation of the acquisition of an Acquired UCH
Restricted Business or an Acquired Partnership Restricted Business by a UCH Entity or a
Partnership Entity, as the case may be (in each such case such Person shall be referred to
as, an
Acquiring Party
), the Acquiring Party shall notify in writing (x) the Partnership,
if the Acquiring Party is a UCH Entity or (y) UCH, if the Acquiring Party is a Partnership
Entity, of such acquisition. The Person that is so notified shall be referred to herein as
the
Offeree
. Such notice shall include an offer (the
Offer
) by the Acquiring Party to
sell the Acquired UCH Restricted Business or the Acquired Partnership Restricted Business,
as the case may be (the
Offered Assets
), to the Offeree, together with a proposed
definitive agreement to effectuate the purchase and sale of the Offered Assets (the
Purchase Agreement
). The Offer shall set forth the Acquiring Partys proposed terms
relating to the sale of the Offered Assets to the Offeree, including the purchase price, any
liabilities to be assumed by the Offeree as part of the Offer and the other terms of the
Offer;
provided
, that the representations and warranties regarding the Offered Assets and
the indemnification provision contained in the Purchase Agreement shall be substantially
consistent with the terms contained in the definitive purchase agreement pursuant to which
the Acquiring Party acquired the Offered Assets or the entity that owned the Offered Assets,
subject to such adjustments that the Acquiring Party reasonably determines are necessary to
reflect the differences in the transaction.
(b) As soon as practicable after the Offer is made, the Acquiring Party will deliver to
the Offeree all information prepared by or on behalf of or in the possession of such
Acquiring Party relating to the Offered Assets and reasonably requested by the Offeree. As
soon as practicable, but in any event, within 60 days after receipt of the notification
called for in Section 2.4(a), the Offeree shall notify the Acquiring Party in writing that
either:
(i) the Offeree (with the concurrence of the Conflicts Committee if the Offeree
is the Partnership) has elected not to purchase (or not to cause any of its
Subsdiaries to purchase) any of such Offered Assets; or
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(ii) the Offeree (with the concurrence of the Conflicts Committee if the
Offeree is the Partnership) has elected to purchase (or to cause any of its
Subsidiaries to purchase) all of such Offered Assets;
provided
, that if the Offeree
is the Partnership, and in the opinion of outside counsel to the Partnership
Entities, less than 90% of the gross income from the operations of such Offered
Assets consists of qualifying income under Section 7704 of the Code (such portion
of such Offered Assets that does not so qualify being referred to herein as the
Non-Qualifying Business
), then the Partnership (with the concurrence of the
Conflicts Committee) may condition its obligation to purchase the Non-Qualifying
Business (but not the portion of the Offered Assets that do not constitute the
Non-Qualifying Business (the
Qualifying Business
)) on the conversion of the
agreements pursuant to which the Non-Qualifying Business provides Competitive
Services to its customers to agreements substantively similar to the Form
Compression Services Agreement from a federal income tax treatment perspective (from
the Partnerships perspective) and otherwise having substantially the same economic
terms as the agreements being converted (the
Conversion Condition
);
provided
further
, that in such event, each of the UCH Entities and the Partnership Entities
shall use commercially reasonable efforts to satisfy the Conversion Condition as
soon as commercially practicable. If the Offeree elects to purchase the Offered
Assets, the following procedures shall be followed:
A. After the receipt of the Offer by the Offeree, the Acquiring Party
and the Offeree shall negotiate in good faith the fair market value of the
Offered Assets that are subject to the Offer (including the specific fair
market value of any Offered Assets that constitute a Non-Qualifying
Business) and the other terms of the Offer on which the Offered Assets will
be sold to the Offeree. If the Acquiring Party and the Offeree agree (with
the concurrence of the Conflicts Committee) on the fair market value of the
Offered Assets that are subject to the Offer and the other terms of the
Offer during the 30-day period (the
Offer Period
) after receipt by the
Acquiring Party of the Offerees election to purchase (or to cause any
Subsidiary of the Offeree to purchase) the Offered Assets, the Offeree shall
purchase (or cause any of its Subsidiaries to purchase) and the Acquiring
Party shall sell the Offered Assets on such terms as soon as commercially
practicable after such agreement has been reached, which obligation may
require such parties to purchase the Qualifying Business prior to
satisfaction of the Conversion Condition.
B. If the Acquiring Party and the Offeree are unable to agree on the
fair market value of the Offered Assets that are subject to the Offer or on
any other terms of the Offer during the Offer Period, the Acquiring Party
and the Offeree will engage an independent investment banking firm
prior to the end of the Offer Period to determine the fair market value
of the Offered Assets (including the specific fair market value of any
Offered Assets that constitute a Non-Qualifying Business) and/or the other
terms on which the Acquiring Party and the Offeree are unable to agree. In
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determining the fair market value and other terms on which the Offered
Assets are to be sold, the investment banking firm will have access to the
proposed sale and purchase values and terms for the Offer submitted by the
Acquiring Party and the Offeree, respectively, and to all information
prepared by or on behalf of the Acquiring Party relating to the Offered
Assets and reasonably requested by the investment banking firm. In
determining the terms on which the Offered Assets are to be sold (other than
the fair market value of the Offered Assets), the investment banking firm
shall give substantial weight to the terms contained in the definitive
purchase agreement pursuant to which the Acquiring Party acquired the
Offered Assets or the entity that owned the Offered Assets. Such investment
banking firm will determine the fair market value of the Offered Assets
and/or the other terms on which the Acquiring Party and the Offeree are
unable to agree within 60 days of its engagement and furnish the Acquiring
Party and the Offeree its determination. The fees and expenses of the
investment banking firm will be divided equally between the Acquiring Party
and the Offeree. Upon receipt of such determination, the Offeree will have
the option, but not the obligation, to (with the concurrence of the
Conflicts Committee if the Offeree is the Partnership):
1. purchase the Offered Assets on such terms as determined
above; or
2. elect not to purchase such Offered Assets.
If the Offeree elects to so purchase the Offered Assets, the Offeree shall
purchase (or cause any of its Subsidiaries to purchase) and the Acquiring
Party shall sell the Offered Assets on such terms as soon as commercially
practicable after such agreement has been reached, which obligation may
require such parties to purchase the Qualifying Business prior to
satisfaction of the Conversion Condition.
2.5
Scope of the Prohibition
. Except as provided in this Article II, each of the Parties
shall be free to engage (whether directly or through the acquisition of or investment in equity or
debt interests in any Person) in any business activity whatsoever, including those that may be in
direct competition with any of the other Parties.
2.6
New Customers
. The Parties agree that any offer by any of the Parties hereto to provide
Competitive Services to New Customers in any state or territory of the United States shall be first
made on behalf of the Partnership Entities and shall include an offer to provide such Competitive
Services under an agreement substantially in the form of the Form Compression Services Agreement.
If the New Customer is unwilling to enter into an agreement with a Partnership Entity that is
substantively similar to the Form Compression Services Agreement from a federal income tax
treatment perspective (from the Partnerships perspective), a UCH Entity may enter into an
agreement to provide Competitive Services to such New Customer for its own account provided that
any agreement between such UCH Entity and such New Customer
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is not substantively similar to the
Form Compression Services Agreement from a federal income tax treatment perspective (from the
Partnerships perspective). If a New Customer enters into an agreement with a member of the
Partnership Group for Competitive Services, then such New Customer will then constitute a
Partnership Customer for the purposes of this Agreement and if, in accordance with this Section
2.6, a New Customer enters into an agreement with a UCH Entity for Competitive Services, then such
New Customer will then constitute a UCH Customer for the purposes of this Agreement.
2.7
Enforcement
. Each Party agrees and acknowledges that the other Parties hereto do not have
an adequate remedy at law for the breach by such Party of the covenants and agreements set forth in
this Article II, and that any breach by such Party of the covenants and agreements set forth in
this Article II would result in irreparable harm to the other Parties hereto. Each Party further
agrees and acknowledges that the other Parties hereto may, in addition to the other remedies that
may be available to the other Parties hereto, file a suit in equity to enjoin such Party from such
breach, and consents to the issuance of injunctive relief under this Agreement.
2.8
Termination
. Unless this Agreement has otherwise terminated pursuant to Section 8.4, this
Article II shall terminate on the third anniversary of the Closing Date. In addition, unless this
Agreement has otherwise been terminated pursuant to Section 8.4 or this Article II has otherwise
been terminated pursuant to the first sentence of this Section 2.8, Sections 2.1, 2.2, 2.3, 2.4 and
2.6 shall terminate upon a Change of Control of UCH. Unless this Agreement has otherwise
terminated pursuant to Section 8.4 or this Article II has terminated pursuant to the first sentence
of this Section 2.8, and in the event that Sections 2.1, 2.2, 2.3, 2.4 and 2.6 terminate pursuant
to the immediately preceding sentence, without the prior written approval of the Conflicts
Committee, the UCH Entities shall be prohibited from providing (whether directly or through the
acquisition of or investment in equity or debt securities of any Person) Competitive Services to a
particular Partnership Customer at the particular Site at which the Partnership Group was providing
Competitive Services to such Partnership Customer on the date of the Change of Control of UCH.
ARTICLE III
SERVICES
3.1
Provision, Allocation and Reimbursement for Services
(a) Subject to Article V, the UCH Entities shall, upon the reasonable request of the
General Partner, provide the Partnership Group with all personnel and services reasonably
necessary to run the business of the Partnership Group, which services may include, without
limitation, those services set forth on
Schedule 3.1(a)
(collectively, the
Services
). For the avoidance of doubt, the Services shall not include the services
described on
Schedule 3.1(b)
. These Services shall be substantially
similar in nature to the services of such type previously provided by UCH in connection with
its management
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and operation of the Partnership Assets during the twelve (12) month period
prior to the Closing Date.
(b) The UCH Entities shall provide the Services to the Partnership Group in a manner
that is in the good faith judgment of UCH commercially reasonable;
provided
, that for so
long as the UCH Entities exercise at least the same degree of care, skill and prudence in
providing the Services as customarily exercised by it for its own operation of the DCCSB,
then UCH will be deemed to have provided such Services in a commercially reasonable manner.
EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, THE UCH ENTITIES MAKE NO (AND HEREBY DISCLAIM
AND NEGATE ANY AND ALL) WARRANTIES OR REPRESENTATIONS WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE SERVICES. IN NO EVENT SHALL ANY UCH ENTITY OR ANY OF THEIR AFFILIATES BE
LIABLE TO ANY MEMBER OF THE PARTNERSHIP GROUP OR TO ANY OTHER PERSON FOR ANY EXEMPLARY,
PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES RESULTING FROM ANY ERROR
IN THE PERFORMANCE OF THE SERVICES, REGARDLESS OF WHETHER THE PERSON PROVIDING SUCH
SERVICES, ITS AFFILIATES, OR OTHERS MAY BE WHOLLY, CONCURRENTLY, PARTIALLY, OR SOLELY
NEGLIGENT OR OTHERWISE AT FAULT.
(c) Any Direct Compression Equipment Costs and Expenses that are incurred by any UCH
Entity in connection with providing the Services shall be allocated to the Partnership at
the actual cost to the applicable UCH Entity providing such Services.
(d) The General Partner shall be entitled to allocate to the Partnership any costs and
expenses (other than Direct Compression Equipment Costs and Expenses) incurred by any UCH
Entity in connection with providing the Services on any reasonable basis determined by the
General Partner. In the event that such Services are associated with UCHs operation of
both of the businesses of the DCCSB and the Partnership Group, including, without
limitation, general and administrative functions, such reasonable basis may include, at the
election of the General Partner, allocating a portion
of such costs and expenses incurred during a particular period to the Partnership on a
pro rata basis based on the Partnership Groups Percentage Interest.
(e) Subject to Section 3.2, the Partnership Group hereby agrees to reimburse the UCH
Entities for all costs and expenses allocated to the Partnership Group in accordance with
the manners set forth in Sections 3.1(c) and (d).
3.2
Limitations on Reimbursement.
(a) Notwithstanding Section 3.1, the amount that the UCH Entities are entitled to
receive from the Partnership Group pursuant to Section 3.1 for selling, general and
administrative costs during any particular quarter during the Limit Period shall not exceed
$2.5 million (the
SG&A Limit
). The SG&A Limit shall be reduced by any selling, general
and administrative costs incurred directly by the Partnership Group during the applicable
period. In the event that during the Limit Period the Partnership
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Group makes any
acquisitions of assets or businesses or the business of the Partnership Group otherwise
expands after the Closing Date, then the Parties shall negotiate in good faith any
appropriate increase in the SG&A Limit in order to account for any adjustments in the nature
and extent of the selling, general and administrative services provided by the UCH Entities
to the Partnership Group, with any such increase in the SG&A Limit subject to the approval
of the Conflicts Committee.
(b) Notwithstanding Section 3.1, the amount that the UCH Entities are entitled to
receive from the Partnership Group pursuant to Section 3.1 for Cost of Sales during any
particular quarter during the Limit Period shall not exceed $16.95 times the Average
Horsepower of the Partnership Group during such quarter (the
Cost of Sales Limit
). The
Cost of Sales Limit shall be reduced by any Cost of Sales incurred directly by the
Partnership Group during the applicable period. In the event that during the Limit Period
the Partnership Group makes any acquisitions of assets or businesses or the business of the
Partnership Group otherwise expands after the Closing Date, then the Parties shall negotiate
in good faith any appropriate increase in the Cost of Sales Limit in order to account for
any adjustments in the Cost of Sales of the Partnership Group (on a per horsepower basis) as
a result of such acquisition or expansion, with any such increase in the Cost of Sales Limit
subject to the approval of the Conflicts Committee.
ARTICLE IV
COMPRESSION EQUIPMENT TRANSFERS
4.1
Transfer Mechanics
(a) In the event that UCH determines in good faith that there exists a need on the part
of the CCSB or on the part of the Partnership Group to transfer Compression Equipment
between the UCH Entities, on the one hand, and the Partnership Group, on the other hand, to
meet the compression services obligations of either of the CCSB or the Partnership Group,
such Compression Equipment shall be so transferred (or, to the extent provided in Section
4.2, leased), at the election of UCH, from a member of the UCH Entities to a member of the
Partnership Group, or from a member of the Partnership
Group to a member of the UCH Entities, as the case may be;
provided
, that all of the
following conditions are satisfied with respect to such transfer or lease (each such
transfer or lease for the purposes of this Article IV, unless set forth otherwise, a
transfer
) at the Effective Time (as defined below) of such transfer:
(i) Except as provided in Section 4.2 in respect of Compression Equipment that
is leased, such transfer will constitute a valid and absolute transfer (each such
transfer, as the case may be, constituting a true sale for bankruptcy law
purposes) of all right, title and interest of the Transferor in, to and under the
transferred Compression Equipment, free and clear of any Liens except for any Liens
created by the Transferee;
(ii) Such transfer will not conflict with any of the terms and provisions of,
result in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time or both) a default under, the organizational
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documents of the Transferor or the Transferee, or any material term of any
indenture, agreement, mortgage, deed of trust, derivative instrument or other
instrument to which the Transferor or Transferee or any of their respective
subsidiaries is a party or by which either of them is bound, or result in the
creation or imposition of any Lien upon any of their respective properties pursuant
to the terms of any such indenture, agreement, mortgage, deed of trust, derivative
instrument or other instrument, or violate any law or any order, rule, or regulation
applicable to the Transferor or Transferee or any of their respective subsidiaries
of any court or of any federal or state regulatory body, administrative agency, or
other governmental authority having jurisdiction over either of them or any of their
respective properties;
(iii) Except as otherwise provided in this Article IV, such transfer will not
cause any member of the Partnership Group to suffer a loss of revenue under any
existing customer contract for Competitive Services or to incur any material
liabilities not reimbursed by the UCH Entities; and
(iv) The Compression Equipment will be transferred in a condition appropriate
for the Transferees anticipated commercial use of such Compression Equipment;
provided
, that such anticipated commercial use shall be consistent with such
equipments historical use;
provided further
, that (A) any repairs or modifications,
or any costs associated therewith, required to make such Compression Equipment
appropriate for the Transferees anticipated commercial use of such Compression
Equipment shall be the obligation of the Transferor and (B) the Transferee shall
have communicated its anticipated commercial use of such Compression Equipment to
the Transferor at least ten (10) Business Days prior to the anticipated date of such
transfer, failing which, the Transferor may transfer the Compression Equipment in
its then current condition.
In connection with each proposed transfer, each of the Transferee and the Transferor will
use their respective commercially reasonable efforts to cause the conditions set forth above
to be satisfied as of the Effective Time (as defined below).
(b) All transfers of Compression Equipment pursuant to this Section 4.1 shall be deemed
to take place at 12:01 a.m. on the date of transfer (the
Effective Time
) and shall include
all of the following assets, rights and properties of the Transferor with respect to such
transferred Compression Equipment;
provided
, that with respect to transfers that are
effected under a lease pursuant to Section 4.2, the following assets, rights and properties
shall be so transferred to the extent provided for in, and not inconsistent with, the
relevant lease agreement, and except as provided below:
(i) All Transferor-owned appliances, parts, instruments, machinery, accessories
and other equipment attached or installed thereto;
(ii) The rights of the Transferor under all permits relating exclusively to
such Compression Equipment, to the extent that such permits are transferable
-17-
and the
transfer of which is authorized or consented to by any third parties required to
make such transfer effective as to third parties;
(iii) Except in the case of a lease, all warranties and guarantees, if any,
express or implied, existing for the benefit of the Transferor in connection with
such Compression Equipment to the extent assignable;
(iv) Except in the case of a lease, any fuels, lubricants and maintenance
supplies exclusively related to such Compression Equipment;
(v) Except in the case of a lease, all vendor information, catalogs, technical
information, specifications, designs, drawings and maintenance records related to
such Compression Equipment and to which the Transferor has ready access without
undue effort; and
(vi) Except in the case of a lease, all rights, claims or choses in action of
the Transferor against any Person relating exclusively to such Compression
Equipment.
(c) Except as provided in Section 4.2 in respect of Compression Equipment that is
leased, on the date of any transfer of Compression Equipment, the Transferor shall deliver
or cause to be delivered to the Transferee the following:
(i) A general conveyance or bill of sale in the form of the Form Bill of Sale
transferring to Transferee, as of the Effective Time, good, marketable and
indefeasible title to all of the tangible personal property contemplated by Section
4.2(b) and included in the transferred Compression Equipment, free and clear of any
Liens, except for any Liens created by the Transferee;
(ii) All appropriate documents for the assignment as of the Effective Time of
the Transferors rights under the permits referred to in Section 4.1(b)(ii),
together with all consents of third parties required to make such assignments
effective as to such third parties; and
(iii) Such other instruments of transfer and assignment in respect of the
transferred Compression Equipment as the Transferee shall reasonably require and as
shall be consistent with the terms and provisions of this Agreement.
4.2
Settlement; Appraised Value
(a) Prior to the Effective Time of any transfer pursuant to Section 4.1, the
Partnership Group and UCH will determine the aggregate Appraised Value of the Compression
Equipment to be so transferred.
(b) In consideration for such transfer, the Transferee, at its discretion (subject to
the
provisos
of Sections 4.2(b)(ii) and (ii) and subject to Sections 4.2(b) and (c)), shall
take any one or more of the following actions prior to or contemporaneously with the
Effective Time of such transfer:
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(i) Transfer Compression Equipment to the Transferor of equal or greater
Appraised Value than the Appraised Value of the Compression Equipment to be
transferred to the Transferee pursuant to Section 4.1 (
provided
, that if such
Compression Equipment is of greater Appraised Value than the Appraised Value of the
Compression Equipment to be transferred to the Transferee pursuant to Section 4.1,
such excess Appraised Value shall be deemed to be a transfer of Compression
Equipment with a value equal to such excess Appraised Value and Transferor shall be
required to take one or more of the actions contemplated by this Section 4.2(b) in
consideration for such excess Appraised Value) in accordance with this Article IV;
(ii) Execute and deliver a lease agreement substantially in the form of the
Form Lease Agreement pursuant to which the Transferee agrees to lease from the
Transferor the Compression Equipment to be transferred to the Transferee pursuant to
Section 4.1, which lease
agreement shall be counter-signed by the Transferor (
provided
,
however
, that the
ability of the Transferee to execute and deliver such a lease may be limited in the
sole discretion of UCH, to the extent that a UCH Entity is the Transferor, or in the
sole discretion of the Conflicts Committee, to the extent that a member of the
Partnership Group is the Transferor); or
(iii) Deliver to the Transferor cash (or an obligation to make payment in cash
no later than the end of the fiscal quarter in which the transfer is effected) in
the amount of the aggregate Appraised Value of the Compression Equipment to be
transferred to the Transferee pursuant to Section 4.1 (
provided
,
however
, that the
ability of the Transferee to make such a payment may be limited in the sole
discretion of UCH, to the extent that a UCH Entity is the Transferor, or in the sole
discretion of the Conflicts Committee, to the extent that a member of the
Partnership Group is the Transferor).
(c) In the event that the Transferee cannot through the use of its commercially
reasonable efforts provide adequate consideration to the Transferor for Compression
Equipment to be transferred in any of the manners set forth in Section 4.2(b), then no
such transfer pursuant to the terms of this Article IV shall occur.
(d) Notwithstanding Section 4.2(b), if the Transferor is a member of the Partnership
Group, the Transferee shall not be entitled to take the actions contemplated by Section
4.2(b)(ii) if such action would 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. In such event, if compliance by UCH with Sections 4.2(i) or (iii) is not
commercially practicable, the Partnership and UCH shall negotiate in good faith to reach
agreement on another manner in which to reimburse the Partnership for such Compression
Equipment;
provided
, that the final terms of such reimbursement shall be approved by the
Conflicts Committee.
4.3
Appraisal
. UCH shall, at its sole cost and expense, cause an Appraisal of all Compression
Equipment then owned by the CCSB and the Partnership Group to be conducted
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and prepared (i) no
later than the end of the fiscal quarter in which the second anniversary of the Closing Date occurs
and (ii) no less frequently than every two years thereafter.
4.4
Like-Kind Exchange Treatment
. Each Party agrees to cooperate to the extent reasonably
necessary to allow the other, if the other so desires, to treat the transactions contemplated by
Section 4.1(b) as a like-kind exchange under Section 1031 of the Code, and relevant Treasury
regulations and/or under relevant state law provisions, if any. Any Party seeking such treatment
acknowledges that it has consulted or will consult with independent tax counsel regarding the
applicability and benefits/detriments of such treatment and in no way has relied upon any
representations of the other party regarding the same.
4.5
Other Sales Permitted
. Nothing otherwise set forth in this Article IV shall be deemed to
preclude any of the UCH Entities and any member of the Partnership Group from negotiating or
consummating at any time the purchase and sale of newly fabricated Compression Equipment, existing
Compression Equipment or all or any part of the DCCSB;
provided
,
however
, that such negotiations or
purchase and sale shall be conducted pursuant to the terms and procedures then mutually agreed upon
by UCH and the General Partner or the Conflicts Committee, as applicable.
4.6
Termination
. Unless this Agreement has otherwise terminated pursuant to Section 8.4, this
Article IV shall terminate on the first to occur of the following: (i) the third anniversary of
the Closing Date and (iii) a Change of Control of UCH.
ARTICLE V
NEWLY FABRICATED COMPRESSION EQUIPMENT PURCHASES
The Parties hereby acknowledge that none of the UCH Entities is under any obligation to offer
or sell to any member of the Partnership Group newly fabricated Compression Equipment and no member
of the Partnership Group is under any obligation to purchase from any of the UCH Entities newly
fabricated Compression Equipment;
provided
, that in the event that the General Partner and UCH
mutually agree to enter into, or cause their respective Affiliates to enter into, a purchase and
sale agreement for the purchase and sale of newly fabricated Compression Equipment, (i) such
purchase and sale shall be subject to the standard terms
and conditions then utilized by the UCH Entities for purchases and
sales of newly fabricated Compression Equipment and (ii)
any member of the Partnership Group shall be permitted to purchase such Compression Equipment for a
price that is not more than the Fabricated Cost of such Compression Equipment plus the Fixed Margin
Amount.
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ARTICLE VI
LICENSE
6.1
Grant of License
. Subject to the terms and conditions herein, Licensor hereby grants to
Licensees the right and license to use the Marks solely in connection with the Licensees
businesses and the services performed therewith within the United States during the term of this
Agreement.
6.2
Restrictions on Marks
. In order to ensure the quality of uses under the Marks, and to
protect the goodwill of the Marks, Licensees agree as follows:
(a) Licensees will only use the Marks in formats approved by Licensor and only in
strict association with Licensees businesses and the services performed therewith;
(b) Prior to publishing any new format or appearance of the Marks or any new
advertising or promotional materials that incorporate the Marks, Licensees shall first
provide such format, appearance or materials to Licensor for its approval. If Licensor does
not inform Licensees in writing within fourteen (14) days from the date of the receipt of
such new format, appearance, or materials that such new format, appearance, or materials is
unacceptable, then such new format, appearance or materials shall be deemed to be acceptable
and approved by Licensor. Licensor may withhold approval of any proposed changes to the
format, appearance or materials which Licensees propose to use in Licensors sole
discretion; and
(c) Licensees shall not use any other trademarks, service marks, trade names or logos
in connection with the Marks.
6.3
Ownership.
Licensor shall own all right, title and interest, including all goodwill
relating thereto, in and to the Marks, and all trademark rights embodied therein shall at all times
be solely vested in Licensor. Licensees have no right, title, interest or claim of ownership in the
Marks, except for the licenses granted in this Agreement. All use of the Marks shall inure to the
benefit of Licensor. Licensees agree that they will not attack the title of Licensor in and to the
Marks.
6.4
Confidentiality
. The Licensees shall maintain in strictest confidence all confidential or
nonpublic information or material disclosed by Licensor and in the materials supplied hereunder in
connection with the license of the Marks, whether in writing or orally and whether or not marked as
confidential. Such confidential information includes, but is not limited to, algorithms,
inventions, ideas, processes, computer system architecture and design, operator interfaces,
operational systems, technical information, technical specifications, training and instruction
manuals, and the like. In furtherance of the foregoing confidentiality obligation, Licensees shall
limit disclosure of such confidential information to those of their employees, contractors or
agents having a need to access the confidential information for the purpose of exercising rights
granted hereunder.
6.5
Estoppel
. Nothing in this Agreement shall be construed as conferring by implication,
estoppel, or otherwise upon Licensees (a) any license or other right under the
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intellectual
property rights of Licensor other than the license granted herein to the Marks as set forth
expressly herein or (b) any license rights other than those expressly granted herein.
6.6
Warranties; Disclaimers.
(a) The Licensor represents and warrants that (i) it owns and has the right to license
the Marks licensed under this Agreement and (ii) the Marks do not infringe upon the rights
of any third parties.
(b) EXCEPT FOR THE WARRANTIES AND REPRESENTATIONS DESCRIBED IN SECTION 6.6(a), LICENSOR
DISCLAIMS ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS (EXPRESS OR IMPLIED, ORAL OR
WRITTEN) WITH RESPECT TO THE SUBJECT MATTER HEREOF, OR ANY PART THEREOF, INCLUDING ANY AND
ALL IMPLIED WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS OR SUITABILITY FOR
ANY PURPOSE (WHETHER ANY LICENSEE KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS
OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF
CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING.
6.7
In the Event of Termination
. In the event of termination of this Agreement pursuant to Section 8.4 or otherwise, the
Licensees right to utilize or possess the Marks licensed under this Agreement shall automatically
cease, and concurrently with such termination of this Agreement, the Licensees shall (i) cease all
use of the Marks and shall adopt new trademarks, service marks, and trade names that are not
confusingly similar to the Marks and (ii) no later than ninety (90) days following the termination
of this Agreement, the General Partner shall have caused each of the Partnership Entities to change
its legal name so that there is no longer any reference therein to the name Universal
Compression, any name or d/b/a then used by any UCH Entity or any variation, derivation or
abbreviation thereof, and in connection therewith, the General Partner shall cause each such
Partnership Entity to make all necessary filings of certificates with the Secretary of State of the
State of Delaware and to otherwise amend its Organizational Documents by such date.
ARTICLE VII
INDEMNIFICATION
7.1
Environmental Indemnification.
(a) Subject to Section 7.3, UCH shall indemnify, defend and hold harmless the
Partnership Group from and against any environmental claims, losses and expenses (including,
without limitation, court costs and reasonable attorneys and experts fees) of any and
every kind or character, known or unknown, fixed or contingent, suffered or incurred by the
Partnership Group by reason of or arising out of:
(i) any violation of Environmental Laws associated with the ownership or
operation of the Partnership Assets; or
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(ii) any event or condition associated with ownership or operation of the
Partnership Assets (including, without limitation, the presence of Hazardous
Substances on, under, about or migrating to or from the Partnership Assets or the
disposal or release of Hazardous Substances generated by operation of the
Partnership Assets) including, without limitation, (A) the cost and expense of any
investigation, assessment, evaluation, monitoring, containment, cleanup, repair,
restoration, remediation, or other corrective action required or necessary under
Environmental Laws or to satisfy any applicable Voluntary Cleanup Program, (B) the
cost or expense of the preparation and implementation of any closure, remedial,
corrective action or other plans required or necessary under Environmental Laws or
to satisfy any applicable Voluntary Cleanup Program and (C) the cost and expense for
any environmental pre-trial, trial, or appellate legal or litigation support work;
provided
, in the case of clauses (A) and (B) such cost and expense shall not
included the costs of and associated with project management and soil and ground
water monitoring;
but only to the extent that such violation complained of under Section 7.1(a)(i) or such
events or conditions included under Section 7.1(a)(ii) occurred before the Closing Date
(collectively,
Covered Environmental Losses
).
(b) The Partnership Group shall indemnify, defend and hold harmless UCH and its
Affiliates from and against any Covered Environmental Losses suffered or incurred by UCH and
its Affiliates relating to the Partnership Assets occurring on or after the Closing Date,
except to the extent that the Partnership Group is indemnified with respect to any of such
Covered Environmental Losses under Section 7.1(a), and unless such indemnification would not
be permitted under the Partnership Agreement by reason of one of the
provisos
contained in
Section 7.7(a) of the Partnership Agreement.
(c) Except for claims for Covered Environmental Losses made before the third
anniversary of the Closing Date, which shall not terminate, all indemnification obligations
in this Section 7.1 shall terminate on the third anniversary of the Closing Date.
7.2
Additional Indemnification.
(a) In addition to and not in limitation of the indemnification provided under Section
7.1(a), subject to Section 7.3 and except as otherwise set forth in any Exhibit hereto, UCH
shall indemnify, defend and hold harmless the Partnership Group from and against any claims,
losses and expenses (including, without limitation, court costs and reasonable attorneys
and experts fees) of any and every kind or character, known or unknown, fixed or
contingent, suffered or incurred by the Partnership Group (
Other Losses
) by reason of or
arising out of:
(i) failure to convey good and defensible title to the Partnership Assets to
one or more members of the Partnership Group, and such failure render the
Partnership Group unable to use or operate the Partnership Assets in
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substantially
the same manner as they were operated by the UCH Entities immediately prior to the
Closing Date;
(ii) events and conditions associated with the Retained Assets whether
occurring before or after the Closing Date; and
(iii) all federal, state and local income tax liabilities attributable to the
operation of the Partnership Assets prior to the Closing Date, including any such
income tax liabilities of UCH that may result from the consummation of the formation
transactions for the Partnership Entities;
provided
,
however
, that in the case of clauses (i) and (ii) above, such indemnification
obligations shall terminate on the third anniversary of the Closing Date; and that in the
case of clause (iii) above, such indemnification obligations shall survive until sixty (60)
days after the termination of any applicable statute of limitations.
(b) In addition to and not in limitation of the indemnification provided under Section
7.1(b) and the Partnership Agreement and except as otherwise set forth in any Exhibit
hereto, the Partnership Group shall indemnify, defend and hold harmless UCH and its
Affiliates from and against any claims, losses and expenses (including, without limitation,
court costs and reasonable attorneys and experts fees) of any and every kind or character,
known or unknown, fixed or contingent, suffered or incurred by UCH and
its Affiliates by reason of or arising out of events and conditions associated with the
operation of the Partnership Assets and occurring on or after the Closing Date unless such
indemnification would not be permitted under the Partnership Agreement by reason of one of
the
provisos
contained in Section 7.7(a) of the Partnership Agreement.
7.3
Limitations Regarding Indemnification.
(a) The aggregate liability of UCH under
Section 7.1(a) shall not exceed $5.0 million.
(b) No claims may be made against UCH for indemnification pursuant to Sections 7.1(a)
or 7.2(a) unless the aggregate dollar amount of the Losses suffered or incurred by the
Partnership Group or the Partnership Indemnitees exceed $250,000, after such time UCH shall
be liable for the full amount of such claims, subject to the limitations of Section 7.3(a).
(c) Notwithstanding anything herein to the contrary, in no event shall UCH have any
indemnification obligations under Section 7.1(a) for claims made as a result of additions to
or modifications of Environmental Laws promulgated after the Closing Date.
7.4
Indemnification Procedures
(a) The Indemnified Party agrees that promptly after it becomes aware of facts giving
rise to a claim for indemnification under this Article VII, it will provide notice thereof
in writing to the Indemnifying Party, specifying the nature of and specific basis for such
claim;
provided
,
however
, that the Indemnified Party shall not submit claims more frequently
than once a calendar quarter (or twice in the case of the last
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calendar quarter prior to the
expiration of the applicable indemnity coverage under this Agreement).
(b) The Indemnifying Party shall have the right to control all aspects of the defense
of (and any counterclaims with respect to) any claims brought against the Indemnified Party
that are covered by the indemnification under this Article VII, including, without
limitation, the selection of counsel, determination of whether to appeal any decision of any
court and the settling of any such matter or any issues relating thereto;
provided, however,
that no such settlement shall be entered into without the consent of the Indemnified Party
(with the concurrence of the Conflicts Committee in the case of the Partnership Group)
unless it includes a full release of the Indemnified Party from such matter or issues, as
the case may be, and does not include the admission of fault, culpability or a failure to
act, by or on behalf of such Indemnified Party.
(c) The Indemnified Party agrees to cooperate fully with the Indemnifying Party, with
respect to all aspects of the defense of any claims covered by the indemnification under
this Article VII, including, without limitation, the prompt furnishing to the Indemnifying
Party of any correspondence or other notice relating thereto that the Indemnified Party may
receive, permitting the name of the Indemnified Party to be utilized in connection with such
defense, the making available to the Indemnifying Party of any files, records or other
information of the Indemnified Party
that the Indemnifying Party considers relevant to such defense and the making available
to the Indemnifying Party, at no cost to the Indemnifying Party, of any employees of the
Indemnified Party;
provided, however,
that in connection therewith the Indemnifying Party
agrees to use reasonable efforts to minimize the impact thereof on the operations of the
Indemnified Party and further agrees to endeavor to maintain the confidentiality of all
files, records and other information furnished by the Indemnified Party pursuant to this
Section 7.4. In no event shall the obligation of the Indemnified Party to cooperate with
the Indemnifying Party as set forth in the immediately preceding sentence be construed as
imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection
with the defense of any claims covered by the indemnification set forth in this Article VII;
provided, however
, that the Indemnified Party may, at its own option, cost and expense, hire
and pay for counsel in connection with any such defense. The Indemnifying Party agrees to
keep any such counsel hired by the Indemnified Party informed as to the status of any such
defense, but the Indemnifying Party shall have the right to retain sole control over such
defense.
(d) In determining the amount of any loss, cost, damage or expense for which the
Indemnified Party is entitled to indemnification under this Agreement, the gross amount of
the indemnification will be reduced by (i) any insurance proceeds realized by the
Indemnified Party and (ii) all amounts recovered by the Indemnified Party under contractual
indemnities from third Persons. The Partnership hereby agrees to use commercially
reasonable efforts to realize any applicable insurance proceeds or amounts recoverable under
such contractual indemnities.
(e) The date on which the Indemnifying Party receives notification of a claim for
indemnification shall determine whether such claim is timely made.
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ARTICLE VIII
MISCELLANEOUS
8.1
Choice of Law; Submission to Jurisdiction
. This Agreement shall be subject to and governed
by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might
refer the construction or interpretation of this Agreement to the laws of another state. Each Party
hereby submits to the jurisdiction of the state and federal courts in the State of Texas and to
venue in Texas.
8.2
Notice
. All notices, requests or consents provided for or permitted to be given pursuant
to this Agreement must be in writing and must be given by depositing same in the United States
mail, addressed to the Person to be notified, postpaid, and registered or certified with return
receipt requested or by delivering such notice in person or by telecopier or telegram to such
Party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice
given by telegram or telecopier shall be effective upon actual receipt if received during the
recipients normal business hours, or at the beginning of the recipients next business day after
receipt if not received during the recipients normal business hours. All notices to be sent to a
Party pursuant
to this Agreement shall be sent to or made at the address set forth below or at such other
address as such Party may stipulate to the other Parties in the manner provided in this Section
8.2.
For notices to any of the UCH Entities:
4444 Brittmoore Road
Houston, Texas 77041-8004
Phone: (713) 335-7000
Fax: 713-466-6720
Attention: Chief Operating Officer
For notices to any of the Partnership Entities:
4444 Brittmoore Road
Houston, Texas 77041-8004
Phone: (713) 335-7000
Fax: 713-466-6720
Attention: Chief Financial Officer
8.3
Entire Agreement
. This Agreement constitutes the entire agreement of the Parties relating
to the matters contained herein, superseding all prior contracts or agreements, whether oral or
written, relating to the matters contained herein.
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8.4
Termination
. This Agreement, other than the provisions set forth in Articles VII and VIII
hereof, shall terminate upon a Change of Control of UCO LLC, the General Partner or the
Partnership, other than any Change of Control of UCO LLC, the General Partner or the Partnership
deemed to have occurred pursuant to clause (iv) of the definition of Change of Control solely as a
result of a Change of Control of UCH.
8.5
Effect of Waiver or Consent
. No waiver or consent, express or implied, by any Party to or
of any breach or default by any Person in the performance by such Person of its obligations
hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a Party to complain of any act of any Person or to declare any
Person in default, irrespective of how long such failure continues, shall not constitute a waiver
by such Party of its rights hereunder until the applicable statute of limitations period has run.
8.6
Amendment or Modification
. This Agreement may be amended or modified from time to time
only by the written agreement of all the Parties;
provided
,
however
, that the Partnership and the
OLP may not, without the prior approval of the Conflicts Committee, agree to any amendment or
modification
of this Agreement that the General Partner determines will adversely affect the holders of
Common Units. Each such instrument shall be reduced to writing and shall be designated on its face
an Amendment or an Addendum to this Agreement.
8.7
Assignment; Third Party Beneficiaries
. Any Party shall have the right to assign its
rights under this Agreement without the consent of any other Party, but no Party shall have the
right to assign its obligations under this Agreement without the consent of the other Parties.
Subject to the limitations set forth in Section 8.14, each of the Parties hereto specifically
intends that each entity comprising the UCH Entities and each entity comprising the Partnership
Entities, as applicable, whether or not a Party to this Agreement, shall be entitled to assert
rights and remedies hereunder as third-party beneficiaries hereto with respect to those provisions
of this Agreement affording a right, benefit or privilege to any such entity.
8.8
Counterparts
. This Agreement may be executed in any number of counterparts (including
facsimile counterparts) with the same effect as if all signatory Parties had signed the same
document. All counterparts shall be construed together and shall constitute one and the same
instrument.
8.9
Severability
. If any provision of this Agreement or the application thereof to any Person
or circumstance shall be held invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provision to other Persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
8.10
Gender, Parts, Articles and Sections
. Whenever the context requires, the gender of all
words used in this Agreement shall include the masculine, feminine and neuter, and the number of
all words shall include the singular and plural. All references to Article numbers and Section
numbers refer to Articles and Sections of this Agreement.
-27-
8.11
Further Assurances
. In connection with this Agreement and all transactions contemplated
by this Agreement, each Party agrees to execute and deliver such additional documents and
instruments and to perform such additional acts as may be necessary or appropriate to effectuate,
carry out and perform all of the terms, provisions and conditions of this Agreement and all such
transactions.
8.12
Withholding or Granting of Consent
. Except as otherwise expressly provided in this
Agreement, each Party may, with respect to any consent or approval that it is entitled to grant
pursuant to this Agreement, grant or withhold such consent or approval in its sole and uncontrolled
discretion, with or without cause, and subject to such conditions as it shall deem appropriate.
8.13
Laws and Regulations
. Notwithstanding any provision of this Agreement to the contrary, no
Party shall be required to take any act, or fail to take any act, under this Agreement if the
effect thereof would be to cause such Party to be in violation of any applicable law, statute, rule
or regulation.
8.14
Negation of Rights of Limited Partners, Assignees and Third Parties
. The provisions of
this Agreement are enforceable solely by the Parties, and no shareholder, limited partner, member,
or assignee of UCH, UCI, UCO LLC, the General Partner, the Partnership, the OLP GP or the OLP or
other Person shall have the right, separate and apart from UCH, UCI, UCO LLC, the General Partner,
the Partnership, the OLP GP or the OLP, to enforce any provision of this Agreement or to compel any
Party to comply with the terms of this Agreement.
8.15
No Recourse Against Officers or Directors
. For the avoidance of doubt, the provisions of
this Agreement shall not give rise to any right of recourse against any officer or director of UCH
or any Partnership Entity.
[
Signature pages follow.
]
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IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the
Closing Date.
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UNIVERSAL COMPRESSION HOLDINGS,
INC.
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By:
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Name:
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Title:
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UNIVERSAL COMPRESSION, INC.
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By:
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Name:
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Title:
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UCI LEASING HOLDING GP LLC
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By:
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Name:
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Title:
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UCI LEASING COMPRESSOR HOLDING, L.P.
By: UCI LEASING HOLDING GP LLC,
its general partner
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By:
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Name:
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Title:
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UCO GP, LLC
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By:
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Name:
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Title:
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Signature Page Omnibus Agreement
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UCO GENERAL PARTNER, LP
By: UCO GP, LLC, its general partner
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By:
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Name:
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Title:
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UNIVERSAL COMPRESSION PARTNERS,
L.P.
By: UCO GENERAL PARTNER, LP,
its general partner
By: UCO GP, LLC, its general partner
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By:
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Name:
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Title:
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UCLP OLP GP LLC
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By:
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Name:
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Title:
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UC OPERATING PARTNERSHIP, L.P.
By: UCLP OLP GP LLC, its general partner
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By:
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Name:
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Title:
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Signature Page Omnibus Agreement
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UCLP LEASING GP LLC
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By:
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Name:
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Title:
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UCLP LEASING, L.P.
By: UCLP LEASING GP LLC, its general partner
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By:
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Name:
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Title:
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Signature Page Omnibus Agreement
Schedule 1.1
[Fixed Margin Percentage]
11.1%
Schedule 3.1(a)
[Services]
1)
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operations,
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2)
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marketing,
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3)
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maintenance and repair of Compression Equipment,
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4)
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periodic overhauls of Compression Equipment,
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5)
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inventory management,
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6)
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legal,
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7)
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accounting,
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8)
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treasury,
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9)
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insurance administration and claims processing,
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10)
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risk management,
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11)
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health, safety and environmental,
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12)
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information technology,
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13)
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human resources,
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14)
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credit,
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15)
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payroll,
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16)
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internal audit,
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17)
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taxes,
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18)
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engineering,
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19)
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facilities management,
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20)
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investor relations,
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21)
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ERP,
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22)
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training,
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23)
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executive,
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24)
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sales, and
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25)
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business development
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Schedule 3.1(b)
[Excluded Services]
1.
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Fabrication and sale of new Compression Equipment.
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Exhibit A
FORM ASSIGNMENT AND BILL OF SALE
For valuable consideration, the receipt of which is hereby acknowledged,
_________, a [place of formation] [entity type] (
Seller
) hereby SELLS, GRANTS,
ASSIGNS and TRANSFERS to _________, a [place of formation] [entity type]
(
Purchaser
), effective as of _________, 200___, good, marketable and indefeasible title to
all of Sellers right, title and interest in, to and under the Compression Equipment described on
Exhibit A
attached hereto and made a part hereof for all purposes, together with all
assets, rights and properties related to such Compression Equipment of the sort described in
Section 4.2(b) of the Omnibus Agreement (as defined below) (collectively, the
Assets
):
The Seller, in its name and in the name of its successors and assigns, hereby represents that
it has the power and authority to sell or otherwise transfer the Assets in the manner provided in
this Assignment and Bill of Sale and that the Assets are free and clear of all Liens, except for
any Liens created by Purchaser.
THE ASSETS ARE BEING SOLD WITHOUT ANY WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF FITNESS
FOR USE OR MERCHANTABILITY.
Seller does hereby bind itself, its successors and assigns, to forever warrant and defend the
title to the Assets unto Purchaser, its successors and assigns against the lawful claim or claims
of any person whomsoever claiming an interest in the Assets. Purchaser hereby assumes and agrees to
indemnify, protect, defend and hold Seller harmless from and against all of the liabilities and
obligations of every kind and nature, arising out of, in connection with or related to, the
ownership, operation, use, repair, transfer, transportation or any other activity whatsoever in
respect of the Assets on and after the date hereof.
Seller covenants and agrees to execute and deliver to Purchaser all such other additional
instruments and other documents and will do all such other acts and things as may be necessary to
fully assign to Purchaser, or its successors and assigns, all of the Assets.
All of the provisions hereof shall inure to the benefit of and be binding upon the respective
heirs, successors and assigns of Seller and Purchaser.
Terms used herein but not defined herein shall have the meanings assigned to such terms in the
Omnibus Agreement dated as of October ___, 2006 by and among Universal Compression Holdings, Inc.,
Universal Compression, Inc., UCI Leasing Holding GP LLC, UCI Compressor Holding, L.P., UCO GP, LLC,
UCO General Partner, LP, Universal Compression Partners, L.P., UCLP OLP GP LLC, UC Operating
Partnership, L.P., UCLP Leasing GP LLC and UCLP Leasing, L.P. (the
Omnibus Agreement
).
A-1
IN WITNESS WHEREOF, Seller has caused this Assignment and Bill of Sale to be executed on
_________, ___200_.
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SELLER
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[ ]
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By:
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Name:
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Title:
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BUYER
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[ ]
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By:
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Name:
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Title:
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A-2
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THE STATE OF TEXAS
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§
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§
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COUNTY OF HARRIS
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§
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BEFORE ME, the undersigned authority, on this day personally appeared _________
[name], _________ [title] of _________ [Sellers name], a
______ [place of formation] _________ [entity type], known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged to me that he
executed the same for the purpose and consideration therein expressed and on behalf of said
corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of _________, 20___.
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Notary Public in and for the State of
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My Commission Expires:
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THE STATE OF
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COUNTY OF
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BEFORE ME, the undersigned authority, on this day personally appeared _________[name],
_________[title] of _________[Sellers name], a _________[place
of formation] _________[entity type], known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed the same for the
purpose and consideration therein expressed and on behalf of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of _________, 20___.
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(S E A L)
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Notary Public in and for the State of
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A-3
Exhibit B
GAS COMPRESSOR EQUIPMENT MASTER RENTAL AGREEMENT
This Gas Compressor Equipment Master Rental Agreement with all Schedule(s),
hereinafter referred to as the (Agreement), is made between
(Lessor) and
(Lessee).
Lessor and Lessee Agree as follows:
1.
Lease.
Subject to and on the terms and conditions herein set forth in Article IV of the Omnibus
Agreement among Universal Compression Holdings, Inc., Universal Compression, Inc., UCI Leasing
Holding GP LLC, UCI Compressor Holding, L.P., UCO GP, LLC, UCO General Partner, LP, Universal
Compression Partners, L.P., UCLP OLP GP LLC, UC Operating Partnership, L.P., UCLP Leasing GP LLC
and UCLP Leasing, L.P. (the Omnibus Agreement) and herein, Lessor hereby agrees to lease to
Lessee, and Lessee hereby agrees to lease from Lessor, the personal property described as the
Equipment on the respective Equipment Lease schedule(s) executed by Lessee and Lessor from time
to time hereunder upon agreement of Lessor and Lessee. Each Schedule shall, upon execution, be
deemed to incorporate all of the provisions of this Agreement except as otherwise set forth
therein.
2.
Term and Rent.
Except as otherwise provided herein, this Agreement shall terminate on the later
to occur of (i) termination of the Omnibus Agreement and (ii) termination of the last existing
Schedule issued hereunder. Each Schedule shall set forth the term of the lease (Minimum Term)
and the number and amount of rental payments for the Equipment listed thereon, which Lessee shall
pay as set forth. If Lessee fails to pay any rental or other sum when due, Lessee also shall pay
to Lessor interest thereon from the due date thereof to the date of payment at a rate equal to the
lesser of 18% per annum or the maximum rate permitted by applicable law (Applicable Rate). All
payments by Lessee hereunder shall be payable at the office of Lessor set forth below, or at such
other place as Lessor from time to time may designate in writing. It is the intent of the parties
that each Schedule shall have a Minimum Term that is no greater than a whole or fractional month
less than 75% of the useful life of the Equipment subject to said Schedule. Notwithstanding
anything in this Agreement to the contrary, a Schedule may be terminated prior to the expiration of
its Minimum Term upon the purchase and sale or exchange between Lessor and Lessee of the Equipment
subject to said Schedule in accordance with the term of the Omnibus Agreement.
3.
Taxes.
Lessee agrees to reimburse, promptly when due, all license fees and assessments and all
sales, use, property, excise and other taxes or charges (including any interest and penalties), now
or hereafter imposed by any governmental body or agency upon the Equipment or the purchase,
ownership, possession, leasing, operation, use, or disposition thereof hereunder, or the rentals or
other payments hereunder (excluding taxes on or measured by the net income of Lessor) and prepare
and file promptly with the appropriate offices any and all tax and other similar returns required
to be filed with respect thereto (sending copies thereof to Lessor) or, if requested by Lessor,
notify Lessor of such requirement and furnish Lessor with all information required by Lessor so
that it may effect such filing.
4.
Inspection and Acceptance.
Within 48 hours after delivery of the Equipment to be leased to
Lessee under each Schedule, Lessee shall inspect the Equipment. Unless within said 48 hour period
Lessee notifies Lessor in writing to the contrary stating the details of any defects, Lessee shall
be conclusively presumed to have accepted the Equipment in its then condition. If within said 48
hour period Lessee notifies Lessor in writing of the unacceptability of the Equipment, Lessors
obligations to lease the Equipment shall cease forthwith. Upon acceptance of delivery, Lessee
assumes the care, custody, supervision and control of the Equipment and of any and all persons or
property in the vicinity of the Equipment during the time of delivery, operation and return.
Lessee acknowledges that all Equipment rented hereunder and specified in the Schedule(s) is of the
size, design and capacity selected for the operating conditions furnished to Lessor by Lessee and
is suitable for Lessees purposes. Lessee acknowledges that that Lessor is not the manufacturer or
supplier of the Equipment and any quotations or recommendations made by Lessor are based on
information supplied by Lessee and the manufacturer or supplier of the Equipment.
5.
Freight.
Lessee agrees to bear all of the cost of connecting the Equipment and of disconnecting
the Equipment prior to returning the Equipment to Lessor. Except as otherwise provided in the
Schedule, all costs of transporting the Equipment from Lessors yard to Lessees Site described on
the Schedule and of transporting the Equipment from such Site back to Lessors yard will be at the
expense of Lessee.
6.
Insurance.
Lessee shall, at Lessees sole cost and expense, maintain insurance or
Lessor-approved self-insurance in such amounts, against such risks (including, without limitation,
all risk and public liability insurance with respect to the Equipment), with such carriers and in
such form as shall be satisfactory to Lessor naming Lessee as an insured and Lessor as an
additional insured. Lessee shall provide Lessor with evidence of such insurance. The policies for
such insurance shall provide that Lessor receive thirty (30) days notice of any termination,
cancellation or alteration of the terms of such insurance, shall provide that the coverage afforded
to Lessor shall not be rescinded, impaired or invalidated by any act or neglect of lessee and shall
provide for waiver
B-1
of subrogation and contribution by Lessee and Lessees insured against Lessor and Lessors
employees and agents.
7.
Use / Lessees Responsibilities.
Lessee agrees to use the Equipment in a careful and prudent
manner with competent agents, employees or subcontractors only for the compression of gas in
accordance with the specifications of the manufacturer of the Equipment. Lessee agrees to pay for
damages to the Equipment resulting from free water, excessive condensate or foreign solids, or
impurities contained in the gas stream. Lessee further agrees to pay for all damages to the
Equipment resulting from abusive use, failure to maintain the Equipment in accordance with this
agreement or from any negligence on the part of Lessee, its agents, employees or subcontractors.
In addition to any Lessee obligations contained elsewhere in this Agreement and within any
Schedules hereto, Lessee agrees at Lessees own risk and expense to, subject to Paragraph 23, make
all repairs and replacements necessary to maintain, preserve and keep the Equipment in good order
and condition and Lessee shall:
a. Provide Lessor with authorized ingress and egress to and from the site designated in the
Schedule for installation of the Equipment (the Site). Should Lessor be denied access to the
Site for any reason not reasonably within Lessors control, any time lost by Lessor shall be paid
for by Lessee at the applicable rate. Recognizing that Lessee has superior knowledge of the Site
and access routes to the Site, Lessee must advise Lessor of any conditions or obstructions which
Lessor might encounter while en route to the Site. Lessee agrees to maintain the road and Site in
such a condition that will allow free access and movement to and from the Site in an ordinarily
equipped highway type vehicle. If because of an attribute of Lessees operations, Lessor is
required to use any specialized transportation equipment, cranes or other services and supplies,
Lessee shall furnish the same at its expense and without cost to Lessor;
b. Prepare a sound location at the Site adequate in size and capable of properly supporting
the Equipment; and
c. Immediately mitigate and repair any stoppage, malfunction or leaks of oil or coolant from
the Equipment.
8.
No Maintenance / Bare Rental.
Lessee acknowledges that Lessor is providing the Equipment as a
bare rental and, therefore, Lessor will have no maintenance or repair obligations with respect to
the Equipment.
9.
Inspection.
Lessor shall have the right at all reasonable times to enter upon the premises
where the Equipment may be located for the purpose of inspecting it or observing its use.
10.
Title; Personal Property; Encumbrances; Location.
Lessee covenants that:
a. The Equipment is and shall remain personal property and shall not be attached to or become
part of any realty;
b. The Equipment will be installed and used at the location specified in the Schedule
pertaining thereto and that it shall not be removed therefrom without the permission of Lessor;
c. That Lessee will not, except as expressly authorized in this Agreement, sell, secrete,
mortgage, assign, transfer, lease, sublet, loan part with possession of, or encumber the Equipment
or permit any liens or charges to become effective thereon or permit or attempt to do any of the
acts aforesaid. Lessee agrees, at Lessees own expense, to take such action as may be necessary to
remove any such encumbrance, lien or charge and to prevent any third party from acquiring any other
interest in the Equipment (including, without limitation, by reason of such Equipment being deemed
to be a fixture or a part of any realty); and
d. Lessee will not change or remove any insignia, serial number or lettering of the Equipment.
11.
Licenses, Permits and Compliance.
Lessee, at its sole expense, shall;
a. Comply with all applicable rules and regulations of any Federal, Provincial, State, County,
City, local, municipal or regulatory agency (hereinafter referred to as Governing Bodies)
relating to the construction or operation of the Equipment in the Location, or environmental
requirements associated therewith (including but not limited to air emission, noise and
environmental discharges); and
b. Obtain and maintain throughout the Minimum Term, or any extension thereof, any and all
licenses and/or permit fees assessed as a result of this Agreement or against said Equipment.
Lessee further agrees to defend, protect, indemnify and hold harmless Lessor from any and all
liability associated with its failure to comply with the foregoing provision.
12.
Waste Disposal.
Lessee bears responsibility for disposal of liquids, solid, and hazardous waste
discharged by the Equipment at the location in accordance with federal, state and local
environmental rules and regulations.
13.
Events of Default; Remedies; Expenses.
In the event that:
B-2
a. Lessee shall default in the payment of any installment of rent or other sum payable under
this Agreement or default in the observance or performance of any other covenant or agreement in
this Agreement and the failure to cure said default within ten (10) days after notice by Lessor; or
b. Lessee shall dissolve, or become insolvent (however evidenced) or bankrupt, commit any
act of bankruptcy, make an assignment for the benefit of creditors, suspend the transaction of its
usual business or consent to the appointment of a trustee or receiver, or a trustee or a receiver
shall be appointed for Lessee or for a substantial part of its property, or bankruptcy,
reorganization, insolvency, or similar proceedings shall be instituted by or against Lessee; or
c. an order, judgment, or decree shall be entered against Lessee by a court of competent
jurisdiction and such order, judgment or decree shall continue unpaid or unsatisfied and in effect
for any period of sixty (60) consecutive days without a stay of execution, or any execution or writ
or process shall be issues in connection with any action or proceeding against Lessee or its
property whereby the Equipment or any substantial part of Lessees property may be taken or
restrained; or
d. any indebtedness of Lessee for borrowed money shall become due and payable by acceleration
of maturity thereof;
e. Lessor shall in good faith believe that the prospect of payment or performance by Lessee is
impaired,
then and in any such event, Lessor may, by written notice to Lessee:
(1) Immediately terminate this Agreement as to any or all Schedules, at its option, and
Lessees rights thereunder; and/or
(2) Declare immediately due, and payable all rental installments and other sums hereunder
forthwith due and payable whereupon the same shall forthwith become due and payable as liquidated
damages and not as a penalty; and/or
(3) Proceed by appropriate court action or actions either at law or in equity, to enforce
performance by Lessee of the applicable covenants of this Agreement or to recover damages for the
breach thereof; and/or
(4) Without necessity of process or other legal action, enter onto the premises of Lessee or
such other premises as the Equipment may then be located and stop the operation of the Equipment
and/or take possession of the Equipment, disconnecting and separating the Equipment from any other
property and using all force necessary or permitted by applicable law, without Lessor incurring any
liability to Lessee or any other person arising out of the taking of any such action. Lessee
agrees to and shall indemnify and hold harmless Lessor from any and all claims, losses, damages,
causes of action, suits and liabilities of any kind arising in favor of Lessee, or any interest
owner that Lessee represents or serves as operator and arising out of or in connection with the
stopping of the operation of the Equipment and/or the removal of the Equipment as aforesaid,
whether same result from the forfeiture of any oil, gas or mineral lease, damage to a producing
reservoir or lease operations, lost production or other event or condition. In addition, Lessee
shall continue to be liable for all other indemnities under this Agreement and for all legal fees
and other costs and expenses resulting from the foregoing defaults or the exercise of Lessors
remedies. Lessor shall be entitled to take or retain, by way of offset against any or all amounts
due and owing under this Agreement, any assets, tangible or intangible, of Lessee which may then be
in the possession of Lessor, its correspondents or agents, wheresoever situated.
14.
Holding Over.
Unless a party gives the other party thirty (30) days advance written notice of
termination prior to the expiration of the Minimum Term specified in a Schedule, that Schedule will
continue to bind the parties on a month-to-month basis as to the Equipment, subject thereafter to
termination by either party with thirty (30) days advance written notice. Notwithstanding the
foregoing, after the expiration of the Minimum Term, Lessor may modify the rental fees and other
charges assessed under this Agreement.
15.
Indemnity of Lessor.
a. Lessee is responsible and liable for loss of or damage to Equipment arising between the
time of delivery and redelivery of the Equipment and Lessee shall protect, defend, indemnify and
hold Lessor harmless from and against any such loss or damage, however arising, including but not
limited to, improper operation, improper maintenance (unless Lessor performs maintenance),
negligent acts of Lessee, compression of dirty or wet gas, fire, freezing, theft, windstorm,
hailstorm, flood, riot, insurrection or explosion, except to the extent such loss or damage arises
directly as a result of the negligence of Lessor.
b. Lessee shall protect, defend, indemnify and hold Lessor harmless from and against any loss,
damage, liability, suit, expense, cost or claim, however occurring as the result of loss of or
damage to property (other than the Equipment), arising between the time of delivery and redelivery
of the Equipment, whether such property is owned by Lessee or third party, and for injury to or
death of persons, whether Lessee or its employees or third parties.
B-3
16.
Savings Clause.
The parties agree that the indemnities in this Agreement are limited to the
extent necessary to comply with applicable state or federal law and that this Agreement shall be
deemed to be amended to comply with those laws to the extent their requirements are at variance
with any indemnification provisions set forth in this Agreement.
17.
Limitation of Liability.
In no event shall Lessor, its agents and employees (for purposes of
this Paragraph 17, such persons shall collectively be referred to as Lessor) be liable to Lessee,
for any general, compensatory, special indirect, incidental or consequential damages related to or
in connection with the use and operation of the Equipment and/or the performance of this Agreement,
including but not limited to any injury, loss or damage to any property, any loss of profits or
business opportunity, and any loss of use of the Equipment, irrespective of the reason or cause of
such damages, whether any of such damages occur during or after the period of this Agreement, or
that the claim for such damages is based on warranty, contract, tort or other theory of any nature
whatsoever.
18.
Assignment By Lessor.
Lessor may assign its rights and delegate its duties under this
Agreement. Lessor covenants to Lessee that Lessor is empowered to execute this Agreement.
Conditioned upon Lessees performing the conditions hereof, Lessee shall peaceably and quietly
hold, possess and use the Equipment during the Minimum Term and any extensions thereof without
hindrance. If Lessor assigns the rents reserved herein or all or any of Lessors rights hereunder,
such assignees rights shall be independent of any claim of Lessee against Lessor. Lessee on
receiving notice of any such assignment shall abide thereby and make payment as may therein be
directed. Following such assignment, the term Lessor shall be deemed to include or refer to
Lessors assignee, except such assignees rights shall be independent of any claim of Lessee
against Lessor as hereinabove provided.
19.
Assignment and Subleasing by Lessee.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS PARAGRAPH
19, LESSEE SHALL NOT, WITHOUT THE PRIOR CONSENT OF LESSOR, ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS,
INTERESTS OR OBLIGATIONS UNDER THIS AGREEMENT. ANY ATTEMPTED ASSIGNMENT, TRANSFER OR ENCUMBRANCE
BY LESSEE OF ITS RIGHTS, INTERESTS OR OBLIGATIONS UNDER THIS AGREEMENT SHALL BE NULL AND VOID. So
long as no material event of default shall have occurred and be continuing, Lessee may, without the
consent of Lessor, sublease one or more of the Equipment to any third party (each third part a
User and each such lease a User Lease), provided that all of the following requirements shall
be satisfied with respect to each such User Lease entered into pursuant to this Paragraph 19:
a. the Equipment is and will remain physically located within the United States;
b. such User Lease shall be in writing, shall identify the Equipment by unit number, engine,
frame and number of cylinders and shall expressly prohibit any further sublease or transfer by User
of any rights or interests in the Equipment without Lessees permission;
c. such User Lease shall prohibit the User from making any alterations or modifications to the
Compressors that would violate the provisions of Paragraph 23 of this Agreement; and
d. such User Lease shall require the User (and/or Lessee) (i) to maintain the Equipment in
accordance with Paragraph 7 and the relevant Schedule and (ii) to engage in activities with the
Equipment in a manner consistent with the Equipments intended purpose and in accordance with the
Equipments specifications.
No such subleasing by Lessee will reduce or affect any of the obligations of Lessee hereunder
or the rights of Lessor under this Agreement, and all of the obligations of Lessee hereunder shall
be and remain primary and shall continue in full force and effect as the obligations of a principal
and not of a guarantor or surety.
20.
No Lessor Equipment Warranties.
LESSOR LEASES THE EQUIPMENT TO LESSEE AS-IS AND EXPRESSLY
DISCLAIMS AND MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION, DESIGN, QUALITY,
CAPACITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF, OR ANY OTHER MATTER, CONCERNING
THE EQUIPMENT. LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE
LIABILITY IN TORT) IT MAY HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSES CAUSED BY OR RELATING TO THE EQUIPMENT.
21.
Enforceability.
If any part hereof is contrary to, prohibited by or deemed invalid under
applicable laws or regulations of any jurisdiction, such provision shall be inapplicable and deemed
omitted but shall not invalidate the remaining provisions hereof.
22.
No Conditional Sale.
It is the intention of the parties hereto to hereby create a lease on the
Equipment described herein, and not a conditional sale. To provide solely for the eventuality that
a court might hold this to be a conditional sale, Lessor hereby retains a purchase money security
interest to secure payment of the sales price of the Equipment as determined by such court, and
Lessee grants to Lessor all rights given to a secured party under the Uniform Commercial Code in
addition to Lessors other rights hereunder. It is the intention of the
B-4
parties that the Equipment shall be deemed personal property and that it not be deemed a fixture,
even though it may be attached in some manner to realty. To provide solely for the eventuality
that a court might also hold the Equipment to be a fixture, the parties state for the purpose of
complying with the legal requirements for a financing statement that collateral is or includes
fixtures and the Equipment is affixed or is to be affixed to the lands described in the
Schedule(s).
23.
Alterations.
a. Except as required or permitted by this Agreement, and subject to this Paragraph 23, Lessee
shall not modify or alter the Equipment without the prior approval of Lessor.
b. In case the Equipment (or any part or component thereof) is required to be altered, added
to, replaced or modified in order to comply with applicable law (any such alteration, additional
replacement or modification, a Required Alteration), Lessee agrees to promptly make (or cause to
be made) such Required Alteration at its own expense. Thereupon, title to such Required Alteration
shall, without further act, immediately become the property of Lessor, free and clear of all liens
and such Required Alteration shall immediately become subject to the terms and conditions of this
Agreement.
c. Lessee may make any optional renovation, improvement, addition, or alteration to the
Equipment (Optional Alteration) provided that such Optional Alteration does not impair the value,
use or remaining useful life of such Equipment. In the event an Optional Alteration is readily
removable without impairing the value, use or remaining useful life of the Equipment, and is not a
part or appliance which replaces any part or appliance originally incorporated or installed in or
attached to such Equipment on the effective date of the relevant Schedule, Lessee may (or, if
requested by Lessor shall) remove such Optional Alteration whereupon such Optional Alteration will
remain the property of Lessee. To the extent such Optional Alteration is not readily removable
without impairing the value, use or remaining useful life of the Equipment to which such Optional
Alteration has been made, or is a part or appliance which replaces any part or appliance originally
incorporated or installed in or attached to such Equipment on the effective date of the relevant
Schedule, such Optional Alteration shall, without further act, immediately be and become the
property of, and title shall vest in, Lessor, free and clear of all liens and shall be subject to
the terms of this Agreement. Any parts installed or replacements made by Lessee upon the Equipment
pursuant to its obligation to maintain and keep the Equipments in the condition required pursuant
to the terms of this Agreement shall be considered accessions to such Equipment and ownership
thereof shall be immediately vested in Lessor.
24.
Miscellaneous.
a. No covenant or condition of this Agreement can be waived or changed except by the written
consent of both parties. Forbearance or indulgence by Lessor in any regard whatsoever shall not
constitute a waiver or change of the covenant or condition to be performed by Lessee to which the
same may apply, and until complete performance by Lessee of said covenant or condition, Lessor
shall be entitled to invoke any remedy available to Lessor under this Agreement or by law or equity
despite said forbearance or indulgence. Waiver of any defaults shall not waive any other default.
b. Service of all notices under this Agreement shall be sufficient if mailed to the party
involved at its respective address set forth below, or at such address as such party may provide in
writing. Any such notices mailed to such address shall be effective when deposited in the United
States mail, duly addressed and with postage prepaid.
c. Lessor and Lessee as used in this Agreement shall include the heirs, executors,
administrators, successors, sub-lessees and/or assigns of such parties.
d. If more than one Lessee executes this Agreement, their obligations under this Agreement
shall be joint and several.
e. Lessee will, if requested by Lessor, join with Lessor in executing one or more financing
statements, as may be desired by Lessor, in form satisfactory to Lessor.
f. In case of conflict between provisions found in this Agreement and those listed in the
Schedule(s) hereto, the provisions on the Schedule(s) shall prevail.
g. The law governing this Agreement shall be that of the State of Texas in force at the date
of this Agreement, excepting any conflict of laws provisions that provide for the application of
the laws of another jurisdiction.
h. Lessor and Lessee agree that venue of any lawsuit arising from or in connection with the
terms of this Agreement shall be in Houston, Harris County, Texas.
i. This Agreement contains the full agreement between the parties. No representation or
promise has been made by either party to the other as an inducement to enter into this Agreement.
Lessor does not in any way or for any purpose become partner of Lessee, or a joint venture, or a
member of a joint enterprise with Lessee.
B-5
j. Lessee hereby waives its right to receive a copy of any financing statement or financing
change statement registered by Lessor in connection with this Agreement.
k. Lessor and Lessee hereby agree that no rights or remedies referred to in Article 2A of the
Uniform Commercial Code shall be conferred upon either Lessor or Lessee unless expressly granted in
this Agreement..
l. If Lessee at any time shall fail to pay any sum which Lessee is required by this Agreement
to pay or shall fail to do or perform any other act Lessee is required by this Agreement to do or
perform, Lessor at its option may pay such sum or do or perform such act (or have it performed by a
third party), and Lessee shall reimburse Lessor on demand for the amount of such payment and for
the cost and expenses which may be incurred by Lessor for such acts or performance, together with
interest thereon at the Applicable Rate from the date of demand until paid.
m. This Agreement is based on the applicable laws existing at the time of its execution. Any
changes, including changes in governmental enforcement practices, revisions or new applicable laws,
including without limitation those related to taxes, permits, fees and duties, that have the effect
of increasing Lessors burden, including but not limited to cost, time-consumption and risk
exposure, shall entitle Lessor to fair and equitable Agreement modifications, which modifications
the parties agree to work toward in good faith and in a timely fashion, failing which Lessor may
terminate this Agreement or any Schedule(s) hereunder immediately upon written notice to Lessee.
Executed this day of , 200 .
LESSOR
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B-6
SCHEDULE A TO GAS COMPRESSOR EQUIPMENT MASTER RENTAL AGREEMENT
(
BARE RENTAL
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Lessee:
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Date:
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Attention:
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Quote #
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In accordance with your request, we are pleased to offer the herein described compression equipment
for your application on the ___lease in ___(detail, to the extent
available, section, township, range, county/parish, state and country) (Site). This unit is
capable of the following estimated performance.
Actual field operating conditions can cause actual
compressor capacities to vary.
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Unit #
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Engine
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SUCTION PRESSURE
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PSIG
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DISCHARGE PRESSURE
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PSIG
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COMPRESSOR
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BHP
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OPERATING
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RPM
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INTAKE TEMPERATURE
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°
F
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SPECIFIC
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GRAVITY
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ALTITUDE
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FT
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H
2
S
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Process Gas
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(PPM)
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*
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H
2
S
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Fuel Gas
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(PPM)
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**
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AMBIENT
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TEMP.
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°
F
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*
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H
2
S process gas content equal to or greater than 100 PPM triggers the
applicability of Lessors High H
2
S Process Gas Content Schedule.
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**
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H
2
S fuel gas content limits are addressed on Page 2 of this Schedule.
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Delivery can be made to Site in ___ weeks from date of execution of
this Schedule but is subject to prior sale or rental and credit approval.
RENTAL RATE
is ___
[The Rental Rate will be determined based on the Appraised
Value (as defined in the Omnibus Agreement) of the Equipment in accordance with
the following formula: $4.76 per leased horsepower per month]
per month, plus
taxes, for a minimum of ___ months guaranteed (Minimum Term). (This quote
is valid for a period of 30 days. Please check with Lessor prior to ordering
after 30 days has expired.)
[The Minimum Term will match the term of the
underlying customer contract under which the Equipment will be employed.]
The rental
rate shall be payable monthly in
advance
at
s (Lessor)
Houston office
,
commencing from the date of shipment or 15 days after unit is
ready, whichever occurs first. Upon expiration of the Minimum Term, the rental
shall continue from month to month. Either party may terminate this agreement
at the expiration of the Minimum Term or thereafter upon thirty (30) days
advanced
written notice
. Lessors obligation to provide the Equipment shall
cease upon the effective date of termination, but the Rental Rate shall
continue to be assessed until the later of expiration of such thirty (30) days
or return of the Equipment to designated terminal, in good condition, normal
wear and tear excepted.
When executed by Lessor and Lessee, this Schedule A shall apply to the GAS COMPRESSOR EQUIPMENT
MASTER RENTAL AGREEMENT (or equivalent master agreement) executed by Lessee and Lessor (or their
respective predecessors or affiliates) and dated as shown below (the Master Agreement) whether or
not attached hereto, and shall be deemed an individual agreement between the parties hereto for the
Equipment described herein, upon the terms and conditions stated herein and in the Master
Agreement. Unless otherwise defined herein, terms have the meanings set forth in the Master
Agreement.
Master Agreement Date:
Exceptions or adders to the terms and conditions in this agreement are as follows:
B-7
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Freight Charges To Site From
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Paid for by
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Freight Charges From Site To
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Paid for by
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Quote #:
LESSORS AND LESSEES RESPONSIBILITIES
Lessor
In addition to the responsibilities detailed in the Master Agreement, Lessor shall furnish the following:
Equipment described on Page 1 of this Schedule A.
At Lessors option, semi-annual maintenance inspections of Equipment by Lessor
and invoiced to Lessee at Lessors then-prevailing standard rates.
Lessee
In addition to the responsibilities detailed in the Master Agreement, Lessee shall furnish the
following:
Preventive maintenance, inspections and repairs to all engines, compressors and accessory parts forming the
Equipment (both labor and necessary parts), including without limitation:
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Major overhauls of the engine, including without limitation the cylinder heads;
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Major overhauls on the compressor, including without limitation repair or replacement of major castings on
the compressor frame and cylinders;
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All normal wear items, including compressor packing, rings and valves;
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Engine ignition system, including spark plugs, wiring harnesses and magnetos;
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Engine starters, carburetors, turbochargers, fuel gas system, water pump, compressor lubricator system and
any other equipment that is externally mounted on the engine;
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Repair and maintenance of the control panel and associated shutdown switches and fusible plugs, including
without limitation any other controls in the panel, all tubing, fittings and devices associated with the
instrumentation system and fire loop system;
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Scrubber controls, tubing and fittings;
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All relief valves, manual valves, actuated valves and controllers;
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Maintenance of the fin fan cooler, including replacement or repair of bearings and fan blades;
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Monthly adjustments on the engine and compressor per Lessors guidelines;
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Anti-freeze in accordance with Lessors requirements;
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Lubricants and related filters in accordance with Lessors requirements; and
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Daily inspections/monitoring.
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Competent and prudent Equipment operator for normal operations.
All fees, assessments and taxes (including ad valorem, which will not be prorated) applicable to Equipment.
Provide an inlet separator for the Equipment to remove solids (such as sand) and all entrained liquids from the gas
stream; Lessee hereby acknowledging that the scrubber provided by Lessor with the Equipment is only an emergency
scrubber.
Site preparation, including suitable sand or gravel pad or concrete base as required.
Valves and piping to suction and discharge flanges, and fuel gas inlet(s) of compressor(s).
Suction to discharge bypass piping and suction pressure control valve (if required).
All installation expenses.
Suitable, sweet, dry natural gas fuel for engine use with 900 to 1100 BTU/ft3 and no more than 10 ppm H
2
S.
Air/gas pressure of with sufficient pressure and volume for engine starting.
Provide, connect and maintain a properly functioning waste discharge system downstream of the Equipment, including
an outlet connection from the skid drain and all pipes, connections, the blow casing and tank downstream of the skid
drain; and remove and dispose of all fluids discharged by the discharge tank, the blow casing and any pipes or
connections to the skid plus collection and disposal of such liquids from the Equipments skid and any other liquids
incidental to Equipment operations.
Equipment Site with ingress and egress satisfactory to Lessor.
Disconnection of Equipment and Site restoration expenses.
Site fencing, if requested by Lessor.
Any and all necessary equipment, supplies and services not specifically listed as Lessors responsibility, above.
The following responsibilities apply when Site is offshore or in inland waterways:
Suitable platform or barge capable of supporting the Equipment.
All
transportation (including air and water) and cranes necessary for delivery, installation, maintenance, repair and
removal of the Equipment.
B-8
All transportation (including air and water) for Lessor personnel, parts, tools and supplies.
Cost for any standby time in excess of 4 hours that is beyond the direct control of Lessor (including due to
inclement weather that, in the sole but reasonable discretion of Lessor impedes safe travel).
Quote #:
Third party services or materials not listed above as Lessors responsibility that are
furnished by Lessor at Lessees request will be charged to Lessee at Lessors actual cost plus 20%.
Lessors services or materials not listed above as Lessors responsibility that are furnished
by Lessor at Lessees request will be charged to Lessee at Lessors then-prevailing standard rates.
ACKNOWLEDGED and ACCEPTED
by the undersigned, duly-authorized representatives of the parties
as of the date first shown above.
LESSOR
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Return original and all correspondence to
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LESSEE
:
B-9